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Thin capitalization in Chile: the 3 to 1 excess indebtedness tax on related party interest, what counts as debt and equity, and the exemptions

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Last verified: 2026-10-26 · Status: Stable

Chile does not deny interest deductions for high leverage; instead art. 41 F applies a 35 percent single tax on interest and similar charges paid to related parties abroad that correspond to debt above three times tax equity at year end. Only payments that bore the 4 percent rate, a treaty reduced rate or an exemption enter the base, and the withholding already paid is credited, so in practice the tax tops up low withheld interest to 35 percent. The tax is paid by the Chilean debtor with the April return, is deductible, and does not apply to banks and other regulated lenders or to qualifying project finance.

USD figures use the Central Bank exchange rate of CLP 986.58 per US dollar published in the Diario Oficial of 23 October 2026 (Ley Nº 18.840 art. 44). Tax units use the SII values of UTM CLP 72,151 and UTA CLP 865,812 for October 2026 and UF CLP 41,221.08 for 26 October 2026. Conversions are for orientation only.

Key facts

Thin capitalization threshold, total debt to tax equity	3:1 ratioDL Nº 824, art. 41 F Nº 3, as of 2026-10-26 · in force
Single tax on related party interest on excess debt	35 %DL Nº 824, art. 41 F, as of 2026-10-26 · in force
Ownership level that makes a foreign lender related for thin cap	10 %DL Nº 824, art. 41 F Nº 6 iii), as of 2026-10-26 · in force
Unrelated debts excluded from total indebtedness if term is at most	90 daysDL Nº 824, art. 41 F Nº 5, as of 2026-10-26 · in force
General interest deduction cap (EBITDA style)	None; excess indebtedness tax instead textDL Nº 824, art. 41 F, as of 2026-10-26 · in force

The rule

1. Interest, commissions, service fees, financial charges and other surcharges, including reimbursements, paid to related entities abroad on loans, debt instruments and similar operations, that correspond to excess indebtedness at year end, are taxed with a single 35 percent tax, declared and paid annually with the April income tax return.
Cost to do it: 35 percent of the base, less the withholding already paid on it; deductible as an expense (Nº 10).Decreto Ley Nº 824, Art. 41 F first paragraph, Nº 1 and Nº 2, 2016-02-08 official text · verified 2026-10-26

2. Excess indebtedness exists when total annual indebtedness exceeds three times equity at year end. Equity is tax equity (capital propio tributario) at 1 January or at start of activities, plus capital contributions and minus capital reductions, withdrawals and distributions in proportion to the time they stayed in the company, and minus contributions financed directly or indirectly with related party debt. Negative equity counts as 1.
Cost to do it: None in itself.Decreto Ley Nº 824, Art. 41 F Nº 3 and Nº 4, 2016-02-08 official text · verified 2026-10-26

3. Total annual indebtedness includes, at their monthly average values, the loans and liabilities of art. 59 Nº 1 letters a), b), c), d), g) and h), any other credit or liability with parties abroad whether related or not, and credits or liabilities with parties in Chile, plus unpaid accrued interest that itself bears interest and debts of foreign permanent establishments. Debts with unrelated parties of 90 days or less, including renewals, are excluded. Debts assumed in mergers, divisions and similar reorganizations count for the receiving company from that date.
Cost to do it: None in itself.Decreto Ley Nº 824, Art. 41 F Nº 5, 2016-02-08 official text · verified 2026-10-26

4. A lender is related when it belongs to the same business group; when either party holds 10 percent or more of the capital or profits of the other, or both are under a common shareholder holding 10 percent or more; when it is in a territory meeting at least two of the art. 41 H preferential regime tests; when the financing is guaranteed by related third parties abroad who are the final beneficiaries of the interest; when bonds placed with independent buyers are later transferred to related parties; or in back to back arrangements. The debtor files a sworn statement on its debts, guarantees and related beneficiaries; refusing or filing an incomplete or false statement makes the relationship presumed.
Cost to do it: Sworn statement preparation cost.Decreto Ley Nº 824, Art. 41 F Nº 6 and Nº 7, 2020-02-24 official text · verified 2026-10-26

5. The base is the interest and other charges paid during the year that bore additional tax at 4 percent, or at a rate below 35 percent or none because of a legal exemption, deduction or a tax treaty in force, multiplied by the percentage that the excess (total annual indebtedness minus three times equity) represents of total annual indebtedness. The base can never exceed those payments. Additional tax withheld on the same amounts is credited against the result.
Cost to do it: On the example below, US$12,000 of net tax.
Example: With equity of CLP 986,580,000 and average debt of CLP 3,946,320,000, 25 percent of CLP 236,779,200 of interest withheld at a 15 percent treaty rate, CLP 59,194,800, bears 35 percent, CLP 20,718,180, less the CLP 8,879,220 already withheld: CLP 11,838,960. / Equity US$1,000,000, debt US$4,000,000, interest US$240,000: base US$60,000, tax US$21,000, credit US$9,000, net US$12,000.Decreto Ley Nº 824, Art. 41 F Nº 8 and Nº 9, 2016-02-08 official text · verified 2026-10-26

6. The tax does not apply when the taxpayer proves the financing and services fund the development, expansion or improvement of projects in Chile and were granted mainly by unrelated lenders that required common ownership vehicles, provided interest and guarantees are at market value under art. 41 E. It also does not apply to banks, insurers, savings and credit cooperatives, credit card issuers, mortgage loan managers, family allowance funds and other legally authorised lenders, nor to entities classified as financial by the Ministry of Finance whose assets are at least 90 percent loans or leases to unrelated parties for at least 330 days a year, subject to a 120 percent indebtedness cap.
Cost to do it: Evidence and market value support for the project finance exception.Decreto Ley Nº 824, Art. 41 F Nº 11 and Nº 13, 2020-02-24 official text · verified 2026-10-26

7. Investors in the new tax stability regime of Ley Nº 21.850 must keep related party debt, as defined in art. 41 F, at no more than three times the company's tax equity; exceeding that threshold at any year end causes loss of the agreed stability.
Cost to do it: Loss of tax stability if breached.Ley Nº 21.850, Art. 26 Nº 2 letter A, 2026-10-17 official text · verified 2026-10-26 · changed: New condition in the tax stability statute created by Ley Nº 21.850 (Diario Oficial 17 October 2026), available from 1 January 2027.

Average total debt	Debt to equity	Excess share of debt	Base	35 percent tax	Credit for 15 percent withheld	Net tax
US$3,000,000	3.0 to 1	0.0 percent	US$0	US$0	US$0	US$0
US$4,000,000	4.0 to 1	25.0 percent	US$60,000	US$21,000	US$9,000	US$12,000
US$6,000,000	6.0 to 1	50.0 percent	US$120,000	US$42,000	US$18,000	US$24,000
US$10,000,000	10.0 to 1	70.0 percent	US$168,000	US$58,800	US$25,200	US$33,600

Excess indebtedness tax on US$240,000 of related interest withheld at a 15 percent treaty rate, with tax equity of US$1,000,000 (DL Nº 824 art. 41 F Nº 3, Nº 8 and Nº 9).

Worked example

A Chilean SpA with tax equity of US$1,000,000 (CLP 986,580,000) borrows US$4,000,000 (CLP 3,946,320,000) from a US finance company of its own group, a related lender under art. 41 F Nº 6 iii). Interest of US$240,000 is withheld at 15 percent, the rate the Chile United States treaty allows on such interest for its first five years in place of 10 percent (convention art. 11 Nº 2 and Nº 3), so US$36,000 is withheld instead of 35 percent.
Debt is four times equity, so the excess is one quarter of total debt. The base is US$60,000, the 35 percent tax is US$21,000 and, after crediting US$9,000 of withholding on that base, the SpA pays US$12,000 (CLP 11,838,960) with its April return and deducts it as an expense.
If the same loan came from a non treaty parent and bore the full 35 percent withholding, it would still count in total debt, but its interest would not enter the base, because only interest taxed at 4 percent or below 35 percent is included.

Step by step

At each year end, compute tax equity under art. 41 and adjust it for contributions, reductions and distributions during the year.
List all debts (local and foreign, related or not) at monthly averages, excluding unrelated debts of 90 days or less.
Identify related lenders under the six tests of Nº 6, including parent guarantees and back to back structures.
File the annual sworn statement on debts, guarantees and beneficiaries required by the SII.
If debt exceeds three times equity, calculate the tax on interest that bore 4 percent or a reduced or exempt rate, credit the withholding and pay with the April return.

Common traps

Total debt counts local bank debt and unrelated foreign debt too, so a company can exceed 3 to 1 even with modest related borrowing.
Equity is reduced by contributions financed with related debt, so debt pushed down from a parent can shrink the denominator.
A guarantee from a related party abroad that is the final beneficiary of the interest makes even a third party loan related.
Failing to file the sworn statement makes all undisclosed creditors presumed related.
The tax is on top of transfer pricing: interest above a market rate can also be adjusted under art. 41 E.

Sources

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