Rental income in Chile: what real estate investors should report

Rental income from real estate in Chile is an increasingly relevant issue for individuals, investors and professionals who maintain properties in the country.

For many years, people often assumed that rental income related to homes covered by the DFL2 regime did not need to be reported or did not generate significant tax effects. However, recent legal changes have significantly modified that understanding.

As of January 1, 2023, individuals may access the DFL2 benefits only for a maximum of two homes, regardless of the date on which those homes were acquired.

This means that if a person owns more than two homes covered by DFL2, rental income obtained from the third property onwards must be reviewed under the general rules of the Chilean Income Tax Law.

The Chilean tax authority has also clarified this criterion. Ruling No. 2322, dated August 31, 2023, stated that individuals may benefit from DFL2 only for a maximum of two homes. If they own more than two, the benefit applies to the two oldest homes by acquisition date.

In practical terms, this means that rental income from additional homes may be subject to the Global Complementary Tax, even if it may be exempt from First Category Tax in certain cases.

Therefore, it is not enough to know whether a property is DFL2. It is also necessary to review how many properties the person owns, which two are the oldest, how they are being used and what income they generated during the year.

The Chilean tax authority has also incorporated support and control tools, such as the real estate rental assistant within the annual tax return process. This tool uses information available in the tax authority’s databases about the taxpayer’s properties and allows data to be incorporated regarding use, rental status, property purpose, ownership percentage and other relevant details.

This tool can facilitate reporting, but it also increases visibility over inconsistencies. For example, unregularized properties, incorrectly reported use, unsupported free-use arrangements, incomplete data or unreported income.

Some examples help illustrate the change:

If an individual owns two DFL2 homes and rents out one of them, they may generally continue to benefit from the DFL2 treatment.

If an individual owns five DFL2 homes, even if they were acquired before 2010, income generated from the third home onwards must be reviewed, because since 2023 the limit applies regardless of acquisition date.

If a person occasionally rents out a second home through platforms such as Airbnb, the analysis will depend on the number of homes covered by the benefit, the use of the property and the specific rules applicable to the case.

If the real estate investment is carried out as an individual entrepreneur or through a company, the treatment may be different. The non-taxable treatment for up to two homes applies to individuals under certain conditions, not necessarily to business or corporate structures.

The key is not to analyze properties in isolation. The taxation of a real estate portfolio depends on the number of properties, DFL2 status, acquisition date, actual use, form of exploitation, ownership and the structure through which the investment is held.

For individuals with international mobility, this analysis can be even more important. A person leaving Chile may continue to own rental properties in the country, and those rents may generate local tax obligations. Similarly, a foreign individual arriving in Chile with real estate investments, or acquiring properties during their stay, should understand how those income streams fit into their personal tax position.

The conclusion is simple: rental income should be reviewed from a portfolio perspective, not only property by property. Proper planning can help avoid annual tax return errors, anticipate the tax burden and make better investment decisions.