Properties for Sale in Chile

Tax and Offshore Investment in Chile

Tax regimes vary greatly throughout Latin America. While some countries are investor friendly, others are not so open. There are several benefits (i.e. retirement programmes, tax discounts) but also some tax obligations. In this section we provide an analysis of the different tax structure in each country where January First Real Estate lists properties. This information may be very important for you to choose you retirement destination or where to invest. Keep in mind that there are related visa and residence issues which are discussed in Visa/Residence Requirements. In case you need more information or have doubts on any of these issues, the specialised staff in January First Real Estate will be glad to answer all your questions, click here.

Real estate assets are, without doubts, one of the most secure and profitable ways of investment. There are two main reasons for this:

1. Properties always tend to increase their value in the long term.
2. They generate an income for their exploitation (rental/yields).

Taxes and Costs in Chile

Rental Income
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.

The 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, he may not go back into the regime.
2. Foreign Capital Investment Fund
Under the Investment Fund legislation, the foreign investor may also be eligible for a special reduced tax. Notably, the 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; any initial capital remitted is not subject to any tax. Other special regimes exist for certain regions, e.g. 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.

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.
  
  

• First Category Tax, FCT (Impuesto de Primera Categoria)
  This tax is levied on business income, investment income, and any unearned income by the residents. The FCT is imposed at a single rate of 17% as of 2004.
  
• Second Category Tax, SCT (Impuesto Unico de Segunda Categoria)
  This is a progressive tax on salaries, fees, wages, and other forms of remuneration paid for personal services. It is calculated on gross salary as an employee and work compensations less social security payments. The tax rates range from 0% to 45% and is withheld by the employer.
  

Chile, make your dream investment come true.