Withholding Tax Rates: India to Chile Under DTAA

India to Chile Withholding Tax Rates Under the DTAA

When an Indian entity pays a Chilean resident — for dividends, interest, royalties, or fees for technical services (FTS) — tax must be withheld under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961). The India-Chile DTAA, in force since 19 October 2022 and effective in India from FY 2023-24, caps every one of these four income categories at a flat 10% of the gross amount, against a 20% domestic rate on each. Section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961) lets the taxpayer apply whichever rate is more beneficial, so 10% is almost always the applicable rate once the procedural conditions below are met.

There are no tiers within any of the four categories — unlike many of India's treaties, there is no shareholding threshold for dividends, no bank or government carve-out for interest, and no equipment-royalty split. The rate is either 10% (income not connected with a PE) or the domestic business-profits rate (income that is connected with a PE), with nothing in between.

Dividend Withholding

Article 10(2) of the India-Chile DTAA caps the tax on dividends paid by an Indian company to a Chilean beneficial owner at 10% of the gross amount. Article 10 runs to only five paragraphs, and none of them reduces the rate further for a larger shareholding — a Chilean parent owning 100% of an Indian subsidiary pays the same 10% as a portfolio investor holding a handful of shares. This is a frequent point of confusion for advisors used to treaties (such as India's treaty with Singapore or the Netherlands) that reserve a lower rate for substantial holdings; the India-Chile DTAA has no such structure to import.

Interest Withholding

Article 11(2) caps interest at 10% of the gross amount for a Chilean beneficial owner. The critical point for this treaty: Article 11 has six paragraphs and none of them is an exemption. There is no paragraph exempting interest paid to the Government of India or Chile, the Reserve Bank of India, Banco Central de Chile, or any export-credit or development-finance institution on either side — a structure many other Indian treaties do have, and which should never be assumed here without independent verification. Article 11(3) defines "interest" broadly, including income "assimilated to income from money lent" under the local tax law of the State where it arises, and excludes only income already dealt with under Article 8 (shipping and aircraft profits) or Article 10 (dividends). Article 8(3) has its own narrow interest carve-out: interest on investments directly connected with, and integral and incidental to, international shipping or aircraft operations is treated as shipping/aircraft profit rather than "interest," and Article 11 does not apply to it at all.

Royalty Withholding

Article 12(2) caps royalties at 10% of the gross amount for a Chilean beneficial owner. The Article 12(3) definition follows the OECD pattern — copyrights, patents, trademarks, designs, secret processes, and industrial/commercial/scientific know-how — and expressly includes "the use of, or the right to use, industrial, commercial or scientific equipment." Equipment-rental royalties therefore fall inside the same single 10% cap; there is no separate, lower rate reserved for equipment as there is under some of India's other treaties.

Fees for Technical Services (FTS) Withholding

Fees for technical services are governed by their own Article 12A, not by Article 12 — a structural feature unique to a relatively small number of Indian treaties. Article 12A(2) caps the tax at 10% of the gross amount, and Article 12A(3) defines FTS as payment for a service "of a managerial, technical or consultancy nature," excluding only payments to an employee of the payer, payments for degree-granting-program teaching, and payments by an individual for personal-use services. No "make available" test appears anywhere in the Agreement or Protocol, so the scope is considerably wider than under India's treaties with the United States, the United Kingdom, or Singapore — a routine consulting or advisory fee falls squarely within Article 12A even where no technical knowledge is transferred to the Indian payer.

Article 12A(2) also opens "notwithstanding the provisions of Article 14," which overrides the independent-personal-services rules for individuals: a Chilean professional providing managerial, technical, or consultancy services is taxed at 10% under Article 12A even with no fixed base and no 183-day presence in India. Article 12A(6) then carves the other way: fees are deemed not to arise in a State if the payer, though resident there, bears the cost through a PE or fixed base located in the other State or a third State — taking the payment outside that State's source entirely.

The Permanent-Establishment Carve-Out

For all four heads, the 10% cap gives way once the income is effectively connected with a permanent establishment or fixed base the Chilean recipient has in India — Articles 10(4), 11(4), 12(4), and 12A(4) each route that income to Article 7 (business profits) or Article 14 (independent personal services) instead, taxable on a net basis at the standard 35% foreign-company rate rather than 10% of the gross amount. Article 5 sets three PE thresholds relevant to a Chilean enterprise operating in India: 183 days for a construction, installation, or assembly project; 183 days for furnishing services (including consultancy) through personnel; and 90 days for exploration or exploitation of natural resources — each measured within any rolling 12-month period. Protocol paragraph 5 aggregates time spent by associated enterprises carrying on "connected or substantially similar" activities across all three thresholds, so a services engagement cannot be kept under 183 days simply by splitting it across related Chilean entities.

Procedure: How to Apply the 10% Rate

To have the Indian payer withhold at 10% instead of 20%, the Chilean recipient and the Indian payer need to complete these steps before the remittance:

Step 1: Tax Residency Certificate

The Chilean recipient obtains a Tax Residency Certificate from Chile's competent tax 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).

Step 2: Form 41

The recipient electronically files Form 41 (formerly Form 10F) on the Indian income-tax portal, declaring status, tax identification number, period of residence, and PE status in India.

Step 3: Forms 145 and 146

The Indian payer files Form 145 (formerly Form 15CA) before remitting; for remittances above ₹5 lakh without a section 395(1) certificate, a Chartered Accountant must also certify Form 146 (formerly Form 15CB), confirming the applicable rate and treaty eligibility.

Step 4: Lower or Nil Deduction Certificate (optional)

If there is uncertainty about the correct rate, the recipient can apply to the Assessing Officer under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate fixing the withholding rate in advance.

Worked Examples

Dividend: an Indian subsidiary declares a ₹50,00,000 dividend to its Chilean parent. Domestic withholding under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) is 20%, or ₹10,00,000. Under Article 10(2), with a valid TRC and Form 41 on file, the payer withholds 10% instead — ₹5,00,000 — a saving of ₹5,00,000, regardless of the size of the Chilean parent's shareholding.

Fees for technical services: an Indian company pays ₹83,00,000 to a Chilean engineering consultancy for technical advisory work, with no PE in India. Domestic withholding under section 207(2) (Table, Sl. No. 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) is 20%, or ₹16,60,000. Under Article 12A(2), the payer withholds 10% instead — ₹8,30,000 — a saving of ₹8,30,000, with Forms 145 and 146 filed before remittance.

Domestic Rates vs Treaty Rate Savings

Without the DTAA, every one of the four income categories is taxed at 20% under section 207 of the Income-tax Act, 2025 — dividends and foreign-currency interest under section 207(1) (Table, Sl. Nos. 1 and 3; section 115A of the Income-tax Act, 1961), and royalties and FTS under section 207(2) (Table, Sl. Nos. 1 and 2). The treaty's flat 10% cap is a straightforward 50% reduction on every head, with no category left out and no tier to check against a shareholding or lending-institution list, which makes rate determination on this treaty simpler than on many of India's older agreements — the only real gating question is whether a permanent establishment or fixed base connects the income to India.

Common Mistakes and Compliance Tips

Mistake 1: Assuming an interest exemption exists

Article 11 has no government, central bank, or lending-institution carve-out of any kind. Every category of Chilean-source or Indian-source interest paid to a beneficial owner in the other State is taxed at the same flat 10%, unless it is connected with a PE.

Mistake 2: Analysing FTS payments as royalties

FTS sits in its own Article 12A, with a broader "managerial, technical or consultancy" scope than Article 12's royalty definition and no make-available test — the two articles should never be conflated when scoping a payment.

Mistake 3: Assuming a shareholding tier applies to dividends

There is no such tier in Article 10 — 10% applies uniformly regardless of how much of the paying company the Chilean recipient owns.

Mistake 4: Missing the PE and 183-day aggregation rules

Because Protocol paragraph 5 aggregates time across associated enterprises for all three Article 5(3) thresholds, splitting a services contract across related Chilean entities does not avoid a services PE.

Mistake 5: Treating the MLI's PPT as applicable

Chile is not a notified Covered Tax Agreement under India's MLI position, so the MLI's Principal Purpose Test does not apply here. Anti-abuse scrutiny instead comes from the treaty's own Article 28 Limitation of Benefits test and its Article 28(9) PPT, alongside India's domestic GAAR under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961).

For the full treaty analysis — residence rules, permanent establishment, capital gains, and the Limitation of Benefits article in detail — see our complete guide to the India-Chile DTAA, or our DTAA master guide for how these rules compare across India's tax treaty network.

Frequently Asked Questions

What is the withholding tax rate on dividends from India to Chile?

Article 10(2) of the India-Chile DTAA caps dividend withholding at a flat 10% of the gross amount, with no shareholding tier of any kind, against a 20% domestic rate under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). A valid TRC and Form 41 are needed to apply the treaty rate.

Is there a reduced or exempt rate for interest paid to Chilean government bodies or banks?

No. Article 11 has six paragraphs and none of them is an exemption — there is no carve-out for the Government, Reserve Bank of India, Banco Central de Chile, or any export-credit institution. All qualifying interest is capped at the same flat 10% under Article 11(2), against a 20% domestic rate.

What is the FTS withholding rate under the India-Chile DTAA?

Article 12A(2) caps fees for technical services at 10% of the gross amount, covering managerial, technical, and consultancy fees with no make-available requirement. This overrides Article 14, so the rate applies even without a fixed base or minimum stay in India, against a 20% domestic rate.

Does the equipment-royalty carve-out get a separate, lower rate under this treaty?

No. Article 12(3) expressly includes the use of industrial, commercial, or scientific equipment within the definition of royalties, and Article 12(2) applies the same flat 10% cap to it as to any other royalty — there is no separate equipment-royalty tier under this treaty.

When does the PE carve-out apply and what rate then applies?

Once dividends, interest, royalties, or FTS are effectively connected with a permanent establishment or fixed base the Chilean recipient has in India, Articles 10(4), 11(4), 12(4), and 12A(4) route the income to Article 7 or Article 14 instead, taxing it on a net basis at the standard 35% foreign-company rate rather than 10% of the gross amount.

What documents does an Indian payer need before remitting to Chile at the treaty rate?

The Chilean recipient's Tax Residency Certificate and electronically filed Form 41 (formerly Form 10F), plus the Indian payer's Form 145 (formerly Form 15CA) and, for remittances above ₹5 lakh without a section 395(1) certificate, a Chartered Accountant's Form 146 (formerly Form 15CB) confirming the 10% rate.