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A Look at the CDI Peru – Chile

A Look at the CDI Peru – Chile

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On January 1, 2004, the Agreement to Avoid Double Taxation between Peru and Chile and to Prevent Tax Evasion on Income and Wealth Taxes (CDI) entered into force.

In Article 2 of the CDI between Peru and Chile, it is indicated that the current taxes to which the said Agreement to Avoid International Double Taxation applies are:

  • In the case of Peru, the taxes established in the LIR, according to SUNAT.
  • In the case of Chile, the taxes established in the Income Tax Law, according to the Internal Revenue Service – SII.
  • Like the other IDCs signed by Peru, the IDC with Chile follows the OECD guidelines, with certain differences, the most significant of which are noted below.


Article 4(3) of the ILC between Peru and Chile states that if there is a problem of dual residence of a legal entity, the way to resolve it is to consider it as resident only in the State of which it is a national.

According to subparagraph (II) of Article 3(i) of the ILC concluded with Chile, the term “national” means any legal entity constituted or established under the law of a Contracting State, that is, one that is based on the place of incorporation of the legal entity in order to be considered a national of that State.

In the event that it is a national of both States, or neither of them is a national, or it cannot be determined, the ILC establishes that the States shall endeavour to resolve the case by means of a procedure of common agreement.

If no such agreement is reached, the legal entity will not be able to take advantage of the benefits of the CDI and therefore there will be double taxation in Chile. This implies that if no common agreement is reached between Peru and Chile regarding the residence of a given legal entity, the methods for solving the double taxation cannot be applied, as we will see below, nor can the reduced rates in the country of origin be applied with respect to the passive income provided for in the CDI.

Permanent Establishment

Firstly, with regard to construction or installation works or projects, CDI Peru – Chile also incorporates the assembly activity, as well as the supervision activities. Likewise, the term to be considered as a permanent establishment is 6 months.

Secondly, a new case of temporary Permanent Establishment is incorporated, usually known as Permanent Establishment by Services.

Thus, paragraph 3(b) of Article 5 of the CDI Peru-Chile states that the term “permanent establishment” also includes the provision of services, including consulting services, by a company of a Contracting State through employees or other persons entrusted by such company for that purpose, but only if such activities continue for a period exceeding 183 days in any 12-month period. This assumption is very important, because we are particularly faced with cases of exports of services.

Thus, under this assumption, an export of services can give rise to a Permanent Establishment simply by taking into account the duration, without the need for a fixed place of business or a dependent agent, provided that the service is carried out by workers entrusted for such purpose by the company.

Additionally, it should be considered that paragraph 3(c) of Article 5 of the CDI Peru – Chile provides that, for purposes of calculating the 6 months in the case of construction works or projects, or the 183 days in the case of the provision of services, the activities carried out by related companies must be included, provided that such activities are identical or substantially similar to those of the company, as well as if they are carried out in connection with the same work or project or provision of services.

Services and software licences

The payment of services of different nature to a company domiciled in Chile will not suffer any withholding of the source, since the Chilean company will pay its income tax in its jurisdiction; this does not apply to the payment of software licenses or applications, where the benefit of the CDI is a shared taxation, so the Peruvian company in these cases must withhold 15% for the concept of non-domiciled income tax, being the annual rate of IR in Peru 29.5 %.


A shared taxation rule is established in both Contracting States for the distribution of dividends; however, a maximum limit is set when dividends are paid by one Contracting State to a beneficial owner in the other Contracting State. In this case, the CDI Peru – Chile establishes limits to the tax rates of 10%, when the beneficial owner is a company (other than a partnership) that directly holds at least 25% of the voting shares of the Peruvian resident company that pays the dividends, while, for the other cases, the limit is 15%.


In the case of interest, Article 11 also establishes a rule of shared taxation, setting a maximum rate in the country from which the interest comes (country of the source), in the case of CDI Peru – Chile, this limit is 15%.


The CDI Peru – Chile establishes a shared taxation rule for both the State of residence and the State of the source; however, it limits the tax rate to 15%.

Furthermore, according to paragraph 3 of Article 12 of the CDI Peru – Chile, the term “royalties” also includes payments for the use or right to use industrial, commercial or scientific equipment.

It should be noted that in order to enjoy the benefits of the CDI Peru – Chile, a Certificate of Residence is required, for which the corresponding procedure must be carried out before SUNAT, without which the CDI cannot be applied and the general regime must be applied.

In the Peruvian case, the requirement to have a Residence Certificate in order to be eligible for the benefits of the CDI is set forth in Supreme Decree No. 090-2008-EF. In accordance with such regulation, Residence Certificates issued by competent entities in other countries are valid for 4 months as from their issuance, so in order to be eligible for the benefits of a CDI, it must be submitted within such term. Otherwise, Article 2 of the Supreme Decree states that the benefits of the CDI should not be considered. This criterion has also been ratified by SUNAT in Reports No. 012-2014-SUNAT/4B0000 and 094-2015-SUNAT/5D0000.

Source: TPC Group

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