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It is possible to achieve financial freedom if you have an organized plan. If a big part of your plan is real estate investment, you definitely need to know DFL2.
What is DFL2?
DFL2 is short for decreto de fuerza de ley 2 in Spanish. It was framed by SII, the Chilean tax authority and has been implemented since from the 50s. The decree aims to promote investment and commercialization of low cost residential buildings.
Why low cost residential buildings?
Many countries try to promote real estate investments to stimulate demand and supply of housings for lower or middle class, which usually means lower rents. Promoting such a decree that gives tax exemptions of certain properties makes acquiring one more attractive.
Leverage of real estate investments
Leverage consists of making a purchase transaction with third-party funds. This debt deployed to finance the operation is known as a healthy debt, since it can later generate income and capital gains.
In the real estate sector there is a great variety of leverage. One of them requires knowing and taking advantage of the tax laws. The main advantage of this type of operation is that you can multiply the investment return.
The DFL2 is undoubtedly a decree to be taken into account due to its great benefits in taxes, such as tax-free leasing income or 50% discount of taxes.
Below are a few key points to understand DFL2 so that you can use it to your full advantage with your residential properties.
Construction area
The internal construction area has never been so important. To be qualified for DFL2, the property needs to be less than 140 square meters.
You must take this limit into account if you plan to remodel the property in the future. One square meter more can make you lose all the privileges of this decree.
In single-family homes, all those enclosures inclding living room, bedrooms, bathrooms, kitchen, dining room and hallways are considered as internal areas, but not basement and garage.
With regards to apartments it is very important to take into account the terraces. Since you can not modify them, they count as internal areas.
Year of the property
The age of the property is another key factor if you are going to invest in a DFL2 home. One of its main benefits, which is tax 50% discounts, has clauses that vary according to the age and the construction area. So make sure that the property does not have more than 10 years of construction.
The use is essential for DFL2
This decree only covers buildings intended for residential purpose. If you modify the status from residency to office or commercial premises, you will immediately lose the benefits of the decree.
To finish, keep in mind the restrictions. A few years ago changes were made to the decree, restricting the acquisition of DFL2 properties to only two per owner.
What benefits are subjected to DFL2?
- 50% discount on the Real Estate Curator’s tariff
- 50% discount on stamp taxes
- Exemption from inheritance tax and donations
- Tax-free lease income
- 50% discount on taxes
In Chile, taking advantage of this decree is an excellent starting point to achieve your financial freedom as a real estate investor.
