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Chile Property Taxes Update

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Chile Property Taxes Update

Chile Property Taxes Update

First, some basic tax terminology in Chile Property Taxes in Chile is paid proportional to a government valuation of each individual property.  These valuations are known as “avalúo fiscal” and are governed by the Chilean IRS, “Servicio de Impuestos Internos (SII).” The Chilean IRS is regulated by the Real Estate Tax Law or “Ley Sobre Impuesto Territorial” and the taxes paid are known as “contribuciones” in Chile.

Let us first warn you, the legal value of the property “avalúo fiscal” DOES NOT represent the market value of the property. The legal value is determined by the Chilean IRS, which takes into consideration objective sources such as local real estate prices, size of the property, on-site constructions, quality of the construction, year of the construction, and land-use. It is typically less than the market value in some areas, and should not be used as any sort of measure of the market value of property when considering a purchase.

The rules for determining property tax rates differ depending on land use. The two major land use categories are: urban property and agricultural property. Urban properties are further divided with residential or commercial designation. The Chilean IRS designation of “commercial” property also does NOT mean that the land is necessarily zoned for a specific purpose or restricted to certain types of construction. It is simply a tax use designation.  Zoning, building permits and the like are regulated on county by county basis by the Municipalities.

Property Tax Exemptions in Chile:

Within urban properties, any house or apartment with a legal value below $14,655,788 CLP DOES NOT PAY Property Tax. This applies to buildings in general, but does not include lots located in urban areas without constructions.
Any agricultural property valued up to $5,306,642 CLP is exempt from property tax.

Urban Properties: non agricultural – non commercial land:

Less than $ 14.655.788                                0.00%
between $ 14.655.788 and $ 52.342.100     1.00%
more than $ 52.342.100                                1.20%

Commercial properties (non agricultural)

Pay 1,2% plus an additional 0,025% tax.

Property taxes in Chile may be paid in 4 payments with due dates in April, June, September and November, or in one lump sum per year.

How to find the property tax rate for a particular piece of property:

So, you are looking at buying a piece of real estate, or already own a piece of real estate in Chile and you want to know how much you have to pay in property tax.

This is what you need to do.

To evaluate any property you will need to obtain the Property Tax Identification Number or “Rol de Avalúo” in order to track the property. With this number in hand you must ask the Chilean Department of Treasury “Tesorería General de la República” for the corresponding Debt Certificate or “Certificado de Deuda” which will list the property tax amount.

If you would like to know the official legal value of the property, you may obtain a Certificate of Valuation from the Chilean IRS or “Certificado de Avalúo Fiscal”. This Chilean IRS issued certificate registers the legal value of the property, official address, name of the owner as registered by the Chilean IRS, and any tax exemptions the property might have. This certificate DOES NOT constitute a legal document to prove ownership of the property. The only document that constitutes legal ownership is the Ownership Certificate or “Certificado de Dominio Vigente” issued by the Title Registry or “Conservador de Bienes Raíces” where all property titles are registered in Chile. Title Registry offices are based on regions.

You can obtain this certificate of legal value online at the Chilean Tax Bureau website, with the corresponding Property Tax Identification Number or “Rol de Avalúo”.

What does property tax law in Chile mean for you?

First off, Chilean law is such that anyone with a Tax Identification Number or “RUT” can buy, own or sell property in Chile.  A Chilean Tax ID number is very easily obtained and you are able to buy property in Chile without ever visiting Chile.  Though in most cases we do note recommend buying without visiting, this goes to show the simplified and approachable nature of purchasing real estate in Chile.

Chilean property tax law is well structured, easy to understand with rates that are low in regards to comparable real estate markets around the World and Latin America.  Particularly noteworthy are the relatively high exemption limits and the real estate potential for agricultural properties with low government valuations that oftentimes pay below 0.5% of market value.

In the United States, where property tax rates are individually state-regulated and notable for their complicated nature, understanding property tax law can cost more than the tax itself.  The most notable difference is that Chilean property valuations are “cadastral values” meaning that they are government regulated, whereas in most of the United States the assessment standard of value is fair market value.

In California, for example, the 2011 average property tax rate was 1.132% levied on the fair market value of the property.  By law, properties are reassessed to current market value upon change of ownership or completion of new construction.

With regards to agricultural land, there are various benefits that all 50 states offer; however, returning to our California example, in order to access the agricultural benefit you must own at least 100 acres and sign a minimum 10 year contract limiting land use to agriculture.  And what is the benefit? It is a use-based assessment rather than fair market value.
Source: Lincoln Institute of Land Policy

And Finally…

The Chilean IRS will periodically reassess property value throughout the country. Though these periodic assessments are supposed to occur every 5 years, there has been no real historical rhyme or reason to the timing of the reassessments, as it can take years for the government to complete the entire country once started. They can occur at any time. That said, the law does provide for limits on the rate at which your property taxes will increase each year, until the new tax rate is reached. It is also possible to challenge the value through both administrative appeal and the courts.

Every time you purchase a property a notary must inform the Chilean IRS and check that all taxes have been paid. Without the proper tax certificate demonstrating that a property is free of any debt you cannot purchase the property. There are no exceptions to this rule, and you should always check when negotiating the purchase of a property that the owner is able to clear any tax debt on the property before buying.

A word to the wise, any property purchase in a foreign country should count with expert legal and tax advice. If tax law in Chile is in many ways simple, it is still law and should be handled carefully. Mistakes can be costly, and properties are auctioned off in Chile everyday for failure to pay taxes.

About the Author: 

Zandra Valenzuela Delgado is senior attorney with Spencer Global. She is a graduate of the University of Chile Law School. Zandra is also a professor of Public International Law at Catolica University in Temuco and Austral University in Valdivia, Chile.

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