Chile is the only market in our region with a tax treaty with Paraguay. This guide tests what it really does for dividends, services and interest, runs the numbers for four kinds of owner, and explains how Chile’s 2026 reform changes the answer.
Of the six markets we cover from Paraguay, Chile is the only one with a tax treaty in force with Paraguay. The obvious idea follows: hold the Chilean company through a Paraguayan one and let the treaty do the work. This guide tests that idea against the numbers — and the honest answer is more interesting than yes or no.
For dividends, the treaty puts a Paraguayan holding on the same footing as any treaty country: it removes a repayment that non-treaty owners suffer. But Paraguay then charges its own 15% when the holding pays a foreign owner, which can wipe out the gain. Where the treaty does change the arithmetic is for owners living in Paraguay, for profit kept in Paraguay, and above all for services billed from Paraguay into Chile. And Chile’s 2026 tax reform is about to shrink the dividend advantage for everyone.
Chile taxes company profit with the First Category tax (IDPC) and dividends paid to non-residents with a 35% Additional Tax, against which the IDPC already paid is credited. The system is “semi-integrated”: an owner in a country without a treaty with Chile must give back 35% of that credit, which lifts the total burden from 35% to 44.45%. Owners in treaty countries keep the full credit and stop at 35%.
| Regime | Corporate tax (IDPC) | Dividends to a non-resident |
|---|---|---|
| General, semi-integrated (art. 14 A) | 27% in 2026; reform path 25.5% (2027), 24% (2028), 23% (2029) | 35% Additional Tax with credit for IDPC; non-treaty owners repay 35% of the credit |
| Pro-Pyme (art. 14 D Nº3) | 12.5% for 2025–2027, then 15% in 2028 (conditions apply) | 35% with full credit — no repayment, treaty or not |
| Pro-Pyme transparent (art. 14 D Nº8) | None at company level | Owners taxed directly; a foreign corporate owner probably does not qualify |
Two consequences follow. Small companies in the Pro-Pyme regime are fully integrated, so the treaty makes no difference to their dividends. And the treaty question only matters for companies in the general regime with owners who would otherwise sit in a non-treaty country.
Law and practice: Income Tax Law (LIR), arts. 14 A, 14 D, 58–63; Pro-Pyme rate under Law 21,755 (SII Circular 53/2025), conditional on the employer pension contribution under Law 21,735.
The National Reconstruction Law, approved by Congress in August 2026 and promulgated on 9 October 2026, changes the picture. The general corporate rate falls from 27% to 23% by 2029, and the repayment of 35% of the credit by non-treaty owners is phased out: 35% on credits generated up to 2026, 30% in 2027, 20% in 2028 and nothing from 2029.
Once the repayment is gone, an owner anywhere gets the full credit — and the treaty advantage on dividends disappears with it. Anyone structuring a Chilean investment today should model 2026 to 2029 year by year, not just the current rates.
Law and practice: Ley de Reconstrucción Nacional (Boletín 18,216-05), promulgated 9 October 2026; publication in the Diario Oficial and the SII’s instructions were pending at the time of writing. Check the published text before relying on the dates.
| Item | Chile–Paraguay treaty (in force) | New treaty signed 1 July 2026 |
|---|---|---|
| Status | In force since 26 August 2008; applies from 2009 | Signed in Asunción; awaits ratification by both congresses |
| Dividends | 10% cap, with a “Chile clause” preserving the 35% Additional Tax | 10%, Chile clause retained |
| Interest | 10% (banks, insurers) / 15% other | 6% / 10% |
| Royalties | 15% | Not yet verified |
| Business profits and services | Taxed only in the provider’s country unless there is a permanent establishment (183 days of services) | Anti-abuse rules modernised to OECD standards |
| Capital gains on shares | Chile may tax without limit | — |
The “Chile clause” is the key to the dividend article: the 10% cap does not limit Chile’s Additional Tax so long as the IDPC is creditable against it. In practice Chile still collects 35% in total. The treaty’s real dividend benefit is being a treaty country — no repayment of the credit.
Law and practice: Convention signed 30 August 2005, Chilean Decree 207/2008; DNIT announcement of 15 October 2025 on the end of renegotiation; new treaty signed 1 July 2026.
A Chilean company in the general regime earns US$1,000,000 in 2026 and pays everything out. Here is what reaches the owner, depending on where the owner sits.
| US$1,000,000 profit, general regime, all paid out | Chilean tax | Paraguay | Net to owner | Total burden |
|---|---|---|---|---|
| Owner in a country with a Chile treaty (e.g. UAE holding) | US$350,000 | — | US$650,000 | 35.0% |
| Owner in a country without a treaty | US$444,500 | — | US$555,500 | 44.45% |
| Paraguay holding, owner living in Paraguay | US$350,000 | IDU 8%: US$52,000 | US$598,000 | 40.2% |
| Paraguay holding, owner living abroad | US$350,000 | IDU 15%: US$97,500 | US$552,500 | 44.75% |
| Paraguay holding, profit kept in Paraguay | US$350,000 | IRE about nil after credit; IDU deferred | US$650,000 in the holding | 35.0% for now |
On the Paraguayan side, dividends from a foreign company are taxable income for the Paraguayan holding at 10%, but Paraguay grants a credit for foreign income tax up to the Paraguayan tax — and Chile’s net Additional Tax exceeds it, so the holding pays roughly nothing. The real Paraguayan cost arrives when the holding pays out: IDU of 8% to a resident shareholder, 15% to a non-resident.
Law and practice: Illustrative figures in US dollars, credits generated in 2026, no exchange effects. Paraguay: Ley 6380/2019, art. 6 (foreign dividends as Paraguayan-source income for IRE) and art. 134 (foreign tax credit, claimed on Form 500).
Owner lives in Paraguay
40.2% instead of 44.45%: the treaty removes the repayment and IDU is only 8%. A Paraguayan resident could also hold the shares directly and use the treaty.
Profit is reinvested regionally
Kept in the Paraguayan holding, Chilean dividends bear 35% and no IDU until paid out — useful for a regional group expanding market by market.
Services from Paraguay into Chile
Fees for services rendered from Paraguay without a permanent establishment in Chile are business profits taxable only in Paraguay — instead of Chile’s 35% (or 15% for technical services). Chilean VAT then applies instead.
Interest on group loans
Treaty caps of 10–15% today, falling to 6–10% under the new treaty once in force.
The services point is the one most structures miss. A Paraguayan company billing a Chilean client for consulting, software or management services can avoid Chilean withholding entirely, provided its people do not spend 183 days in Chile in any twelve months. See our guide to selling services into Chile for the VAT side.
Foreign owner, everything paid out
44.75% through Paraguay against 44.45% with no treaty at all, and 35% through a treaty country with no dividend tax of its own.
Small companies
Pro-Pyme is fully integrated; the treaty adds nothing on dividends.
From 2029
With the repayment abolished, every owner gets the full credit and the dividend advantage is gone.
Selling the company
The treaty lets Chile tax gains on Chilean shares without limit — and Chile can tax the sale of a foreign holding that owns Chilean assets above set thresholds.
For an owner in Spain, the chain can be worse still: Chile, then Paraguay’s 15%, then Spanish tax with a credit the Spanish authorities may limit — plus a real risk under Spain’s controlled-foreign-company rule for passive income taxed at low rates.
Paraguay is not on Chile’s list of preferential tax regimes, because it exchanges tax information with Chile under the treaty. That does not make a letterbox holding safe. The treaty contains main-purpose tests on dividends, interest and royalties, the new treaty adds OECD-standard anti-abuse rules, and Chile’s general anti-avoidance rule was strengthened in 2024 to cover chains of transactions.
Residence certificate
A Paraguayan tax-residence certificate for the holding, renewed yearly.
Real management
Board meetings, decisions and records in Paraguay.
Beneficial ownership
The holding must own and control the income, not pass it straight through.
Thin capitalisation
Group loans to the Chilean company above 3:1 debt to equity face 35% on the excess interest.
Law and practice: LIR art. 41 H and SII Res. Ex. 30/2025 (preferential regimes); Tax Code arts. 4 bis–4 quinquies as amended by Law 21,713/2024; LIR art. 41 F.
Paraguay favours a Paraguayan structure; elsewhere, check that country’s treaty with Chile first.
Reinvestment across the region is where a Paraguayan holding pays its way.
Pro-Pyme companies gain nothing on dividends from any treaty.
Billing services from Paraguay may matter more than holding shares.
Model 2026 to 2029: rates fall and the repayment ends.
Without it, the treaty benefits will not hold.
Yes. The Chile–Paraguay treaty has been in force since 2008 and applies from 2009. A new treaty was signed on 1 July 2026 and awaits ratification.
Only in some cases. The treaty removes the 35% repayment of the corporate-tax credit, so Chile takes 35% instead of 44.45%. But Paraguay’s 15% IDU on payments to a foreign owner can cancel the gain; it works best for owners living in Paraguay or profits kept in Paraguay.
35% on dividends paid to non-residents, with a credit for the First Category corporate tax. Owners in non-treaty countries repay 35% of the credit, giving a total of 44.45%.
Yes. The general corporate rate falls to 23% by 2029 and the credit repayment for non-treaty owners is phased out by 2029, which removes the treaty’s dividend advantage.
No. Paraguay is not on Chile’s list of preferential tax regimes because it exchanges information with Chile under the treaty.
Generally yes, if it has no permanent establishment in Chile — for services, no presence of 183 days in any twelve months. The fees are business profits taxable in Paraguay. Chilean VAT still applies.
No. Chile may tax gains on Chilean shares without limit under the treaty.
A Paraguayan tax-residence certificate, real management in Paraguay and genuine ownership of the income; the treaty and Chile’s anti-avoidance rule target pass-through structures.
SpA, RUT and SII, handled from a Paraguay base.
Chile and 16 other countries on one profit.
Tell us where you live and how the Chilean company will earn. We model treaty, reform and Paraguay together — fixed quote within one business day.
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