Chile: Overview

RENTAL YIELDS

Yields are good in Santiago, Chile

The small rental market is quite competitive. Apartments in the capital, Santiago, have yields of around 6.5% to 7.5%.

Rental yields for houses in the main beach towns are around 6% to 8%, more for large properties. A 300-sq. m. property can be expected to generate yields of up to 9.5%.

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TAXES AND COSTS

Chile's rental income tax is high, though DFL-2 housing benefits from concessions

Rental Income: Chile’s income tax system is unnecessarily complex.

Income from real estate earned by non-residents is subject to: 1) the First Category Tax (FCT) at 17% on the accrued earnings; and 2) the Additional Tax of 35%, which is withheld, being paid at the time of withdrawal, distribution, or remittance abroad.

If the individual is subject to Additional Tax, the FCT and property taxes can be deducted. Therefore, the total tax burden is 35%, and is payable on net rental income, after deductions.

DFL-2 properties (which must be under 140 sq. m.) are exempt from income tax, and enjoy 50% off the Real Estate Tax for certain periods.

Leasing of real estate is subject to VAT at 18%.

Capital Gains: Gains are taxed at the standard FCT, like any other profit, if immovable property is sold within the first year after acquisition, or if an apartment is sold within the first four years.

Inheritance: Inheritance, gifts and donations tax rates vary according to the degree of relationship and the value of the inheritance, from 1% to 35%.

Residents: Residents are taxed on their worldwide income.

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BUYING GUIDE

Total transaction costs very low in Chile

The total roundtrip transaction cost, i.e., the cost of buying and selling the property, is between 5.3% and 6.9%. This includes the estate agent's fee of 4%, which is split evenly between buyer and seller.

The total cost of registering the property is only 1.4% of the property's value. Six procedures are necessary for registration, which can be completed in about 31 days.

If the property is newly built by a developer, the transaction cost will be higher, due to the 18% VAT imposed on such properties.

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LANDLORD AND TENANT

Chile's law neutral between landlord and tenant

Chilean law is neutral between landlord and tenant, following fairly recent changes in the law.

Rents: The rent can be freely agreed upon. There is no legal maximum for deposits.

Tenant Eviction: Eviction of tenants may be difficult or easy depending upon the nature of the agreement. Monthly tenancies can be terminated by giving two months' (notarized) notice of eviction.

However tenants in fixed term contracts and in contracts exceeding one year can only be evicted through long judicial proceedings.

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ECONOMIC GROWTH

Stable economy and politics

Chile is a stable country in a highly volatile region. There has been consistent economic growth, low inflation, low unemployment, and high national living standards for the 16.3 million.

GDP per capita is US$7,214, one of the highest in the region. In 2007, Chile is expected to gain membership of the organization for Economic Co-operation and Development (OECD), the rich nations' club.

Whereas other Latin American countries are burdened by coup d’ etat and endemic corruption, Chile is one of the region’s most investible countries.

Chile is one of the world’s longest and narrowest countries. Due to this unusual chili-like shape, its landscape and climate varies greatly.

The country is composed of three distinct and parallel; natural regions – from east to west, the Andes, the central lowlands and the Coast Ranges.

The climate varies from hot desert in the north, through Mediterranean-type in the central portion, to the cool and humid marine west coast type in the south.

Santiago, the political, cultural and economic capital of Chile lies along the temperate middle section of the country, together with the other important cities of Valparaiso and Concepcion.