Special Tax on the Transfer of Real Estate Incorporated into the Urban Boundary (Revival of the So-Called "Ley Caval").

Introduction

In 2018, Law No. 21,078 was enacted. Article 4 of the law established a special 10% income tax applicable to for-consideration transfers of real estate whose commercial value increases as a result of being incorporated into the new urban boundary under the applicable zoning plan ("plan regulador") for the area where the property is located. The aim is to capture the increase in value a property experiences when it is included in a new extension of the urban boundary.

This is a tax distinct from, and additional to, the income taxes that ordinarily apply to capital gains earned by a taxpayer. The tax applies both to individuals and to companies or other types of legal entities, with no distinction or exceptions regarding the transferor.

Although Law 21,078 has been in force since August 16, 2018, its application requires Chile's tax authority (Servicio de Impuestos Internos, "SII") to issue an exempt resolution regulating certain values, methodologies and procedures needed for the tax to become applicable. That resolution has not yet been issued by the SII, which has so far prevented this tax from being collected.

There is also no SII circular interpreting the general application of this rule. However, the SII has already issued a draft circular, which was open for public consultation during February 2025. The exempt resolution and the final circular may be issued at any time, at which point this tax could begin to apply.

The central aspects of this tax are reviewed below.

Scope of application

The tax applies to for-consideration transfers (it does not apply to gifts or donations) of real estate located in areas incorporated into the urban boundary under draft new zoning plans, up until the first transfer carried out after publication of the zoning plan that includes such expansion.

Accordingly, while the zoning plan has not yet been published but is under review, the tax may apply each time the property is transferred, provided the other legal requirements are met. Once the plan is published, the tax may affect only the first subsequent transfer, with later transfers of that same property falling outside the scope of this tax.

The law also sets a maximum time limit. Transfers carried out after 18 years have elapsed from the first of the following two events are not subject to the tax: (i) publication of the zoning plan that expands the urban boundary to include the property, or (ii) 7 years elapsing since the SII was notified of the expansion agreement by the competent authority, as applicable.

Calculating the tax base

The tax base is calculated by determining the difference between the property's final and initial commercial values, duly adjusted.

The calculation is structured as follows:

• Difference between commercial values: the Final Commercial Value ("FCV") less the Initial Commercial Value ("ICV"). For these purposes, the ICV is increased by expenditure on improvements that increased the value of the property, duly adjusted for CPI variation and provided the other requirements set out in the law are met.
• Adjustment for variation: the difference between the FCV and the ICV is increased according to the positive variation experienced by the value of rural real estate between the periods set out in the law, expressed as a percentage in accordance with the variation index set by the SII.

Rules for determining reference commercial values

To ensure that the tax calculation reflects a genuine increase in wealth, the law requires the SII to use public, objective methodologies.

For these purposes, the law sets out rules for determining the two commercial values that make up the tax base:

• Initial Commercial Value (ICV). A distinction must be drawn between the property's value for the first transfer subject to this tax and its value for later transfers. For the first transfer, the initial value is determined by the SII through an appraisal carried out as of the date on which the area or sub-area where the property is located became part of the draft urban boundary expansion. For later transfers, the property's acquisition value is used.
• Final Commercial Value (FCV). The criterion for setting the value at the time of sale depends on the stage at which the sale occurs:
  • Transfers occurring while the new zoning plan (which would incorporate the property's area into the urban boundary) is being processed: the sale or transfer price agreed by the parties applies.
  • Transfers occurring after the new zoning plan has been published, or after 7 years have elapsed since the SII was notified of the boundary expansion agreement: a reference commercial value provided by the SII applies. Even so, the taxpayer may use the price agreed in the contract, provided supporting evidence is submitted showing that price reflects market conditions.

Exceptions where the tax does not apply

The law provides for situations in which the tax does not apply. These are:

• Transfers where the sale price is equal to or less than UF 5,000 (Unidad de Fomento, Chile's inflation-indexed unit of account).
• Transfers carried out after the proposed boundary expansion has been rejected.
• Transfers carried out after the area or sub-area where the property is located has been excluded from the zone covered by the urban boundary expansion.
• Forced transfers carried out under a law authorizing expropriation for reasons of public utility or national interest.
• Transfers occurring in real estate leasing transactions.

Filing and payment of the tax

This tax is filed and paid by the transferor (seller) in April of the year following the year in which the transfer takes place, using Tax Return Form 22 ("Formulario 22").

Other considerations

• This tax is not deductible as an expense for First Category taxpayers, but nor is it treated as a non-deductible expense subject to the 40% single tax under Article 21 of the Income Tax Law (LIR).
• First Category taxpayers must recognize this tax on an accrual basis, while taxpayers subject to Final Taxes must report it on a cash basis.