The Proposal That Could Reduce Taxes to 5% for Investors in DFL 2
Executive Summary: The "National Reconstruction" project proposes that rental incomes from DFL 2 housing (affordable, up to 90 m²) —starting from the third property owned by a taxpayer— will pay a single tax of 5% on gross income, instead of the general regime that today can reach 35-40%. This would apply to both individuals and businesses. Additionally, it proposes to exempt the sale of new homes from VAT for 12 months. The first two DFL2 homes maintain their current exemption unchanged. (Note: the project is currently in legislative discussion; the figures and percentages cited correspond to the proposal as disseminated up to the date of this analysis and may vary during its processing).
1. What Are DFL 2 Homes and What Is Their Current Regime?
DFL 2 homes are residential properties of up to 140 m² built, defined in Decree with Force of Law No. 2 of 1959 on Housing Plan. They enjoy several tax benefits:
- Rental: the incomes they generate are considered "non-taxable incomes" for individuals, meaning they do not pay Global Complementary Tax (IGC) or First Category Tax.
- Property Tax (contributions): exempt for 10 to 20 years, depending on the size of the home.
- Capital Gains on Sale: no special exemption; it taxes with the general regime (Art. 17 No. 8 letter b of the Income Tax Law), which in practice means a rate of 10% if the property was sold after one year, or higher rates if the sale was before.
- VAT on Buy-Sell: the sale of new homes pays 19% VAT (the buyer bears it); the sale of used homes, after 36 months of the first acquisition, is exempt.
Current Limit: since Law 20.455 (2010), these benefits are restricted to individuals and a maximum of two homes per person. Starting from the third DFL2 home, rental income ceases to be exempt and is incorporated into the taxpayer's global income, taxing at the marginal IGC rate (which can reach 35-40% in high incomes).
| Tax | Current Regime for DFL2 |
|---|---|
| IGC on Rental | Exempt up to 2 homes (individuals). From the 3rd home, it taxes according to the IGC bracket. |
| First Category Tax | Individuals exempt (2 homes); does not apply to businesses, which do not access today’s benefit. |
| Capital Gains on Sale | General regime (10% if the sale is after one year; higher if it is before). No special exemption, except for leasing contracts. |
| Property Tax | Exempt for 10-20 years depending on size. |
| VAT on Buy-Sell | New home: 19% (paid by the buyer). Used home (+36 months): exempt. |
| Benefits Limit | Only individuals; maximum of 2 DFL2 homes per person. |
2. What the Project Proposes
- Single 5% Tax on Rental, Starting from the Third Home: rental incomes from DFL2 homes of up to 90 m² would pay 5% on gross income starting from the third property owned by the same taxpayer. It would apply to both individuals and businesses —a novelty, as today companies do not access DFL2 benefits. The first two homes maintain the current exemption regime.
- Size Restriction: the benefit is limited to homes of up to 90 m² built, a lower limit than the 140 m² contemplated in the classic definition of DFL2.
- Temporary VAT Exemption: for 12 months, the sales of new homes would be free from 19% VAT. The Ministry of Finance estimates that this could translate into a price reduction of between 6% and 7%, although the net impact is usually lower due to tax credits already used by real estate companies.
- Capital Gains: the project does not specify different treatment for capital gains on the sale of DFL2 homes. It is assumed, therefore, that it would follow the current general regime, unless the legislative processing incorporates additional changes.
- Other Adjustments: elimination of the property tax exemption for seniors on their first home and gradual reductions of the First Category Tax (IDPC) for businesses.
3. Arguments in Favor
- Greater Investment Incentive: by replacing marginal rates of up to 35-40% with a fixed 5% from the third home, the tax burden on those investing in several rental properties is significantly reduced, theoretically freeing up capital for new purchases.
- More Supply and Construction: lower tax costs could make more affordable housing projects viable, while the VAT exemption for 12 months seeks to accelerate the sale of unsold new homes.
- Possible Employment Effect: a rebound in construction would have an indirect effect on employment in the sector.
- Greater Equity Between Types of Investors: currently, companies do not access DFL2 benefits and tax at 27% (IDPC) plus final taxes; under the proposal, they could opt for the 5%, equating themselves with individual investors.
4. Criticisms and Risks
- Concentrated Benefit: the measure exclusively favors those who own three or more DFL2 homes —a small group— and does not directly impact access to homeownership for most households, which have 0 or 1 property.
- Reduced Tax Revenue: by replacing higher marginal rates with a fixed 5%, the State collects less from this concept, resources that could currently be allocated to other programs.
- Risk of Tax Engineering: by extending the benefit to companies, an investor could establish a company dedicated to renting DFL2 properties to tax at 5% instead of the 27% corporate tax plus final taxes, creating a gap compared to other taxpayers.
- Moderate Effect on Prices: although the government projects a reduction of 6-7% in new home prices due to the VAT exemption, several economists estimate that the actual pass-through to the final price is usually lower, given the tax credit structure in the sector.
- Increased Tax Complexity: an additional special regime is introduced within the real estate tax system, which could complicate oversight and open space for corporate structures designed specifically to access the benefit.
5. Numerical Examples
⚠️ Important: these examples are illustrative and simplify the real application of the law (IGC brackets, deductions, etc.). It assumes a natural person taxpayer in a high bracket (~35% marginal). The income indicated corresponds only to the income from the third home onward —not the sum of the three properties— since the first two remain exempt in both scenarios.
Tax on Rental Income (only the property(ies) from the 3rd onward):
| Taxable Annual Income | Current Tax (~35%) | Proposed Tax (5%) | Saving |
|---|---|---|---|
| $12,000,000 | ~$4,200,000 | $600,000 | ~$3,600,000 |
| $30,000,000 | ~$10,500,000 | $1,500,000 | ~$9,000,000 |
| $50,000,000 | ~$17,500,000 | $2,500,000 | ~$15,000,000 |
Tax on Capital Gains on Sale (current general regime, sale after 1 year; the "5%" column is a hypothetical projection not confirmed in the project, included only for reference):
| Sale Profit | Current Tax (10%) | Hypothetical Tax (5%, not confirmed) |
|---|---|---|
| $10,000,000 | $1,000,000 | $500,000 |
| $50,000,000 | $5,000,000 | $2,500,000 |
If the sale occurs before one year, the current rate can reach up to 40%, further broadening the difference compared to the hypothetical scenario.
Conclusion of the Examples: the tax savings are proportionally greater for those who currently pay high marginal rates on their rental incomes from the third home onward. For those who own one or two DFL2 homes, there is no change: the tax remains zero in both regimes.
6. How VAT and Capital Gains Operate Today
- VAT on New Homes: the buyer generally assumes a VAT of 19%, which the real estate company transmits after discounting the tax credit already used in construction (materials, land, etc.). Therefore, the net impact on the final price is usually less than the nominal 19%. The proposal eliminates this VAT for 12 months for new homes.
- VAT on Used Homes: generally exempt, as long as the 36 months period between the original acquisition and resale is met.
- Capital Gains on Sale: without special exemption for DFL2 (except leasing contracts). It taxes at 10% if the sale occurs after one year of acquisition, or up to 40% if before. The project does not modify this point.
7. Conclusions and Recommendations
The project presents a balance between incentivizing real estate investment and maintaining some social coverage, but its real scope is limited: it only benefits those who already own three or more DFL2 homes, a minority group of investors. For the average buyer or tenant, the direct change is limited, except for the possible price effect derived from the VAT exemption.
Recommendations According to Profile:
- Owners with 1 or 2 DFL2 Homes: no changes. They can continue declaring their rentals as non-taxable income.
- Owners with 3 or More DFL2 Homes: it is advisable to evaluate the new 5% regime for incomes from the third home, especially if their IGC marginal rate is high. It is also worth analyzing whether it is beneficial to reorganize property ownership under a company, since the project would extend the benefit to legal entities —although this should be evaluated on a case-by-case basis with tax advice.
- Buyers of New Homes: the temporary VAT exemption (12 months) represents a real savings opportunity in acquisition costs.
- Sellers of DFL2: since the project does not modify the treatment of capital gains, it is still recommended to postpone the sale beyond one year to access the 10% rate instead of up to 40%.
In a context of deceleration in the real estate sector and housing scarcity, the proposal seeks to reactivate housing investment through targeted tax incentives. Its final form will depend on legislative discussion, so property owners, investors, and buyers should closely follow its processing before making decisions based on its current provisions.
Methodological Note: this article summarizes a legislative proposal under discussion. The percentages, amounts, and deadlines cited correspond to the version of the project known as of the date of this analysis and are subject to changes during its processing in Congress. It is recommended to verify the current status of the project and consult with a tax advisor before making investment decisions.