US-Chile tax treaty: What Americans in Chile need to know in 2026

The US-Chile income tax treaty entered into force on December 19, 2023 – the first new bilateral tax treaty the US has ratified in over a decade. The Chile–United States income tax treaty is now in force for tax year 2025, with withholding provisions effective since February 1, 2024.

All other provisions apply to taxable periods beginning on or after January 1, 2024.

For the first time, US persons in Chile can claim reduced withholding rates and treaty-based protections that were unavailable before the treaty took effect.

Here is a quick summary of the key treaty rates:

 

The rest of this article breaks down who qualifies, how each provision works, and how to claim treaty benefits on your US return.

Treaty background and entry into force

The US-Chile income tax treaty entered into force on December 19, 2023 – not in 2024, as some sources state. The US Senate approved the treaty by a 95–2 vote on June 22, 2023, and President Biden signed the instrument of ratification that December.

Chile's Congress had already ratified the treaty back in September 2015. The remaining step was for the Chilean Congress to approve the reservations the US Senate added in 2023, which it did on November 15, 2023, clearing the way for the treaty to enter into force the following month.

The US-Chile treaty is notable because Chile had long been one of the largest economies in Latin America without a US income tax treaty, leaving expats exposed to double taxation for decades. The treaty was originally signed on February 4, 2010, but spent over 13 years in ratification limbo.

The treaty is based on the 2006 US Model Treaty – not the OECD Model Convention, though the two frameworks share a common structure.

It includes a Protocol with additional rules and an exchange of notes providing interpretive guidance, both of which modify the main treaty text in important ways.

Chile's tax treaties landscape changed fundamentally with this convention. It is only the second US comprehensive income tax treaty in force with a South American country, after Venezuela.

For withholding taxes at source, the treaty applies to amounts paid or credited on or after February 1, 2024. For all other taxes, it applies to taxable periods beginning on or after January 1, 2024 – meaning tax year 2025 returns filed in 2026 are fully covered.

Who qualifies as a resident under the treaty?

To access treaty benefits, a person must be a resident of one or both contracting states – meaning they are subject to tax in that country based on domicile, residence, place of management, or similar criteria.

For US citizens, the treaty residency question has a clear answer: the US taxes its citizens on worldwide income regardless of where they live, so a US citizen is always a US resident for treaty purposes.

If you are a resident of both countries – for example, a US citizen who also qualifies as a Chilean tax resident – the treaty provides tie-breaker rules to determine your primary residency:

• Permanent home. The country where you maintain a permanent home available to you. If you have one in both countries, the tie-breaker moves to the next test.
• Center of vital interests. The country where your personal and economic relations are closer – family, job, investments, social activities.
• Habitual abode. If vital interests are split, the country where you spend more time.
• Nationality. If habitual abode doesn't resolve it, citizenship determines residency.

If none of these tests resolve the question, the competent authorities of the US and Chile must settle it by mutual agreement.

If you are a US citizen living in Chile, the saving clause means the US retains the right to tax you as if the treaty did not exist – with specific exceptions. The next section explains what the saving clause does and which treaty articles survive it.

See our TFX guide to dual-status alien filing for how residency changes affect your return.

The saving clause and its exceptions for US expats

The saving clause in the Chile-US tax treaty allows the United States to tax its citizens and residents as if the treaty had never been signed – but several important exceptions protect individual expats.

Understanding which treaty articles survive the saving clause is the single most important step for a US expat in Chile claiming treaty benefits. The exceptions determine whether a specific provision actually reduces your US tax bill or only affects how Chile taxes you.

The following treaty protections generally survive the saving clause:

• Relief from double taxation. The foreign tax credit article – allowing you to credit Chilean taxes paid against your US liability – remains available regardless of the saving clause.
• Non-discrimination. Chile cannot impose higher taxes on US nationals than it imposes on its own nationals in comparable circumstances, and vice versa.
• Pension and retirement provisions. Specific treaty rules on pension income apply even through the saving clause, potentially limiting which country has primary taxing rights.
• Competent authority relief. If you are taxed by both countries in a way that violates the treaty, you can request the competent authorities to resolve the dispute regardless of the saving clause.

The practical effect for most US expats in Chile: the treaty does not reduce the amount of US tax you owe on your worldwide income.

What it does is reduce Chilean withholding on cross-border payments and provide a formal credit mechanism to prevent double taxation.

US expats who also owe Chilean taxes should understand how the foreign tax credit and FEIE interact before choosing a method for their return.

FREE

Not sure whether the US-Chile treaty saves you money or creates new filing steps?

Talk to us.

Schedule my free call

Withholding tax rates on dividends, interest, and royalties

The US-Chile treaty establishes maximum withholding tax rates at source that are lower than Chile's statutory rates, directly reducing the tax on cross-border passive income.

Even a small reduction in withholding rates on royalties or interest can translate into thousands of dollars in annual savings for US businesses and investors operating in Chile.

Summary of treaty withholding rates for tax year 2025:

 

Note on Chilean dividends: the treaty Protocol makes the standard 15%/5% dividend rates effectively inapplicable to dividends paid by Chilean companies, while Chile's First Category Tax of 27% remains fully creditable against the Additional Tax.

The combined effective rate on Chilean-source dividends for US shareholders remains approximately 35%. This matters primarily for US investors receiving dividends from Chilean corporations.

Dividend withholding: Rates for direct investors vs. portfolio investors

The treaty distinguishes between direct investors – typically companies holding a significant ownership stake – and portfolio investors, applying a lower withholding rate to qualifying direct investors.

The reduced 5% rate applies when the beneficial owner is a company holding directly at least 10% of the voting power of the company paying the dividend. All other dividend payments, including those to individual investors, fall under the 15% portfolio rate.

Individual US expats receiving Chilean dividends generally fall under the 15% portfolio investor rate. Dividends paid by a regulated investment company or a real estate investment trust are not eligible for the 5% rate under any circumstances.

 

 

Interest income taxation under the treaty

Interest paid from Chile to a US resident is subject to a maximum withholding rate of 15% during the first five years after the interest provisions entered into force – through approximately February 2029. After that, the rate drops to 10%.

Certain interest payments qualify for an even lower 4% rate under Article 11 of the treaty. This applies when the recipient is a bank, an insurance company, certain lending or finance-business enterprises, or an enterprise that sold the underlying equipment on credit.

The 4% rate does not apply to back-to-back loan arrangements.

US expats holding Chilean bank accounts or bonds should verify whether their interest income qualifies for the reduced treaty rate before filing. The treaty rate only applies if the recipient is the beneficial owner of the interest and provides proper documentation to the Chilean payer.

See our guide to Form 1099-INT and interest income for how to report foreign interest on your US return.

Royalty payments and intellectual property under the treaty

The royalties article of the US-Chile treaty caps the withholding tax that Chile may impose on royalties paid to US residents for the use of intellectual property.

Two rates apply depending on the type of royalty:

• 2% – for payments for the use of industrial, commercial, or scientific equipment
• 10% – for payments for the use of copyrights, patents, trademarks, software, designs, secret formulas, or know-how

US recipients must still report gross royalty income on their US return while claiming a foreign tax credit for any Chilean tax withheld.

The treaty definition of royalties is broad and covers software licensing – relevant for US freelancers and IP owners licensing work to Chilean entities.

Permanent establishment rules and what they mean for US businesses

The permanent establishment article defines the threshold at which a US business becomes taxable in Chile – and getting this wrong can expose a company to unexpected Chilean corporate tax.

A US freelancer or remote worker in Chile may inadvertently create a PE for their US employer if they habitually conclude contracts on the employer's behalf. The following triggers can create a permanent establishment under the treaty:

• Fixed place of business. An office, branch, factory, workshop, or other fixed location through which the business is conducted in Chile.
• Construction or installation projects. A building site, construction or installation project (or a drilling rig or ship used for offshore resource exploration) becomes a permanent establishment if it lasts more than 6 months, per Article 5(3) of the US-Chile tax treaty. On-land natural-resource exploration installations follow a separate rule and become a permanent establishment if they last more than 3 months.
• Dependent agents. A person acting in Chile on behalf of the US enterprise who habitually exercises authority to conclude contracts in the enterprise's name.
• Service PE. An enterprise that furnishes services in Chile through employees or other personnel present in Chile for an aggregate period exceeding the treaty threshold in any 12-month period.

The treaty also includes special provisions for natural resource exploration and extraction activities.

US businesses with employees working remotely from Chile should evaluate PE risk carefully – particularly where the employee has authority to bind the company.

Living in Chile? Let our expat tax specialists handle your 2025 US return.

Get started

Capital gains treatment under the US-Chile treaty

The capital gains article of the US-Chile treaty allocates taxing rights over gains from the sale of property, shares, and other assets between the two countries.

US expats selling Chilean real estate or shares in Chilean companies must analyze both the treaty capital gains article and the US home-sale exclusion rules before closing.

The key rules break down as follows:

• Real property in Chile. Gains from the sale of real property situated in Chile may be taxed by Chile, regardless of the seller's residency. The US also taxes the gain, but the foreign tax credit offsets Chilean tax paid.
• Shares in Chilean companies. Gains on shares or equity interests are generally subject to a maximum 16% Chilean withholding rate under the treaty. Substantial holdings – 50%+ of shares, or 20%+ of other equity interests – are taxed at Chile's full rate instead.
• Publicly traded shares. Gains from shares of a Chilean company that is substantially and regularly traded on a recognized stock exchange in Chile are generally exempt from Chilean tax and taxable only in the seller's country of residence, provided the shares were also bought and sold on that exchange or through a qualifying public offering.
• Real-property-holding companies. If a Chilean company derives more than 50% of its value from real property, gains on its shares follow the real property rules.

The US Section 121 home-sale exclusion – up to $250,000 for single filers, $500,000 for married filing jointly – applies to a foreign primary residence if you meet the ownership and use tests. This exclusion works independently of the treaty.

See our TFX guide to capital gains tax on foreign property for the full US reporting requirements.

Pension and retirement income: How the treaty protects your savings

The US-Chile treaty includes provisions addressing the taxation of pensions, annuities, and social security payments – particularly important for US retirees living in Chile and Chilean nationals who worked in the United States.

The treaty generally grants primary taxing rights over private pensions to the country of residence.

If you are a US citizen retired in Chile receiving a US private pension, the saving clause lets the US tax that income in full, as if the treaty did not exist. Chile, as your country of residence, may also tax the pension under its own domestic law; the treaty places no limit on Chile's taxing rights in this case. The foreign tax credit is what prevents you from being taxed twice on the same income.

Government pensions follow a different rule: pensions paid for services rendered to a government are generally taxable only by the paying country. A retired US government employee living in Chile would still owe US tax on the government pension, and Chile would generally not tax it.

The US and Chile have a social security totalization agreement, in force since December 1, 2001. The totalization agreement is a separate instrument from the income tax treaty and is administered by the Social Security Administration. It covers two areas:

• Eliminating dual contributions. If you are covered under one country's social security system, you are exempt from contributions to the other.
• Combining work credits. Workers can combine credits earned in both countries to meet the eligibility thresholds for benefits in either system.

 

 

Foreign earned income exclusion vs. foreign tax credit in Chile

US expats in Chile can generally choose between the Foreign Earned Income Exclusion and the Foreign Tax Credit to reduce their US tax liability – and the treaty changes the calculus by making Chilean taxes more creditable.

For most US expats in Chile earning above the FEIE threshold, the foreign tax credit combined with treaty relief typically produces a lower overall tax bill. Three factors drive this:

1. Chile has a relatively high income tax rate. Chile's top marginal rate of 40% exceeds the top US federal rate of 37%. For higher earners, the FTC often fully offsets the US tax, with unused credits available to carry forward for up to 10 years.
2. The FEIE for tax year 2025 excludes up to $130,000 of qualifying foreign earned income. If your income exceeds this cap, the FEIE leaves the excess fully exposed to US tax. The FTC has no equivalent income cap. You claim the FEIE on Form 2555 and the FTC on Form 1116.
3. Treaty benefits interact differently with each mechanism. Reduced Chilean withholding rates under the treaty mean less foreign tax available to credit – but the FTC still applies to Chilean income tax on employment and self-employment income, which is typically the larger amount.

The choice between FEIE and FTC is not permanent, but revoking the FEIE election once made requires waiting five years before re-electing. Work through the numbers for your specific income mix before deciding.

See our FEIE guide for the full eligibility rules and exclusion calculation.

Bona fide residence and physical presence tests for Chile-based expats

To claim the Foreign Earned Income Exclusion or establish IRS-qualifying foreign residency, US expats must meet either the bona fide residence test or the physical presence test. Treaty residency and FEIE qualification are separate determinations.

The bona fide residence test requires establishing a genuine, indefinite residence in Chile. You must be a resident for at least one full calendar tax year.

Your residence must be more than a temporary assignment – the IRS looks at whether you intend to return to the US on a specific date or have an indefinite stay.

The physical presence test requires being physically present in a foreign country or countries for at least 330 full days in any 12-month period. Partial days in the US count as US days, so brief trips home must be tracked carefully.

Being a Chilean tax resident under the treaty does not automatically satisfy either IRS test, and passing an IRS test does not determine your treaty residency. They serve different purposes.

See our bona fide residence test vs. physical presence test comparison for a detailed breakdown.

FREE

US expat in Chile juggling treaty rules, FEIE, and foreign tax credits?

Get clarity on your specific situation.

Schedule my free call

FBAR and FATCA reporting for US persons with Chilean accounts

The US-Chile tax treaty does not eliminate or reduce FBAR or FATCA reporting obligations. US persons with Chilean financial accounts must still comply with these requirements independently of any treaty benefits they claim.

Failing to file an FBAR for a Chilean bank account can result in penalties of up to $16,536 per non-willful violation (2025) – an amount that can dwarf the tax owed on the underlying income.

The key reporting requirements are:

• FBAR – FinCEN Form 114. Required if the aggregate value of all your foreign financial accounts exceeded $10,000 at any point during the calendar year. The 2026 filing deadline is April 15, 2026, with an automatic extension to October 15, 2026.
• FATCA – Form 8938. Required for US expats living abroad if total foreign financial assets exceed $200,000 at year-end or $300,000 at any point during the year for single filers (2025), or $400,000/$600,000 for married filing jointly (2025). File with your Form 1040.
• Chilean bank reporting under FATCA. Chilean financial institutions report US account holders to the IRS under the FATCA intergovernmental agreement between the US and Chile. If you have not been reporting a Chilean account, the IRS may already know about it.

FBAR and Form 8938 have different thresholds, different filing methods, and different penalty structures. Many expats must file both.

See our guide to foreign withholding forms for how treaty rates interact with the W-8 series.

Not every treaty benefit requires Form 8833. Claiming a foreign tax credit alone generally does not trigger the filing requirement, because the credit is authorized by the Internal Revenue Code, not just the treaty. Disclosure is required when the treaty overrides or modifies a Code provision.

Competent authority procedures: resolving double taxation disputes

When a US person believes they are being taxed by both the US and Chile in a manner inconsistent with the treaty, they can request assistance from the competent authority – the IRS on the US side and the Servicio de Impuestos Internos on the Chilean side.

The mutual agreement procedure allows the two tax authorities to negotiate a resolution. Requests should generally be filed within three years of the first notification of the action giving rise to double taxation.

What to expect from the process:

• The authorities are required to endeavor to resolve the matter, but they are not required to reach agreement.
• Cases can take years to resolve.
• Professional representation is strongly advisable – the process involves formal submissions to both governments.
• The competent authority process runs independently of domestic appeals or litigation, though coordination is needed to avoid conflicting outcomes.

Does Chile have an estate or gift tax treaty with the US?

As of tax year 2025, the United States and Chile do not have a separate estate and gift tax treaty. The income tax treaty that entered into force in 2023 covers income taxes only and does not extend to US estate tax or gift tax obligations.

The absence of a US-Chile estate tax treaty makes cross-border estate planning especially important for Americans with significant Chilean assets.

US citizens and domiciliaries are subject to US estate tax on their worldwide assets regardless of where they live. The lifetime exemption for tax year 2025 is $13.99 million per individual.

Without an estate tax treaty, Chilean assets of a US decedent may be subject to both US estate tax and Chilean inheritance tax with no treaty-based mechanism to coordinate the two.

A unilateral credit under IRC §2014 may provide partial relief for foreign death taxes paid, but it is typically less generous than treaty-based relief.

The IRS does not list any estate and gift tax treaties with Chile on its treaty page. A United States–Chile estate tax treaty does not exist as of tax year 2025, and no negotiations have been publicly announced.

The US-Chile treaty is new – most tax preparers have never filed a return using it.

Get started

Practical scenarios: How the treaty affects real TFX client situations

The US-Chile treaty produces different outcomes depending on a taxpayer's income type, residency status, and whether they are an employee, self-employed, or investor. Here are three representative situations.

In each scenario, the treaty outcome depends on correctly identifying the applicable article and filing Form 8833 – steps that are easy to miss without specialist guidance.

Scenario 1: US employee in Santiago with Chilean stock compensation

A US citizen is seconded to Santiago by a multinational employer. She receives Chilean stock dividends as part of her compensation package.

Under the treaty, Chilean withholding on those dividends is capped at 15%. She claims a foreign tax credit on her US return for the Chilean tax withheld and files Form 8833 to disclose the treaty-based position.

Without the treaty, Chile could have withheld at its full statutory rate – the treaty saves her several thousand dollars annually on dividend withholding alone.

Scenario 2: US retiree in Valparaiso with a US private pension and Chilean rental income

A retired US engineer living in Valparaiso receives a US private pension and earns rental income from a Chilean investment property.

Under the saving clause, the US can tax his pension in full, and Chile, as his country of residence, can also tax it under its own domestic law; the treaty doesn't restrict either country's taxing rights in this situation.

His Chilean rental income is likewise taxable by both countries. The foreign tax credit keeps him from paying tax twice on either the pension or the rental income.

He also claims the US-Chile totalization agreement to avoid dual Social Security contributions on any part-time consulting work.

Scenario 3: US freelancer licensing software to a Chilean company

A US software developer licenses proprietary code to a Chilean SaaS company. The royalty payments are subject to 10% Chilean withholding under the treaty, down from Chile's statutory rate.

She must also evaluate whether her ongoing relationship with the Chilean company creates a permanent establishment. If she habitually negotiates and signs contracts on behalf of the company from Chile, a PE could be triggered – exposing her to Chilean corporate income tax on the business profits.

See our guide to foreign rental property reporting for the US filing rules that apply to Scenario 2.

Comparison: filing with vs. without the US-Chile treaty

Before the treaty entered into force, US persons in Chile had no bilateral protection against double taxation. The treaty changes the outcome in several concrete ways.

The treaty does not eliminate all double taxation, but it significantly reduces withholding rates and provides a formal dispute resolution mechanism that did not exist before 2024.

FREE

From Santiago to Patagonia, TFX helps US expats in Chile file accurate returns and stay compliant.

Talk to us today.

Schedule my free call