The current real estate tax situation after its last reform
The Tax reform was carried out that reduced some exemptions in the real estate sector and as a consequence, taxes began to directly influence housing prices.
Before the tax reform
Public policies did not consider the collection of VAT in the real estate sector, VAT was only paid for the first sale of a new home and in used homes, no type of tax was paid, regardless of the date of construction or who the seller was. As VAT was only collected in the first transaction of the property, generally the construction companies were the ones who paid it, at a rate of 19%, based exclusively on the price of the construction, that is, without considering the price associated with the land. Also, some state-subsidized housing did not qualify for the payment of this tax.
After the tax reform
Due to the great boom in the real estate sector and considering increasing tax revenues, the tax reform carried out in 2016 brought with it a series of changes for this sector. One of the most important consisted of the elimination of some exemptions from the payment of the Tax Advantages of Rental Property on the sale of real estate.
Effects of taxes on real estate investment
- By applying the VAT payment to any regular sale of real estate, whether used or new, regardless of who sells or who buys, the price of homes increased, but not by 19% as might be assumed, but by a range from 8% to 12% depending on the value of the land, since as mentioned above, the land where the houses are located is not affected, therefore, from the sale price of a property, the component associated with the land is left out of the tax base. In order not to affect the real estate sector so radically, the new reform also brought with it some Tax Benefits of Rental Property. One of them establishes that non-regular natural persons, that is, persons who are not dedicated to the purchase and sale of homes, will have an exemption in the payment of income tax. This privilege is applicable up to a maximum quota of 8,000 UF of earnings, cumulative throughout life.
- In addition to VAT, which, as we have already mentioned, is applied after the reform, it has always been necessary to pay contributions; which correspond to a territorial tax that must be paid directly to the treasury through the SII. The collection corresponding to this tax is intended for the municipality where the house is built.
- Another of the taxes to be paid for transactions with real estate is the stamp and stamp tax or also known as mutual tax or credit tax. It is proportional to the total amount of the transaction and must only be paid when it is acquired with a mortgage loan. These last two taxes do not directly influence the price of housing, since they are relatively low rates and proportional to the final amount of the transaction. It really is the VAT, incorporated after the tax reform, the only one that marked a considerable increase in the price of homes in Chile.
- New houses or apartments whose construction permit has been approved before 2016 and which have been completed that same year are exempt from VAT payment regardless of the date they are sold.
- The purchase and sale of undeveloped land; It is important to note that these properties do not pay VAT. Since the concept defined in the standard applies only to real estate and the land is not considered as such, as long as it is undeveloped. You need to research exactly what type of property you are buying and who the seller is, because you can save a good amount on the payment if you make the decision strategically. Now you will be able to know if your future property falls under any of the clauses where VAT payment is exempt.