2004 agreement
| Status: | In force |
|---|---|
| Signed: | 10 December 2003 |
| In force: | 21 June 2006 |
| Effective: | In New Zealand: For withholding taxes from 1 January 2007. For all other taxes for income years beginning on or after 1 April 2007. In Chile: For taxes on income obtained and amounts paid, credited to an account, put at the disposal or accounted as an expense, from 1 January 2007. Refer to Article 28 of the agreement. |
| Legislation: | Double Tax Relief (Republic of Chile) Order 2004 (New Zealand Legislation website) Important note: the withholding tax rate for royalties reduced from 10% to 5% from 1 May 2010. |
| National interest analysis: | PDF (83KB) (See Appendix C, page 13.) |
Lower non-resident withholding tax rates for interest
The Most Favoured Nation obligation contained in Article 9 of the Protocol to the double tax agreement between New Zealand and the Republic of Chile (the Chilean DTA) was triggered by Chile. This change applies to Article 11(2)(b) of the Chilean DTA, which relates to the treaty withholding rate for interest.
The obligation has been triggered twice, on 1 January 2017 and 1 January 2019. The 2019 change lowers the withholding rate for interest to 10% (from 15%) of the gross amount of the interest in all cases.
The changes were given effect by a diplomatic note that provides:
"(a) From 1 January of 2017, the demanded tax will not be able to surpass the 10% of the gross amount of interests:
(i) coming from bonds or securities that are regularly and substantially traded on a recognised stock market, and
(ii) when the effective beneficiary of the interests is:
(A) a company that substantially obtains its gross income from carrying out actively and regularly credit or financing commercial activities with unrelated parties, when the company is not related to the interest debtor. For the purpose of this provision, the expression “credit and financing commercial activities” includes the activities of emission of credit letters or the granting of guarantees, or the provision of credit card services;
(B) a company that sells machinery and equipment, when the interest is paid in connection with the debt generated due to the credit sale of said machinery or equipment; or
(C) any other company that, to the extent that in the three tax years preceding the tax year in which the interest is paid, generates more than 50 percent of its liabilities from issuing bonds in financial markets or from collecting interest-bearing deposits, and more than 50 percent of the company’s assets consist of credit to persons with whom it is not related.
For the purposes of subparagraph (ii), a company is not related to a person if the company does not have with the person a relation of those described in the subparagraphs (a) or (b) of paragraph 1 of Article 9 of the Convention between the Republic of Chile and New Zealand for the Avoidance of Double Taxation and the Prevention of fiscal Evasion with respect to Taxes on Income.
(b) From 1 January of 2019, the demanded tax will not be able to surpass the 10% of the gross amount of interest in all cases.”