On 2 March 2026, the Brazilian government published Decree No. 12,863, promulgating the protocol that amends the Convention between Brazil and Chile to Avoid Double Taxation and Prevent Fiscal Evasion with respect to Income Tax (the “Protocol”). The Protocol, signed in Santiago on 3 March 2022, entered into force for Brazil on 30 October 2025, following approval by the National Congress.1
WHY THIS MATTERS
This development introduces significant changes for organizations and individuals with cross-border activities between Brazil and Chile. Updates to permanent establishment definitions, limitation on benefits, information exchange, pensions, and anti-abuse rules may impact the tax treatment of cross-border employees, business structures, and investment flows. For global mobility programs, the clarified rules on fiscal transparency, pension fund recognition, and limitation on benefits could affect assignment planning, payroll compliance, and treaty-based benefits. Mobile employees may experience changes in tax withholding, pension recognition, and dispute resolution procedures.
Key Highlights
- Title and scope: The convention is retitled to emphasize the elimination of double taxation and the prevention of both evasion and avoidance (Article 1, 2).
- Personal scope and fiscal transparency: Entities treated as fiscally transparent are addressed, clarifying that treaty benefits apply only to residents taxed on the relevant income (Article 3, Article 14).
- Pension funds: “Recognized pension funds” are explicitly defined as treaty residents and beneficial owners, facilitating pension-related cross-border arrangements (Article 4).
- Permanent establishment: The definition is broadened to include commissionaire arrangements and closely related enterprise activity, with new anti-fragmentation rules (Article 5).
- Royalties: Withholding tax rates are specified, 15 percent for trademarks and 10 percent for other royalties (Article 6).
- Pensions: Taxation of pensions and similar payments is clarified, with a maximum 25 percent rate for social security-type pensions (Article 7).
- Mutual agreement procedure: Enhanced dispute resolution mechanisms and timelines are introduced (Article 8).
- Information exchange: Expanded scope and safeguards for tax information exchange, including bank information, are implemented (Article 9).
- Limitation on Benefits (LOB): Detailed LOB provisions are introduced to prevent treaty shopping, with tests for “qualified persons” and active business, and the principal purpose test (Article 10).
- Anti-abuse and compliance: Explicit allowance for anti-abuse legislation (CFC, thin capitalization) and time limits for tax reassessment, with exceptions for fraud (Article 14, 15).
- Entry into force and application: The Protocol applies to Chile and Brazil from 1 January of the year following entry into force, with specific rules per tax type (Article 16).
KPMG INSIGHTS
In light of the changes, organizations and entities might wish to consider the following:
- Organizations could review their cross-border employee assignments, company structures, and investment arrangements between Brazil and Chile in light of the new LOB and permanent establishment rules.
- Employers could assess payroll and pension arrangements for compliance with the updated definitions and withholding rates.
- Companies could update internal policies and train relevant personnel on these changes.
If assignees and/or their programme managers have any questions or concerns about the scope of the update, its application and potential impacts, and appropriate next steps, they should consult with their qualified professional or a member of the GMS team with KPMG in Brazil (see the Contacts section).
ENDNOTE:
1 Presidência da República, Casa Civil, Secretaria Especial para Assuntos Jurídicos (in Portuguese), “Decreto Nº 12.863, de 2 de março de 2026,” published on 3 March 2026.
Contacts
Disclaimer
The information contained in this newsletter was submitted by the KPMG International member firm in Brazil.
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