Foreign companies looking to sell their products or solutions into Chile tend to favor doing so (at least initially) without incorporating a company. From a business perspective, it makes sense since companies want to limit risk and expenses when opening new markets. The way to do so previously was to find an agent, distributor or another established company that could represent the company in Chile.
What many companies do not realize is that these relationships can sometimes lead to a permanent establishment (PE). If a foreign entity is found to hold PE in Chile, they will be subject to the same taxes as Chilean taxpayers.
New Scope of Permanent Establishment.
Generally speaking, the Chilean Income Tax Law does not have a definition of "permanent establishment". Article 58 N° 1, only gives examples of what may be considered as PE for Chilean tax purposes describing them as branches, offices, agents or representatives.
As there is no legal definition, the Chilean IRS has issued several rulings over the years regarding this matter, in which it consistently defines "permanent establishment" as an extension of the foreign principal entity in Chile through the establishment of an office or agent that undertakes and develops a formal activity and that assumes the representation of the foreign entity with the power to conclude business in its name.
Last month, a Circular from the IRS has broadened the concept as stated above. It previously only included individuals with a mandate to conclude or close business. Now it also includes those with powers to carry out all due activities to conclude business, not necessarily just having powers to close business and sign on behalf of the foreign company. As stated above "leading the role to conclude business" would be enough to be considered a PE, according to this new interpretation by the Tax Office.
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