Bali Real Estate News – 2016 Tax Amnesty complicates the position of nominee property owner in Indonesia

Bali Real Estate News 12.11.2016.

A tax amnesty program recently introduced by the Indonesian Government may herald some unexpected problems and complications also in the Bali property sector where the controversial – and actually illegal – use of local nominees by foreigners investing in freehold status properties in real estate remains widely used.
Under the new (July 2016) introduced tax amnesty program business owners and tax payers are being encouraged to declare their personal assets as a means of bringing much needed foreign exchange back to Indonesia and eventual compliance with the tax codes.

The new tax program however poses a dilemma for Indonesians who have lent their names as the owner of record to foreign investors purchasing freehold status properties who are urged under the amnesty to declare their assets and settle their outstanding tax obligations. But in doing so, the Indonesian nominee might potentially trigger audits on the part of tax officials if the nominee’s reported income sources were deemed insufficient to finance the declared property assets.

In Bali many nominees are used by foreign property investors are low-income Indonesians, who sign poses as nominee out of friendship or for a modest fee.
Moreover, if a nominee declares his “ownership” of a property in Bali and the subjected property is found to be in arrears on its taxes, problems may arise over settling the resulting tax obligations arising for both the nominee and ultimately the foreign investor.

The nominee’s location is clear and his data easily identified if his (the nominee’s) wealth is not reported, the local partner (nominee) will suffer because he is the shown owner. Moreover, if at some point in the future the foreign investor stops cooperating with the local owner (nominee), the tax burden will devolve to the local.

While recent changes in the rules governing foreign land ownership have been put in place that at first glance might be seen to encourage direct foreign ownership, a closer examination of these changes show that little has actually changed and that in fact, direct ownership of property by foreigners is as problematic and impossible as it ever was in Indonesia.

High minimum investment values and strict conditions imposed on the future sales/transfer of properties owned by foreigner or his/her estate creates obstacles and disincentives to the purchase of property by the foreigner.

The Indonesian government will be firm in dealing with nominee owners in Bali and notaries have to cooperate in this effort in order to safeguard the interest of the local people.