India-Chile DTAA: Complete Guide to the Double Taxation Avoidance Agreement

Quick answer: The India-Chile DTAA caps dividends, interest, royalties, and fees for technical services (FTS) at a flat 10% each — no tiers, no shareholding thresholds, no exemptions on any of the four heads. Signed on 9 March 2020 and in force from 19 October 2022, this is India's first-ever comprehensive tax treaty with Chile, effective in India from FY 2023-24. FTS sits in its own Article 12A with no make-available test, and Article 28 stacks a full US-style Limitation of Benefits (LOB) clause on top of a Principal Purpose Test (PPT) — both are the treaty's own, since Chile is not on India's Multilateral Instrument (MLI) Covered Tax Agreement list.

Key takeaways:

• Dividends, interest, royalties, and FTS are all capped at a flat 10%, with no shareholding tier and no exemption paragraph anywhere in the treaty.
• Article 11 (Interest) has no government, central bank, or export-credit exemption at all — a common boilerplate error to avoid on this treaty.
• FTS is a standalone Article 12A covering managerial, technical, and consultancy fees, with no make-available requirement.
• Article 13(5) gives India an unconditional right to tax gains on Indian-company shares held by a Chilean resident, sold "directly or indirectly," with no threshold.
• Article 28 combines a full qualified-person/active-business Limitation of Benefits test with its own Principal Purpose Test — the treaty is not modified by the MLI.

Overview and Dates

The Double Taxation Avoidance Agreement (DTAA) between India and Chile allocates taxing rights between the two countries and reduces withholding tax on cross-border dividends, interest, royalties, and fees for technical services. The India-Chile DTAA and accompanying Protocol were signed at Santiago on 9 March 2020 by Ms. Anita Nayar, Ambassador of India to Chile, and Mr. Ignacio Briones, Chile's Minister of Finance; the English, Hindi, and Spanish texts are equally authentic, with English prevailing on divergence. There was no earlier India-Chile tax treaty, and no amending protocol has since been signed.

Under Article 30(1), the Agreement entered into force on 19 October 2022, the date of the later of the two countries' diplomatic notifications. India notified it domestically by Notification No. 24/2023, S.O. 2059(E), dated 3 May 2023, under section 90(1) of the Income-tax Act, 1961. Article 30(2)(a) gives it effect in India "in respect of income derived in any fiscal year beginning on or after the first day of April next following" entry into force — so the treaty first applies to India's fiscal year 2023-24. In Chile, Article 30(2)(b) gives it effect for income and payments from 1 January 2023. (The Income Tax Department's own metadata summary for this treaty is incomplete and should not be relied on for these dates — use the Preamble and Article 30 instead.) Under Article 31, either country may terminate the Agreement on six months' notice, but not before five years from entry into force.

Who and What the Treaty Covers

Article 1 applies the Agreement to residents of India or Chile, treats income through a fiscally transparent entity as that of the resident actually taxed on it, and carries a saving clause preserving each country's right to tax its own residents except for specified provisions (associated-enterprise adjustments, government service, students, double-tax relief, non-discrimination, mutual agreement, and diplomatic and consular privileges). Article 2(3)(a) names "the income tax including any surcharge thereon" as the Indian tax covered; cess is not separately named, and whether it sits inside the treaty's rate ceilings is not something the treaty text resolves — confirm with an advisor rather than assume. Chile's covered tax is its Income Tax Act ("Ley sobre Impuesto a la Renta").

Residence and the Tie-Breaker Rules

Article 4 defines residence by domicile, residence, place of management, incorporation, or a similar criterion. A dual-resident individual is placed by the usual cascade: permanent home, then centre of vital interests, then habitual abode, then nationality, and finally mutual agreement between the competent authorities. For a dual-resident company, Article 4(3) departs from the OECD Model's "place of effective management" test and uses nationality instead: a company is resident only where it is a national; if it is a national of both states or neither, the competent authorities must agree, and if they cannot, the company is denied any treaty relief at all.

Permanent Establishment

Article 5 defines a permanent establishment (PE) as a fixed place of business, with the usual list plus two UN-Model additions: a sales outlet and a warehouse used by a person providing storage facilities for others. Article 5(3) sets three deemed-PE thresholds, each measured within any 12-month period:

• Construction PE — 183 days for a building site, construction, installation, or assembly project (including supervisory activities).
• Services PE — 183 days for furnishing services, including consultancy, through personnel present more than 183 days in aggregate.
• Natural-resources PE — 90 days for exploration or exploitation activities, including operating substantial equipment — the shortest threshold in the Article.

Article 5(4) excludes genuinely preparatory or auxiliary activities, and Article 5(4.1) adds a BEPS-style anti-fragmentation rule for closely related enterprises. Protocol paragraph 5 separately aggregates time spent by associated enterprises whose activities are "connected or substantially similar" across all three Article 5(3) thresholds, not just construction. Article 5(5) creates a dependent-agent PE for a person who habitually concludes contracts (or plays the principal role leading to contracts routinely concluded without modification), maintains stock for regular delivery, or secures orders wholly or almost wholly for the enterprise; Article 5(6) separately deems a PE for an insurance enterprise collecting premiums through a non-independent person, and Article 5(7) denies independent-agent status to anyone acting exclusively or almost exclusively for closely related enterprises.

Business Profits

Article 7 follows the standard rule: an enterprise's profits are taxable only in its home State unless it has a PE in the other State, in which case only the profits attributable to that PE are taxable there, computed as if the PE were a distinct, independent enterprise dealing at arm's length, with executive and administrative expenses deductible wherever incurred.

Dividends, Interest, Royalties, and Fees for Technical Services

The treaty's defining feature: all four passive-income categories are capped at a flat 10%, with no tiers.

Dividends (Article 10): tax on dividends to a beneficial owner resident in the other State cannot exceed 10% of the gross amount. Article 10 has five paragraphs, and none creates a lower rate for a substantial shareholding — 10% applies whether the recipient owns 1% or 100%.

Interest (Article 11): also capped at 10% of the gross amount. This is the treaty's sharpest departure from many Indian agreements: Article 11's six paragraphs contain no exemption paragraph at all. There is no carve-out for the Government, the Reserve Bank of India, Banco Central de Chile, or any export-credit or development-finance institution — every qualifying category of interest is taxed at the same flat 10% unless connected with a PE. Article 11(3) broadly defines interest to include income "assimilated to income from money lent" under the source State's tax law, excluding only amounts already dealt with under Article 8 (shipping/aircraft) or Article 10 (dividends).

Royalties (Article 12): capped at 10% of the gross amount. The Article 12(3) definition includes "the use of, or the right to use, industrial, commercial or scientific equipment," so equipment royalties fall inside the single 10% cap rather than a separate tier.

Fees for Technical Services (Article 12A): unusually for an Indian treaty, FTS is a standalone article rather than bundled with royalties. It covers payment for services "of a managerial, technical or consultancy nature," excluding only payments to an employee, degree-program teaching, and personal-use services by an individual. There is no "make available" requirement anywhere in the Agreement, and managerial services are expressly covered. Article 12A(2) opens "notwithstanding the provisions of Article 14," so the 10% rate overrides independent-personal-services rules entirely: a Chilean professional's technical or consultancy fee is taxed at 10% without needing a fixed base or a 183-day presence. Article 12A(6) adds a reverse carve-out: fees are deemed not to arise in a State if the payer, though resident there, bears the cost through a PE or fixed base in the other State or a third State — taking the payment outside that State's source altogether.

For all four categories, the reduced rate does not apply once the income is effectively connected with a PE or fixed base — Articles 10(4), 11(4), 12(4), and 12A(4) each push that income to Article 7 or Article 14, taxed net at the standard foreign-company rate.

Capital Gains

Article 13 allocates gains by asset category: 13(1) immovable property, taxable where situated; 13(2) PE/fixed-base movables (including a sale of the PE itself), taxable where the PE sits; 13(3) ships and aircraft in international traffic, taxable only in the alienator's residence State (not place of effective management); 13(4) land-rich entities — shares or comparable interests, including in a partnership or trust, that derived over 50% of their value from immovable property at any time in the 365 days before sale — taxable where that property sits; 13(5) all other company shares, alienated "directly or indirectly," taxable by the company's resident State with no minimum holding, no grandfathering, and no threshold; and 13(6) residual property, taxable only in the alienator's residence State. In practice, 13(5) gives India an unconditional right to tax a Chilean resident's gain on Indian-company shares, including through an offshore holding structure; 13(4) mainly matters for partnership and trust interests that 13(5) does not reach.

Pensions and Other Income

Pensions (Article 18) are taxable in the State where they arise, not the residence State — the reverse of the OECD Model's usual rule. Other Income (Article 21), covering residual income, follows the UN Model: while paragraph 21(1) gives the residence State the general right to tax, paragraph 21(3) additionally lets the source State tax the same income, so a Chilean resident's miscellaneous Indian-source income is not shielded.

Elimination of Double Taxation

Article 22 uses the ordinary credit method on both sides, with no tax sparing. India allows a credit for Chilean tax paid on income taxable in Chile under the Agreement, capped at the Indian tax attributable to that income (22(1)(a)), and applies exemption-with-progression to exempt income (22(1)(b)). Chile credits Indian tax "subject to the applicable provisions of the law of Chile," expressly "to all income referred to in this Agreement" (22(2)(a)), with its own exemption-with-progression rule (22(2)(b)). Neither side offers a treaty-based underlying-tax credit or participation exemption.

Anti-Abuse: Limitation of Benefits, PPT, and MLI Status

Article 28 ("Limitation of Benefits") is unusually elaborate for an Indian treaty, stacking several mechanisms: a qualified-person test (28(1)-(2)) requiring the resident to be an individual, a Contracting State body, a regularly-traded company, an agreed non-profit, or an entity majority-owned by qualifying persons; an active-conduct-of-business test (28(3)) available even to non-qualified residents, though "active conduct" expressly excludes holding-company activity, group-wide supervision, group financing, and passive investment management (outside regulated financial institutions); a derivative-benefits test for dividends only (28(4)), for companies at least 95%-owned by seven or fewer equivalent beneficiaries meeting a base-erosion test; and discretionary relief (28(5)) from the competent authority after mandatory consultation. Article 28(8) adds a triangular rule denying benefits where combined tax on PE income in a third jurisdiction falls below 60% of what the residence State would otherwise charge. Article 28(9) is the treaty's own Principal Purpose Test, denying a benefit where obtaining it was one of the principal purposes of an arrangement. Article 28(10) preserves India's domestic GAAR — Chapter XI of the Income-tax Act, 2025 (sections 178-184; Chapter X-A of the Income-tax Act, 1961), applied under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961). Article 28(11) is a subject-to-tax clause preserving each State's taxing right over income not "effectively subject to tax" in the other State.

Because Chile is not on India's definitive MLI Covered Tax Agreement list, the treaty is not modified by the Multilateral Instrument at all. The PPT applying to India-Chile payments is Article 28(9) itself, not the MLI's Article 7. There is also no most-favoured-nation clause anywhere in the Agreement or Protocol, so no third-country treaty rate can be imported here.

How to Claim Treaty Benefits

A Chilean resident claims the 10% rate by: (1) obtaining a Tax Residency Certificate from Chile's competent authority, the Servicio de Impuestos Internos (SII), satisfying section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961); (2) electronically filing Form 41 (formerly Form 10F) on the Indian income-tax portal; (3) confirming beneficial ownership and, where relevant, no connected PE in India; and (4) relying on these to have the Indian payer apply 10% at source under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), per the more-beneficial-rate rule in section 159(4) (section 90(2) of the 1961 Act). The payer files Forms 145 and 146 (formerly Forms 15CA and 15CB) before remitting, with Form 146's Chartered Accountant certificate required once a remittance exceeds ₹5 lakh without a section 395(1) certificate. Where the rate is uncertain, the recipient can apply under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate fixing it in advance. Separately, an Indian entity with a Chilean associated enterprise must file Form 48 (formerly Form 3CEB) for its international transactions.

Worked Example

An Indian company pays a Chilean consulting firm ₹83,00,000 for managerial and technical advisory services. The firm holds a valid TRC and has filed Form 41, with no PE or fixed base in India connected to the engagement.

• Domestic rate: FTS to a non-resident is taxable at 20% under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) — withholding of ₹16,60,000.
• Treaty rate: Article 12A(2) caps the tax at 10% — withholding of ₹8,30,000.
• Result: applying the more-beneficial rate under section 159(4), the payer withholds ₹8,30,000 instead of ₹16,60,000, saving ₹8,30,000, provided the TRC, Form 41, and Forms 145/146 are in place before remittance.

Because Article 12A(2) overrides Article 14, this holds even though the Chilean firm has no fixed base or employees present in India — the 183-day independent-personal-services threshold is simply irrelevant to a fee caught by Article 12A.

Common Mistakes

• Assuming an interest exemption exists. Article 11 has no government, central bank, or lending-institution exemption — every category of interest is taxed at the same flat 10%.
• Treating FTS as bundled with royalties. FTS sits in its own Article 12A with a broader "managerial, technical or consultancy" scope and no make-available test.
• Assuming a shareholding tier reduces the dividend rate. There is none; 10% applies to every beneficial owner regardless of holding size.
• Overlooking Article 13(5) on an indirect share sale. India's taxing right covers direct and indirect transfers alike, with no minimum-holding threshold.
• Assuming the MLI's PPT applies. It does not — Chile is not a notified Covered Tax Agreement, so only the treaty's own Article 28(9) PPT and full LOB test are in play.

For a rate-by-rate breakdown and procedural detail, see our withholding tax rates page for India to Chile, or explore our DTAA master guide for how treaty analysis applies across India's tax treaty network.

Frequently Asked Questions

What is the India-Chile DTAA and when did it come into force?

The India-Chile DTAA is the first-ever comprehensive tax treaty between the two countries, signed at Santiago on 9 March 2020 and in force from 19 October 2022. It has effect in India for fiscal years from 2023-24 onward, and in Chile for income and payments from 1 January 2023. There was no earlier India-Chile tax treaty.

What is the withholding tax rate on dividends, interest, royalties, and FTS under the India-Chile DTAA?

All four categories are capped at a flat 10% of the gross amount under Articles 10(2), 11(2), 12(2), and 12A(2) — there are no shareholding tiers, no bank or government exemptions, and no other rate categories. This compares with a 20% domestic withholding rate on each of these income types.

Does the India-Chile DTAA exempt interest paid to government bodies or banks?

No. Article 11 (Interest) has six paragraphs and contains no exemption paragraph at all — there is no carve-out for the Government, the Reserve Bank of India, Banco Central de Chile, or any export-credit institution. Every category of qualifying interest is taxed at the same flat 10%.

How does the India-Chile DTAA tax fees for technical services?

FTS has its own standalone Article 12A, capped at 10% of the gross amount, covering managerial, technical, and consultancy fees with no 'make available' requirement. Article 12A(2) overrides the independent-personal-services rule in Article 14, so the fee can be taxed at 10% even without a fixed base or a minimum stay in India.

Can India tax a Chilean resident's gain on selling shares in an Indian company?

Yes, unconditionally. Article 13(5) gives India the right to tax gains on shares or capital rights in an Indian company alienated 'directly or indirectly' by a Chilean resident, with no minimum shareholding, no grandfathering, and no threshold of any kind, unlike many of India's older tax treaties.

Does the Multilateral Instrument (MLI) modify the India-Chile DTAA?

No. Chile does not appear on India's definitive MLI Covered Tax Agreement list, so the treaty is not modified by the MLI at all. Anti-abuse protection instead comes from the treaty's own Article 28, which combines a full Limitation of Benefits test with its own Principal Purpose Test in Article 28(9).