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What is the general climate of real estate investment in your jurisdiction?
Real estate investment has lost momentum as a result of the depressed economy, the freezing of real estate surplus and the high prices achieved in the past four years; however, it has not stopped completely, mainly because few safe investment alternatives exist. Additionally, since real estate has maintained its value, investment funds have continued to invest in development and real estate income. For these reasons, family offices have emerged as significant investors in real estate.
Institutional investment in real estate leases has been shifting from commercial and office rentals to housing rentals. Projects are being developed for housing rentals constituting long-term investments, as was traditionally the case with offices.
Who are the most common investors in real estate?
The most common investors in real estate include insurance companies, investment funds through companies with real estate purpose and real estate companies.
Are there any restrictions on foreign investment in real estate?
There are no restrictions on foreigners to invest in any kind of business in Chile. The only limitation in real estate is the purchase of property in bordering areas, which is restricted to Chilean individuals and companies.
What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?
Real estate investment can be conducted through a company that owns the real estate. The income obtained by the company for leasing the property is subject to corporate income tax (which is approximately 25% or 27%, depending on the tax system to which the company is subject). Once such income is distributed to the final owners of the company, it is subject to personal income tax or withholding tax at a maximum rate of 35%. Additionally, the capital gain arising from the sale of the real estate owned by the company is subject to corporate income tax and personal income tax or withholding tax.
Real estate investment can also be conducted through an investment fund that owns a real estate company, such company will be the owner of the real estate.
Income obtained by the company is subject to corporate income tax and personal income tax or withholding tax.
In case the investment fund sells the social rights or shares of the company, the capital gain arising from that transaction is not subject to corporate income tax. The income obtained by an investment fund is taxed only when it is distributed to its final owners. As a result, personal income tax or withholding tax apply.
It is important to consider that the fund cannot invest directly in real estate.
Income obtained from the letting of property by a natural person who is not taxed over his or her effective income is subject to personal income tax or withholding tax, depending on whether the owner is domiciled or resident in Chile.
The capital gain obtained by a natural person who is not taxed over his or her effective income in the sale of real estate is not subject to income tax up to a limit of 8,000 indexation units, considering all capital gains obtained by each person for the sale of real estate, subject to the fulfilment of certain requirements. Any excess over this limit is subject to personal income tax or to a sole tax of 10% in case of natural persons domiciled or resident in Chile, at their discretion and subject to the fulfilment of certain requirements. In case of natural persons domiciled or resident abroad, they will be subject to withholding tax at a maximum 35% over such excess.
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