Chile: Taxes and Costs

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

INDIVIDUAL TAXATION

All Chilean taxes are national, with no significant local taxes. The tax authority is the Chilean Internal Revenue Service (Servicio de Impuestos Internos or SII). Income from real estate is subject to general tax rules.

INCOME TAX

Based on the complex Income Tax Act or Ley de la Renta. Non-residents are taxed on their Chilean-sourced income. Income taxes, both corporate and individual, are divided into:

• Category Taxes: payable on specific types of income.
• Global Taxes: payable on all income, using the place of residence to differentiate tax rates.

Category Tax on Non-Employment Sourced Income for Non-residents

First Category Tax, FCT or (Impuesto de Primera Categoria)

Rental income derived from from real estate, industry, commerce, mining and other activities involving capital is subject to ‘First Category Tax’ (FCT) or Impuesto de Primera Categoria at a flat 17% rate.

Depreciation

Deductible expenses include the depreciation of tangible assets as established by SII. Accelerated depreciation is an option, calculated over 1/3 of the normal useful life of the assets, if this exceeds 5 years, as determined by a public list. FCT can deduct accelerated depreciation as a necessary expense to generate income and is allowable credit against Additional Tax for non-residents.

The Global Tax for Non-residents

Additional Tax or Impuesto Adicional

Income obtained by non-residents is subject to Additional Tax (AT) or Impuesto Adicional, which is withheld at source at a rate of 35%.

The taxpayer can deduct First Category Tax and property taxes from taxable income. The total tax burden is therefore 35%, payable on net rental income, after deductions.

• Non-Agricultural Real Estate

Income Tax Law treats non-agricultural and agricultural real estate differently. The assumed income of taxpayers with simplified accounting records is equivalent to 7% of the fiscal assessment of the property. If the effective income from the property exceeds 11% of the fiscal assessment then the owners are assessed on their full income.

• DFL-2 Properties

A special law, Decreto con Fuerza de Ley 2 (DFL-2) was established in 1959 to encourage the construction of affordable housing (viviendas economicas) of less than 140 sq. m. Income generated from the rental of DFL-2 properties is exempt from income tax and global tax. Originally intended to encourage new construction, DFL2 now extends to luxurious properties in the best neighborhoods, beaches, and resorts, which may cost US$250,000, but such high-end properties do not produce the best yields. Foreigners wishing to buy and rent larger apartments not covered by DFL2 need to understand Chilean income tax law.

Originally intended to encourage new construction, DFL2 now extends generally to apartments and houses of less than 140 sq. m. Within this category, there are luxurious properties in the best neighborhoods, beaches, and resorts, which can easily cost US$250,000. Though, such high-end properties don’t produce the best yields.

Larger apartments not covered by DFL2. Those wishing to buy larger apartments not covered by DFL2 will, if they intend to rent them, need to understand something of Chilean income tax law.

Special Regimes for Investors

1. Foreign Investment Statute

Under the Foreign Investment Statute (Decreto de Ley 600), the foreign investor may choose to pay a higher tax of 42% instead of the Additional Tax of 35%. The rate is fixed for a period of 10 years, which may in certain circumstances be extended to a maximum period of 20 years. The investor may opt out of the special regime and thereby pay the AT, but once opted out may not go back.

2. Foreign Capital Investment Fund

Under the Investment Fund legislation the foreign investor may also be eligible for a special reduced tax. A requisite for this benefit is an obligation to maintain the investment in Chile for at least 5 years. The fund is taxed at a flat rate of 10% on its remittances; however any initial capital remitted is not subject to any tax.

3. There are other special regimes for certain regions such as the exemption of any property and income tax in the Easter Islands, the towns of Iquique and Punta Arenas, the Navarino area in the north of Chile.

CAPITAL GAINS TAX

Capital gains on the sale or transfer of real estate are not taxable if the seller is not habitually in the business of buying and selling properties.

Selling an apartment or flat owned for less than four years, and selling other immovable property within one year of acquisition, is considered a habitual transactions. The gains are taxed as any other profit at the standard FCT rate of 17%. The taxable capital gain is computed by deducting the acquisition costs from the selling price. The acquisition cost is adjusted for inflation based on the consumer price index.

VALUE ADDED TAX (Impuesto al Valor Agregado)

Chile imposes 18% VAT on most goods and services. As a general rule, the sale of real estate is exempt from VAT but, the leasing of real estate is subject to VAT.

PROPERTY TAX

Real Estate Tax (Impuesto teritorial)

Real Estate Tax is levied on the fiscal valuation of property as assessed by the authorities, and is increased annually according to the Consumer Price Index. The tax rate is 1.2% of the fiscal valuation plus 0.025%. Real Estate Tax is due in four installments, in April, June, September, and November, calculated on the valuation in force at the time of payment.

• DFL-2 and Real Property Tax

DFL-2 properties are subject to Real Estate Tax. Property owners pay only 50% of the tax for:

• 10 years if the property area is between 140 sq. m. and 100 sq. m.
• 15 years, if the property area is between 70 sq. m. And 100 sq. m.
• 20 years if it is less than 70 sq. m.

Chile - more data and information

• Guide to buying houses and registering property sales in Chile

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