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Recent Changes to Permanent Establishment in Chile

Foreign companies looking to sell their products or solutions into Chile tend to favor doing so (at least initially) without incorporating a company. From a business perspective, it makes sense since companies want to limit risk and expenses when opening new markets.   The way to do so previously was to find an agent, distributor or another established company that could represent the company in Chile.

What many companies do not realize is that these relationships can sometimes lead to a permanent establishment (PE). If a foreign entity is found to hold PE in Chile, they will be subject to the same taxes as Chilean taxpayers.

New Scope of Permanent Establishment.

Generally speaking, the Chilean Income Tax Law does not have a definition of “permanent establishment”.  Article 58 N° 1, only gives examples of what may be considered as PE for Chilean tax purposes describing them as branches, offices, agents or representatives.

As there is no legal definition, the Chilean IRS has issued several rulings over the years regarding this matter, in which it consistently defines “permanent establishment” as an extension of the foreign principal entity in Chile through the establishment of an office or agent that undertakes and develops a formal activity and that assumes the representation of the foreign entity with the power to conclude business in its name.

Last month, a Circular from the IRS has broadened the concept as stated above. It previously only included individuals with a mandate to conclude or close business. Now it also includes those with powers to carry out all due activities to conclude business, not necessarily just having powers to close business and sign on behalf of the foreign company. As stated above “leading the role to conclude business” would be enough to be considered a PE, according to this new interpretation by the Tax Office.

Problems with the New Scope

Even though the new scope given to PE is very much in line with the most recent recommendations given by the OECD, the exact moment a company triggers PE is now even more difficult to understand

In the classic view, an agent, individual, commissionaire or any other person acting locally on behalf of an enterprise or legal entity would trigger a PE if it acted with powers to conclude businesses on behalf of the foreign entity. The analysis used was very simple and direct. It was just a matter of reviewing the powers or the mandate that the person was provided.

Now, it is not so clear and brings up many questions. These questions will carry a risk for companies choosing to do business from abroad since there is no clear test that determines PE. We recommend carefully reviewing the business relationship that your company may have with its local agents or commissionaires to verify if these local activities would trigger PE or not. The idea is to carefully design the business relationship and supporting documents to avoid triggering PE. For others, it might make sense to incorporate in Chile to ensure the company is guaranteed the same rights as a local company.

It is important to do this analysis since a PE has the same tax burden as a local company including the need to obtain a tax number and filing tax returns.


Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. Over the last 16 years, we have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets. 

To better understand how we can support your management team in the Region, please contact Cody Mcfarlane at cmm@hgomezgroup.com