FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO

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FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
GLOBAL PRIVATE CLIENT SERVICES
FOREIGN PROPERTY
OWNERSHIP
MAY 2018
FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
ii   FOREIGN PROPERTY OWNERSHIP

EDITORS NOTE

As global mobility increases it is becoming    This, combined with the introduction
common for high net wealth families to         of the Common Reporting Standard
own homes in a number of countries, as         (CRS), has greatly increased the level of
well as investing in commercial and other      transparency with families with real estate
real estate outside of their country. Often    and bank accounts in many countries
this can be driven by their children who       throughout the world. The CRS increases
have chosen to undertake their university      tax transparency from 2017 onwards as
studies abroad or alternatively the desire     financial institutions release information
to retire to another country once their        each year to the tax authority in their
business’s have been sold.                     country which then shares it with tax
                                               authorities in other countries. Over 100
As a result of this, Governments
                                               countries have committed to the CRS
around the world are closely examining
                                               including countries like BVI, Guernsey,
investment in real estate by foreigners
                                               Jersey.
with many countries restricting ownership
only to newly built houses to try and drive    In this publication we detail the legal and
the construction industry. An emerging         tax rules of foreigners buying real estate in
trend across a number of jurisdictions is      the Asia Pacific region as well as popular
the perception that foreigners are driving     countries of Canada, USA and UK
up domestic residential house prices
resulting in governments restricting
domestic banks to loan funds to foreigners
to purchase a new house and also the
introduction of a ‘vacancy levy’ or ‘empty
homes tax’ to encourage property owners
to either live in their property or make it
available for rent thus adding to the supply
of housing availability and affordability.
What is also apparent is that many             MARK POLLOCK
countries have been lax in recording of        Private Client Strategy Group - Asia
foreign ownership of property with some        Pacific
moving towards a register of beneficial        Disclaimer: This publication has been carefully prepared
ownership to bring some transparency to        however has been written in general terms and should
the degree of ownership by people living       be seen as broad guidance only. Please see back page for
                                               full disclaimer
abroad.
FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
FOREIGN PROPERTY OWNERSHIP   01

MAIN PAGE TITLE
MAIN PAGE SUBTITLE

 CONTENTS
 EDITORS NOTE             II
 AUSTRALIA                02
 CANADA                   05
 CHINA          		07
 HONG KONG 		09
 INDONESIA		              10
 MALAYSIA       		13
 NEW ZEALAND 		15
 PHILIPPINES    		20
 SINGAPORE      		22
 THAILAND       		26
 UNITED KINGDOM           28
 UNITED STATES 		34
 ABOUT BDO GLOBAL         37
 GLOBAL PRIVATE CLIENTS   38
 BDO GLOBAL TEAM          39
FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
02 FOREIGN PROPERTY OWNERSHIP

AUSTRALIA

                                          LEGAL REQUIREMENTS                                Generally, all foreign persons are required
                                                                                            to submit an application for approval to
                                          FOREIGN INVESTMENT REVIEW                         the FIRB for any proposed acquisition of
                                          BOARD RULES                                       Australia property, whether that be for
INTRODUCTION                                                                                residential, commercial or agricultural
                                          Australia has a Foreign Investment Review         purposes subject to specific exemptions.
Australia generally encourages foreign
ownership of property subject to          Board (‘FIRB’) who are responsible for            The FIRB rules vary according to the type
satisfying specific conditions, which     examining foreign investment proposals            of land being purchased being
depend upon the type of property          and acts as an advisory body to the
                                                                                            1. Residential
being purchased ie: residential,          Treasurer, who exercises his discretion
                                          to accept or reject applications, or              2. Commercial
commercial or agricultural.
                                          impose conditions on foreign investment           3. Rural /Agricultural land
See figure 1a and 1b for a high level     proposals, in accordance with Australia’s         Each is considered in more detail.
summary of the rules.                     foreign investment policy.
In this article we have considered both
                                          Figure 1.a
the legal and tax considerations for
foreigners looking to purchase property    RESIDENTIAL PROPERTY
in Australia.                              TYPE OF PROPERTY                                    TEMPORARY RESIDENT         NON RESIDENT
                                           New house/apartment (for residence)                 Yes                        Yes*
                                           Existing houses (for residence)                     Yes*                       No
                                           Investment properties                               No                         No
                                           Vacant land/build house                             Yes*                       Yes*

                                          *Need to apply to Foreign Investment Review Board (‘FIRB’) for approval

                                          Figure 1.b
                                           COMMERCIAL AND RURAL PROPERTY
                                           TYPE OF PROPERTY                               TEMPORARY AND NON RESIDENTS
                                           Commercial – Mines and Public Infrastructure   A$54m – FIRB approval required
                                           Commercial – Developed                         A$232m** – FIRB approval required
                                           Vacant land for commercial development         FIRB approval required
                                           Agricultural land                              A$15m – FIRB approval required

                                          **some countries have higher threshold of $1,094m
FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
FOREIGN PROPERTY OWNERSHIP 03

RESIDENTIAL REAL ESTATE                        and hotels, do not require approval where     TAX RULES
                                               the value of the real estate is less than
Australia’s foreign investment policy          $54m for mines and public infrastructure
encourages foreigners to purchase newly
                                                                                             STAMP DUTY
                                               or $A252m million for developed
constructed houses typically referred to as    commercial properties. If the real estate     On purchase of a property a stamp duty
‘off-the-plan’ properties. These are more      is heritage listed, a lower threshold of $5   tax is payable on the purchase price
often than not apartments, which are           million applies. Any proposed acquisitions    payable by the purchaser. Stamp duty is
generally approved without conditions.         above this threshold must be approved by      levied at graduated rates as a State Tax
Foreign persons are prohibited from            the FIRB prior to purchase.                   and the rates vary between each State.
purchasing established houses, regardless      All foreign persons must notify the FIRB      Some States also impose a stamp duty
of whether it is to be used as an              of a proposed acquisition of vacant land      surcharge on residential property for
investment property or as their residence.     for commercial development, regardless        foreign buyers. The maximum rates are as
However, those classified as ‘temporary        of the value of the land. Such applications   per Figure 1c.
residents’ for income tax purposes are         are normally approved subject to
permitted to purchase one established          development conditions.                       LAND TAX SURCHARGES
dwelling only. This is on the condition
that it is used solely as their residence      AGRICULTURAL LAND                             All States impose land tax on certain
while they are in Australia, and it must                                                     types of property with New South Wales
generally be sold once it ceases to be their   All foreign persons must apply for FIRB       and Victoria also imposing surcharges for
residence.                                     approval for a proposed acquisition of        foreign investors.
                                               an interest in agricultural land where the
Applications to purchase vacant land           cumulative value of the land owned by the     FEDERAL INCOME TAX
for development are normally approved          foreign investor, including the proposed
subject to certain conditions; for example,                                                  Any income derived from renting the
                                               purchased, exceeds $A15 million. This         property and any profit made on the
construction must begin within 24              threshold has substantially reduced from
months.                                                                                      sale of the property is subject to federal
                                               the previous threshold of $A252 million.      income tax. The rate of tax depends upon
All foreign persons must notify the FIRB       Agricultural land is land which is used       who the legal owner of the property is.
of any proposed acquisition of residential     wholly and exclusively for the carrying       Companies pay tax at 30% with no further
real estate, which includes new houses,        on of a primary production business, as       tax payable on remittance of the funds to
off-the-plan properties, or vacant land        defined in the Act.                           the overseas investor whereas individuals
for development. In February 2015,                                                           are taxed at marginal rates which could be
the Federal Treasurer ordered the sale         FIRB FEES AND PENALTIES                       as high as 45%.
of a $A39 million Sydney harbour side
mansion, which had been purchased by           There are fees to apply for FIRB approval.    A foreign investor is required to file an
a Chinese national who failed to seek          Business, commercial real estate and          annual tax return with the Australian Tax
prior approval from the FIRB. The foreign      agribusiness investments would be subject     Office. The Australian tax year runs from
investor was given 90 days to sell the         to applications fees ranging from $5,000      1 July to 30 June. Substituted accounting
property, which had been purchased             to $100,000 depending on the size of the      periods can be obtained in certain
through various shelf companies in             investment and the sector it operates in.     circumstances.
Australia and Hong Kong. Currently, only       In addition to the current criminal           WITHHOLDING TAX
divestment orders and criminal penalties       penalties, the Government has also
apply for breaches of the foreign property     introduced civil pecuniary penalties and      New laws from 1 July 2015 will require
ownership rules. Under the current rules,      infringement notices for breaches of          real estate agents to apply a 12.5%
breaches could attract criminal penalties      the foreign property ownership rules.         withholding tax to the disposal by foreign
of $85,000, imprisonment of two years,         These changes could see infringement          residents of certain ‘taxable Australian
or both.                                       notices ranging from $2,040 to $51,000        property’, which will cover everything
                                               depending on the investor and whether         except residential property with value
COMMERCIAL REAL ESTATE                                                                       less than $750,000. This will include
                                               they voluntarily came forward. Civil
Investment proposals for existing              penalties could range from 10% to 25% of      commercial property, agricultural
developed commercial real estate,              the purchase price or market value of the     property, mining interests and residential
including offices, factories, retail outlets   property, whichever is higher.                property over this threshold.
FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
04 FOREIGN PROPERTY OWNERSHIP

These measures have been introduced as
the government believe that a number
of foreigners are buying and selling real
estate in Australia and evading Australian
tax. This withholding tax is designed really
to bring foreigners onto the ‘radar’ of the
tax authorities as they have no other way
of detecting them. The amount withheld
is a non-final withholding tax and will
be credited to the account of the foreign
resident payee when calculating their
final income tax position for the relevant
tax year. The foreign resident will still be
required to have a tax file number and will
have to lodge an Australian income tax
return disclosing the sale of the property.

VACANCY LEVY
Foreigners who purchase a new house
or apartment after 9 May 2017 will be
subject to a levy unless the property is
occupied for 6 months a year either by the
owners or being rented to tenants.

GIFT, INHERITANCE, ESTATE TAXES
Australia does not impose any gift,
inheritance, or estate taxes on the death
of an owner. On death, the beneficiary
of an estate inherits the cost base of
the property of the deceased. If a gift of
property is made during the lifetime of an
individual to a related party, it is deemed
to be disposed of for the market value at
the time of the gift.
                                                ”BDO is exceptionally well
Figure 1.c
                                                positioned to deliver market
 CITY        STATE   RATE OF       SURCHARGE
                     STAMP DUTY                 leading services in relation to
 Adelaide    SA      5.00% over    4%
                     $300,000                   cross border tax planning. Many
 Brisbane    QLD     5.25% over
                     $980,000
                                   3%
                                                of our clients are entrepreneurs
 Darwin      NT      5.45% over
                     $3million
                                   0%           with complex international
 Perth       WA      5.15% over
                     $725,000
                                   4% ( 1 Jan
                                   2019)
                                                affairs and we work with the
 Melbourne   VIC     5.50% over    7%           client and their advisers to
                     $960,000
 Sydney      NSW     7.00% over    8%
                                                achieve the desired objectives”
                     $3million
FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
FOREIGN PROPERTY OWNERSHIP 05

CANADA

LEGAL REQUIREMENTS                              FOREIGN BUYERS TAX

Canada generally encourages foreign             In addition to the land transfer tax, foreign
ownership of real estate, and most              buyers (including individuals who are
provinces treat foreign purchasers of           not citizens or permanent residents of          INTRODUCTION
residential and commercial real estate          Canada, as well as foreign corporations
                                                and entities) will pay an extra 15% tax         Canada has seen substantial
the same as residents. Any restrictions                                                         activity in recent years by foreigners
pertain to agricultural land and exist          on the purchase of a residential property
                                                in certain jurisdictions. The additional        looking to invest in residential
at the provincial level. One exception                                                          and commercial real estate and
is Prince Edward Island, which forbids          foreign buyers tax came into effect
                                                                                                development projects. In this
foreigners from owning more than 50             on August 2, 2016 for residential real
                                                                                                article we have considered the tax
meters of waterfront without special            properties located in certain areas around
                                                                                                considerations for foreigners looking
permission. Some provinces have placed          and in the Vancouver, British Columbia
                                                                                                to purchase property in Canada.
strict limitations on the number of acres       area. The additional foreign buyers tax
of farmland that foreign individuals            also came into effect on April 22, 2017 in      It is relevant to note that the BC
or corporations may own, while other            certain areas around and in the Toronto,        government has announced plans to
                                                Ontario area.                                   introduce an annual speculation tax
provinces allow non-residents to buy up
                                                                                                for specific locations which is targeted
agricultural land unrestricted. Foreign
                                                EMPTY HOMES TAX                                 at foreign and domestic speculators
investors seeking to buy farm land in
                                                                                                who have removed their units from
Canada should consult their legal advisors      On January 1, 2018, the City of Vancouver,      BC’s long-term housing stock –
before making an offer.                         British Columbia will implement an empty
                                                homes tax (‘Vacancy Tax’) being 1% of           meaning they are not owner-
TAX RULES                                       the property’s assessed taxable value for
                                                                                                occupied or a qualifying long-term
                                                                                                rental property. It will also apply to
                                                homes that are not being occupied as a
LAND TRANSFER TAX                                                                               ‘satellite’ families - households with
                                                principal residence or homes that have not
                                                                                                high worldwide income that pay little
                                                been rented for at least 6 months of the
The provinces of New Brunswick, Quebec,                                                         income tax in BC.
                                                calendar year.
Ontario, Manitoba and British Columbia
impose tax on transfers of real property,       VALUE ADDED TAX
including fixtures attached to land. The
rate of tax is a percentage of the amount       The federal government imposes a form
paid for the property and varies from           of value added tax known as the goods
0.5% in New Brunswick to 3% in British          and services tax (GST). Notwithstanding
Columbia. In addition, all provinces,           the goods and services name, the tax also
territories, and certain municipalities, levy   applies to various transfers and leases of
some form of fee for the registration of        real estate. The federal rate is 5% and is
mortgage or deed of title.                      applied to the sale price. Certain supplies
                                                are exempt, most notably the sale of used
                                                residential housing and residential rents.
                                                In addition, various provinces impose
FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
06 FOREIGN PROPERTY OWNERSHIP

provincial sales taxes on the sale and lease   WITHHOLDING TAX                                  The withholding tax requirements can
price of certain assets and some services.                                                      be reduced or eliminated if the non-
Provincial sales tax rates range from          Rental Income                                    resident vendor obtains a Certificate of
zero in Alberta and the three territories      A flat 25% withholding tax applies on the        Compliance from CRA on a timely basis.
to a high of 10% in Nova Scotia. In            gross amount of Canadian-source rental           This process requires the filing of a form
general, provincial sales taxes are not VAT    income paid or credited to a non-resident.       with CRA in advance of the disposition
systems, however, many provinces have          In the case of rental income from real           or within 10 days thereafter, together
harmonised with the federal GST system         estate, an individual may elect to file a        with evidence as to the sale proceeds
and the combined federal and provincial        Canadian income tax return in respect            and the vendor’s adjusted cost base of
rates are applied to a transaction to          of that income and pay the applicable            the property. One result of this filing is to
determine the total applicable GST (i.e.       graduated rates on the net rental income.        allow the withholding tax to be calculated
Combined rate of 5% - 15% may apply).          This process involves having the non-            at 25% (or 50% as applicable) of the net
                                               resident appoint a Canadian agent, and           gain from the sale (sale proceeds less
The application of GST and provincial sales
                                               filing a form (NR6) before the start of          cost of the property). Where the vendor’s
taxes to real estate transactions can be
                                               the relevant calendar year with Canada           proceeds are less than or equal to cost,
a complex area and professional advice
                                               Revenue Agency (CRA) along with a                the withholding tax will be entirely
should be obtained before entering into
                                               statement showing estimated income and           eliminated by this process. A Certificate
any real estate transaction.
                                               expenses for the upcoming year and an            of Compliance is required any time that
STAMP DUTIES                                   undertaking (jointly between the non-            a disposition by a non-resident occurs
                                               resident and their agent) to file a Canadian     regardless of whether or not a gain is
Canada does not levy stamp duties.             tax (T1) return to report the income and         realised on the property.
                                               expenses within six months after the end         The process described in the previous
Municipal Property Taxes
                                               of the calendar year. Where an NR6 is            section relates to withholding tax only.
Real estate taxes are imposed in each          filed and accepted, the withholding tax          The actual Canadian income tax liability is
province, usually at the municipal             requirement can be reduced to 25% of the         determined by filing a Canadian tax return
government level. In general, the tax is       estimated net income (before capital cost        by the due date. That return will usually
based on the annual assessed value of the      allowance) from the property. This can           only include the property disposition,
real estate. Rates vary by class of property   eliminate the remittance of withholding          and often results in a refund of tax to
and from municipality to municipality.         tax where the rental income is offset by         the non-resident as the withholding tax
                                               sufficient rental expenses.                      rate typically is higher than the actual
INCOME TAXES
                                                                                                tax liability, and the gain can be reduced
Any income derived from renting the            Disposition of Property                          by costs of disposal, including real estate
property, and any profit made on the sale                                                       commissions, legal fees, etc.
                                               Any person purchasing real estate from a
of the property, is subject to federal and     nonresident has an obligation to withhold
provincial income taxes. Non-residents
                                                                                                GIFT, INHERITANCE OR ESTATE
                                               and remit to CRA 25% of the gross sale           TAXES
are subject to Canadian income tax in          proceeds with respect to the purchase.
respect of capital gains realised on the       This liability increases to 50% where            Canada does not impose any gift,
disposition of real estate held directly,      the real estate was depreciable property         inheritance or estate taxes on the death of
and shares of certain corporations and         (a building used for rental or business          an owner. However, a gift of the property
partnership interests where at any time        purposes) or where the real estate was           to a related individual, or the death of the
during the preceding 60 months before          not held by the non-resident as capital          owner results in a deemed disposition of
the disposition more than 50% of its value     property (for example, held for speculative      the property at fair market value at the
was derived from real estate.                  purposes). A purchaser who fails to              time of the event. A Canadian income tax
The rate of tax depends on the form of         withhold this tax is liable for it (unless       return must be filed for the year of the
ownership (i.e. corporation, individual,       they had no reason to believe that the           gift/death to report any deemed gain or
partnership, trust), degree of commercial      vendor was not a Canadian resident) and          loss realised. A Certificate of Compliance
activities in Canada, taxable income level,    CRA has the ability to enforce this liability.   (discussed above) is not required in the
and the province of jurisdiction. Rates may    Because of this potential purchaser’s            case of a deemed disposition due to the
range from 25% (certain corporations) to       liability, it is standard practice for a         death of the owner, however, it is required
a high of 50% for individuals in the highest   purchaser’s legal advisor to either require      in the case of a gift.
personal marginal tax bracket. Capital         the vendor to certify in writing as to the
                                                                                                In addition, certain provinces assess
gains are taxed at half of the applicable      vendor’s Canadian residency status or
                                                                                                probate fees on the fair market value of
rate.                                          require withholding of this tax.
                                                                                                assets transferred through an individual’s
                                                                                                Will.
FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
FOREIGN PROPERTY OWNERSHIP 07

CHINA

LEGAL REQUIREMENTS                           to 5% of the sales consideration of the
                                             property (the specific applicable rates vary
The general statutory requirements for       from city to city). Lower deed tax rates
foreigners to purchase / own properties in   may be allowed if certain conditions can
China are as follows:                        be satisfied.                                  INTRODUCTION
• A natural person foreigner who has                                                        In practice, the requirements for
                                             STAMP DUTY
   resided in China for over one year                                                       acquisition of residential properties in
   is eligible to purchase one unit of       Stamp duty is levied at 0.05% on the sales     China by foreigners vary slightly from
   residential property for self-use only    consideration of the property (payable         one city to another. In some cities,
   (i.e. he or she must live in it). The     each by transferars and transferees).          it is not uncommon that additional
   number of residential properties that     Currently, the transfer of residential         local requirements will have to be
   a foreigner is allowed to own in China    properties by individuals is temporarily       satisfied before foreign individuals are
   cannot exceed one.                        exempted from stamp duty in China.             allowed to buy residential properties
• An overseas entity that has already set                                                   in China. Foreigners considering
   up a branch or representative office      VALUE-ADDED TAX                                purchasing properties in China are
                                                                                            recommended to seek clarification
   in China is eligible to purchase non-
                                             Following the VAT reform, (Business Tax        on the exact local requirements
   residential property for the purpose
                                             ‘BT’) has been completely replaced by VAT      from legal advisors or relevant local
   of self-use only in the city where such
                                             effective from 1 May 2016 and the sale of      authorities in which the property is
   branch or representative office is                                                       located, before implementing any
   registered.                               real estate and land use right is subject
                                             to VAT of 11%. A Chinese enterprise            purchase plans.
• If a foreigner intends to purchase a       registered as a general VAT taxpayer
   property in China for non-self-use        may select the general taxation method
   purposes, he / she needs to establish     (VAT rate at 11%) or simplified taxation
   a foreign invested enterprise in China    method (VAT rate at 5%) for the sale of
   as a business vehicle to engage in such   old real estate property that is acquired or
   commercial activities. All applications   self-built by taxpayer on or before 30 April
   for setting up a foreign invested         2016.
   enterprise for such purpose are subject
   to approval by the relevant Chinese       For general VAT taxpayers which acquire
   authorities.                              real estate property under general
                                             taxation method and record the property
TAX RULES                                    as fixed assets for financial and accounting
                                             purposes, the input VAT can be credited
Buying and selling of a property in China    against output VAT over a two-year
will usually involve the following taxes.    period, i.e., 60% of input VAT credited in
                                             the first year and the remaining 40% in
DEED TAX                                     second year.
Deed tax is payable by the buyer of the      The sale of self-built and self-occupied
property and is currently computed at 3%     residential property by individual is
FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
08 FOREIGN PROPERTY OWNERSHIP

exempt from VAT. It should be noted
that the sale of residential property by
individuals may follow different VAT
treatments depending on the holding
period and specific location of the
property concerned.

LAND VALUE APPRECIATION TAX
Gains derived from disposal of land-use
rights and buildings are subject to a land
value appreciation tax ranging from 30%
to 60%. Land appreciation tax is payable
by the seller of the property. The sale
of residential properties by individuals
is temporarily exempt from land
appreciation tax in China.

INDIVIDUAL INCOME TAX
Gains on disposal of residential properties
by foreign individuals are subject to
individual income tax at 20%.

ENTERPRISE INCOME TAX
Gains on disposal of a residential property
by a Chinese enterprise form part of the
enterprise’s taxable income which, after
allowing for deductible expenses and
outgoings, is subject to enterprise income
tax at 25%.

REAL ESTATE TAX
Real estate tax is levied on property-
owners at a) 12% of the rental income
generated by the property or b) 1.2%
per annum on the standard value of the
property. In the latter case, the standard
value of a property is estimated at 70% to
90% of the original cost of the property.
Residential properties held by foreign
individuals for self-use purposes are
currently exempt from real estate tax.        “We prive ourselves in providing
As the legal requirements and tax rules       exceptional client service to
concerning property dealings in China vary
from city to city and change from time to     our clients and proactively seek
time, please ensure that you obtain advice
specific to your circumstances from your      opportunities to improve their
usual BDO contacts or your other tax
advisers.
                                              global tax position.”
FOREIGN PROPERTY OWNERSHIP 09

HONG KONG

TAX RULES                                      Buyer stamp duty (BSD)
                                               All non-Hong Kong permanent residents
STAMP DUTY                                     and companies (irrespective of their place
                                               of incorporation) acquiring residential                     INTRODUCTION
Ad Valorem stamp duty (AVD)                    properties in Hong Kong on or after 27
                                               October 2012 are subject to BSD at a flat                   Foreigners (including Chinese, Macau
AVD is levied on the sale or transfer of       rate of 15% of the consideration or market                  and Taiwan residents) are virtually
properties. The transfer of residential        value of the property, whichever is higher.                 allowed to buy and sell, without
properties on or after 5 November 2016         BSD is levied on top of AVD and SSD.                        restriction, residential properties
by individuals (including foreigners) or                                                                   (such as apartments, condominiums,
companies (irrespective of their place of      PROPERTY TAX                                                etc.) and non-residential properties
incorporation) is subject to AVD at a flat                                                                 (such as commercial buildings,
rate of 15%. The rate may be reduced to        For properties acquired by individuals                      industrial buildings, etc.) located in
4.25% or lower but such concession only        (including foreigners) for rental purposes,                 Hong Kong. Properties can generally
applies to Hong Kong permanent residents       property tax will be levied. Property tax                   be held by individuals and / or
under certain circumstances. For transfer      is charged at 15% on all the rental income                  companies set up in Hong Kong or
of non-residential properties, AVD is levied   less (^) a 20% statutory deduction for                      overseas.
at a maximum rate of 8.5%. AVD is levied       repairs and outgoings and (^^) any rates
                                                                                                           In the ensuing paragraphs we will look
on the consideration or market value of        paid by the owner of the property.
                                                                                                           at the tax considerations for foreigners
the property, whichever is higher. By law,                                                                 who consider purchasing properties in
both the seller and the buyer are jointly      PROFITS TAX
and severally liable for paying AVD ^.         Rental income received by a corporation
                                               (irrespective of its place of incorporation)
Special stamp duty (SSD)                       will be subject to profits tax instead of
                                               property tax. Profits tax is currently
For residential properties acquired
                                               charged at 16.5%.^^^
on or after 27 October 2012 by
individuals (including foreigners) or          CAPITAL GAINS
companies (irrespective of their place
of incorporation) and resold within 36         Gains from realisation of assets held for
months of acquisition, SSD will be levied      long-term investment purposes are not
at rates ranging from 10% to 20% on            taxed in Hong Kong. This applies to both
the consideration or market value of           companies and individuals. However,
the property, whichever is higher. The         profits tax may be charged on the profits
maximum rate of 20% applies if the             of speculative transactions if they can be
residential property is resold within 6        shown to constitute an adventure in the
months of acquisition.                         nature of trade and are having a source in
                                               Hong Kong.
SSD is payable on top of AVD. Both
the seller and the buyer are jointly and
                                               ^ In practice, AVD is usually borne by the buyer.
severally liable for paying SSD by law ^^.     ^^ In practice, SSD is usually borne by the buyer.
                                               ^^^ Under the two-tier profits tax system, the tax rate
                                               for the first HKD2 million assessable profits of eligible
                                               entities will be reduced by half starting from the year
                                               of assessment 2018/19.
10   FOREIGN PROPERTY OWNERSHIP

INDONESIA

                                          LEGAL REQUIREMENTS                             of time.
                                                                                         Qualified Party: Closed to individual
                                          Generally, there are six types of land title
                                                                                         foreigners – open to Indonesian citizens
                                          recognized in Indonesia. These rights are
INTRODUCTION                              summarized below.
                                                                                         and companies that are incorporated
                                                                                         under the Indonesian law (including
From a legal perspective, land            RIGHT OF OWNERSHIP (‘HAK MILIK’)               foreign investment limited liability
ownership (i.e. Ownership under                                                          companies or PT PMA)
right of ownership or ‘Hak Milik’)        Hak Milik is the most comprehensive and
in Indonesia is closed to foreigners,     complete form of individual rights over        RIGHT TO MANAGE (‘HAK
whether they are individuals or           land. There is no time limit and the holder    PENGELOLAAN’)
foreign companies (i.e. Companies         has the right to use the land, including
that are not incorporated under the                                                      Hak Pengelolaan is only granted to
                                          the earth and the water underneath it. It
Indonesian laws). Nevertheless, it is                                                    state-owned companies and government
                                          does not, however, include the right over
possible for an individual foreigner      resources underneath it.
                                                                                         agencies with, usually, unlimited terms.
who is residing in Indonesia to acquire                                                  Qualified Party: Closed to individual
right to the use of land (‘Hak Pakai’)    Qualified Party: Closed to individual
                                                                                         foreigners
subject to certain conditions. These      foreigners– open only to Indonesian
conditions are elaborated in the          citizens                                       RIGHT TO USE (‘HAK PAKAI’)
legal aspect section of this article.
Alternatively, a foreign individual       RIGHT TO CULTIVATE (‘HAK GUNA                  Hak Pakai is a right over land (either State-
investor may acquire limited land         USAHA’)                                        owned or private), which gives the holder
titles in Indonesia by forming an                                                        the right to use and obtain the product of
                                          Hak Guna Usaha is the right to cultivate
Indonesian direct foreign investment                                                     a certain piece of land. The land to which
company or acquiring an existing          land which is administered by the
                                                                                         Hak Pakai is applied may be used as a
limited liability company.                government. This title is normally granted
                                                                                         building site or for agricultural purposes.
                                          to land for cultivation/ plantation
                                          businesses.                                    Qualified Party: Open to resident
                                                                                         individual foreigners, Indonesian citizens,
                                          Qualified Party: Closed to individual
                                                                                         Indonesia-incorporated companies
                                          foreigners – open to Indonesian citizens
                                                                                         and foreign companies that have a
                                          and companies that are incorporated
                                                                                         representative office in Indonesia.
                                          under the Indonesian law (including
                                          foreign investment limited liability           RIGHT TO LEASE (HAK SEWA)
                                          companies or PT PMA)
                                                                                         Hak Sewa gives its holder the right to
                                          RIGHT TO BUILD (‘HAK GUNA                      construct a building on another person’s
                                          BANGUNAN’)                                     land in exchange for rent.
                                                                                         Qualified Party: Open to resident
                                          Hak Guna Bangunan is a right over land
                                                                                         foreigners, Indonesian citizens, Indonesia-
                                          (either State-owned or private), with
                                                                                         incorporated companies and foreign
                                          which the holder may erect and possess
                                                                                         companies that have a representative
                                          buildings over the land for certain period
FOREIGN PROPERTY OWNERSHIP        11

office in Indonesia.                           With the emergence of foreign investment       LAND AND BUILDING TRANSFER
                                               and business in Indonesia, as an               DUTY (BPHTB)
As seen from above, the options for a
                                               alternative to the above, an individual
foreign individual to have rights over                                                        A transfer of land and building rights
                                               foreigner may acquire limited land titles
land (and buildings) in Indonesia are                                                         will generally, also give rise to BPHTB
                                               in Indonesia by forming an Indonesian
quite limited. The available options are                                                      for the party receiving or obtaining the
                                               direct foreign investment company (or ‘PT
discussed in the section below.                                                               rights. Transactions subject to BPHTB
                                               PMA’) or acquiring an existing Indonesian
Under the current land law, individual         limited liability company (in which case,      include sale-purchase, grants, inheritance,
foreigners are only qualified for the Right    the status of the company will convert to      business mergers, consolidations and
to Use or the Right to Lease. An individual    PT PMA upon acquisition). In this case,        expansions. Acquisition of land and
foreigner is allowed to own one residential    the individual foreigner would indirectly      building rights in certain non-business
property (a house or an apartment)             qualify for Right to Cultivate and Right to    transfers may be exempt from BPHTB.
whereby the foreigner must be deemed           Build.                                         BPHTB is calculated based on the Tax
to have provided benefits for the national                                                    Object Acquisition Value (NPOP),
                                               If an individual foreigner wants to
development and must be either:                                                               which in most cases is the higher of
                                               establish a PT PMA, there will be a
• An Indonesian resident (i.e. An              minimum investment of IDR 10 billion           the market value or the NJOP of the
   individual foreigner with a permanent       (approximately $USD738,951) and it             land and building rights concerned. The
   resident permit), or                        needs to be approved by the Investment         tax due is determined by applying the
• A non-resident domiciled in Indonesia        Coordinating Board (BKPM).                     applicable duty of 5% to the relevant
   only at particular times in possession                                                     NPOP, less an allowable non-taxable
                                               The period of Right to Cultivate title is 35   threshold. The non-taxable threshold
   of appropriate visit and immigration
                                               years and may be extended for another          amount for BPHTB varies by region, and
   stamps in his/her passport.
                                               25 years, with renewal for another 35          the minimum threshold currently is IDR
In addition to the above conditions, an        years at the most. The minimum size of         60 million (approximately $USD4,433).
individual foreigner can purchase (or          land is five hectares and the maximum          For acquisitions by inheritance, the non-
construct) a house on land with the            will be determined by the Land Office for      taxable property value is determined
Right to Use status or an apartment unit       corporate bodies. The maximum period for       by the regional government, but the
that is built on land also with the Right      the Right to Build is 50 years.                minimum is set at IDR 300 million
to Use status. This is possible because                                                       (approximately $USD22,165). BPHTB is
the Indonesian Land Law adopts the             TAX RULES                                      due on the date that the relevant deed of
horizontal land separation principle                                                          land and building right transfer is signed
whereby buildings or structures on a           TRANSFER OF LAND AND BUILDING                  before a public notary.
piece of land are considered as separate
objects such that an individual foreigner      A transfer of rights to land and building      A notary is prohibited from signing a
may acquire the Right to Use of land and       will result in income tax to become            transfer of rights deed until the BPHTB has
the building(s) over it. Foreigners are not,   payable on the deemed gain on the              been fully paid.
however, allowed to purchase houses            transfer/sale to be charged to the
or apartments classified as ‘low-cost          transferor/seller. The tax is specified at     LAND AND BUILDING TAX (PBB)
housing’ or ‘very low-cost housing’.           2.5% of the gross transfer value (tax base)
                                               and must be paid at the time the rights        PBB is a type of property tax chargeable
The Right to Use title is granted for a        to land and building are transferred to the    on all land and/or buildings, unless
maximum period of 30 years, and can be         transferee. For transfers of simple houses     exempted.
extended for a maximum of 20 years and         and apartments by taxpayers engaged in         The PBB rate is maximum 0.3% from
can be renewed for a maximum of 30             property development business, the tax         the taxable sale value of the tax object
years provided that the foreigner remains      rate is 1%. The tax payment constitutes a      (NJOP) less the non-taxable NJOP.
an Indonesian resident or meets the status     final tax.                                     The non-taxable NJOP is set at IDR 10
requirements. If the foreigner departs from                                                   million (approximately $USD739) at
Indonesia, the property must be sold or        A notary is prohibited from signing a
                                               transfer of rights deed until the income       the minimum. PBB is payable annually
the Right to Use must be transferred to                                                       following a Tax Due Notification Letter
another qualified person within one year       tax has been fully paid.
                                                                                              issued by the Regional Government.
of departure.
12   FOREIGN PROPERTY OWNERSHIP

The PBB is exempted on land and buildings
used for non-profit activities, including
social and educational activities and
health care services. Land and buildings
used for religious worship, nature reserves,
parks, diplomatic offices and designated
international organizations are exempted.

VALUE ADDED TAX (PPN)
A value added tax of 10% applies to rental
and sales of real estate properties. VAT on
the sale price of land and buildings, as part
of a real estate or industrial estate price, is
imposed at the rate of 10% of the invoice
value. Exempted from the VAT is the
delivery of a basic house, very basic house,
basic apartment and other properties as
defined by the Minister of Finance.

LUXURY SALES TAX (LST)
LST is levied at 20% on non-strata title
luxury houses and town houses with
minimum threshold amount of IDR 20
billion (approximately $USD1,477,901),
and on strata title apartments,
condominiums, town houses with
minimum threshold amount of IDR 10
billion (approximately $USD738,951).

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                                                  advice to our clients.”
FOREIGN PROPERTY OWNERSHIP   13

MALAYSIA

LEGAL REQUIREMENTS                           STAMP DUTY

Foreign individuals are generally            Stamp duty is governed under the Stamp
permitted to purchase properties in          Act 1949 and the stamp duty rates on
Malaysia. However, approval by the           purchase of property as per Schedule 1        INTRODUCTION
state is generally required and there may    of the Stamp Act 1949. It was proposed
                                             in the 2017 Budget Speech that the rate       Foreign ownership of property in
be minimum purchase price conditions                                                       Malaysia is very liberal as long as
imposed depending on the location of the     of stamp duty in respect of any property
                                             valued at more than RM1,000,000 be            minimum requirements are met with
property.                                                                                  the Government now also encouraging
                                             increased from 3% to 4% effective 1
                                                                                           foreigners to choose to make Malaysia
TAX RULES                                    January 2018 as per figure 2c:
                                                                                           their second home, whether for long-
                                                                                           term stay, retirement or investment
Foreign individuals intending to purchase    INCOME TAX                                    purposes.
or sell property in Malaysia should note
the following high level tax implications.   Rental income derived from real property
                                             in Malaysia is subjected income tax under
REAL PROPERTY GAINS TAX (‘RPGT’)             either Section 4(a) or Section 4(d) of the
                                             Income Tax Act 1967. The rates of income
RPGT is charged on gains arising from        tax for rental income derived by an
disposal of real property and is governed    individual as per Schedule 1 of the Income
by Real Property Gains Tax Act 1976          Tax Act 1967 are as per Figure 2d.
(‘RPGT Act’). Real property is defined as
any land situated in Malaysia and any        GOODS AND SERVICES TAX (GST)
interest, option or other right in or over
such land. RPGT is also imposed on the       The supply of real property in Malaysia by
gains arising from the disposal of share     a taxable person who is registered for GST
in a Real Property Company (‘RPC’). A        is subject to GST. The standard rate of GST
RPC is a controlled company which owns       is 6%. The supply of land used or intended
Real Property or shares in a RPC or both,    to be used to the extent of it being used
where the value of such property or shares   or intended to be used for residential or
is not less than 75% of the value of the     agricultural purposes, or general use is
company’s total tangible assets. The RPGT    exempt.
rates provided under Schedule 5 of the
RPGT Act, with effect from 1 January 2014    OTHER TAXES
can be seen in figure 2a and figure 2b.      There is no net wealth tax or inheritance
Any gain of up to RM10,000 or 10% of         tax in Malaysia.
the chargeable gain (whichever is higher)
is exempt. There are also other reliefs
available for specific situations.
14 FOREIGN PROPERTY OWNERSHIP

Figure 2a
 FOREIGN INDIVIDUAL *                                                     RATE OF
                                                                          RPGT (%)
 Disposal within 5 years from the date of acquisition                     30
 Disposal after 5 years from the date of acquisition                      5
 *An individual who is not a citizen and not a permanent resident

Figure 2b
 OTHER INDIVIDUALS                                                        RATE OF
 (NON-FOREIGN INDIVIDUALS)                                                RPGT (%)
 Disposal within 3 years from the date of acquisition                     30
 Disposal in the 4th year after the date of acquisition                   20
 Disposal in the 5th year after the date of acquisition                   15
 Disposal in the 6th year after the date of acquisition                   Nil

Figure 2c
 VALUE OF PROPERTY (RM)               CURRENT             * PROPOSED      INCREASE
                                      RATE (%)            RATE (%)        (%)
 ≤RM100,000                           1                   1               -
 >RM100,000 – RM500,000               2                   2               -
 >RM500,000 – RM1,000,000             3                   3               -
 >RM1,000,000                         3                   4               1
 * Proposed to be effective from 1 January 2018. However, the law has not been
 gazetted as of August 2017.

Figure 2d
 OWNER                            RATE
 Resident individual              Progressive; maximum of 28% (year of assessment
                                  2016 onwards)
 Non-resident individual          28% (year of assessment 2016 onwards)

                                                                                     ”BDO has specialists
                                                                                     in over 150
                                                                                     countries looking
                                                                                     after the tax affairs
                                                                                     of individuals with
                                                                                     multi-jurisdictional
                                                                                     asset interests.”
FOREIGN PROPERTY OWNERSHIP   15

NEW ZEALAND

New Zealand taxes income based on              consent to purchase residential land.
source and residence. Tax residents are
                                               In short, sensitive land includes land
liable on their worldwide income but a
                                               of a particular type, such as farm land,
non-resident is only liable on New Zealand
sourced income. Income derived from
                                               that exceeds a particular area threshold.       INTRODUCTION
                                               For example, five hectares of farm land
property situated in New Zealand has a
                                               is considered sensitive land, but three         A non-resident is able to own real
New Zealand source.
                                               hectares of the same land is not. Similarly     property in New Zealand but may need
New Zealand does not have a specific           forestry rights over an area of less than       to obtain approval from the Overseas
capital gains tax but there are specific       1000 hectares are not subject to OIO            Investment Office (OIO) if the land is
provisions relating to land which can tax      approval but larger areas of forestry will      regarded as sensitive land. At the time
the proceeds from the sale of a property in    be.                                             of writing a number of amendments
certain situations.                                                                            to the Overseas Investment Act were
                                               Applicants for consent must satisfy a
                                                                                               being considered by Parliament. These
Set out below is an overview of the            number of criteria, including the core
                                                                                               amendments include changes to the
regulatory environment for property            ‘investor test’ criteria being of good
                                                                                               definition of sensitive land to include
ownership and the applicable tax system.       character, with business acumen and
                                                                                               residential land and new provisions in
                                               financial commitment to the investment.
                                                                                               relation to forestry rights.
LEGAL REQUIREMENTS                             In addition, assuming the changes are
                                               enacted as drafted, consent to acquire
A non-resident looking to purchase land        sensitive land will only be granted if one of
in New Zealand may need to apply to the        the following tests are satisfied:
Overseas Investment Office (OIO) for
                                               • The commitment to New Zealand
consent if they are looking to buy sensitive
                                                   test – eg the relevant overseas person
land or an interest in sensitive land (eg
                                                   intends to reside in New Zealand
by buying shares in a company that owns
                                                   permanently;
sensitive land).
                                               • The benefit to New Zealand test - eg
Sensitive land is determined by the types          create jobs; introduce new technology
of land and area thresholds detailed               or increase export potential;
in the relevant Overseas Investment
                                               • The increased housing on residential
legislation. While determining sensitive
                                                   land test - eg through the construction
land is sometimes straightforward, often
                                                   of new housing.
significant legal and land expertise is
required, particularly if there are any        In addition there are various legislation
nearby waterways.                              around building consents; resource
                                               management and the environment and
In a move to try and reduce the cost of
                                               local council zonings all of which may
housing to New Zealanders, residential
                                               need to be taken into account depending
land is being added to the definition of
                                               on what you plan to do with the property.
sensitive land. Consequently a non-
resident will be required to apply for OIO     Specific advice should be obtained.
16   FOREIGN PROPERTY OWNERSHIP

TAX RULES                                       If debt is being introduced to purchase        FIVE-YEAR BRIGHT LINE TEST
                                                the property by a non-resident, the
                                                interest deduction will be subject to a        Where residential property which was
INCOME TAX                                                                                     acquired after 29 March 2018 and is sold
                                                thin capitalisation ratio which will deny a
A non-resident is liable to income tax          portion of the interest deduction which is     within five years of being acquired the sale
on income which has a New Zealand               in excess of 60% of the asset value. The       is taxed as income unless an exemption
source. Income generated from property          interest may also be subject to non-           applies. This is irrespective of any
situated in New Zealand has a New               resident withholding tax at 15% or 10% if      intention or purpose at the time the land
Zealand source. The income is liable to         a DTA applies or an approved issuer levy at    is acquired. Prior to 29 March 2018, the
tax at the non-residents marginal tax rate      2% if the interest is paid to a third party.   period of ownership was two-years.
when derived by an individual or at the         Specific advice should be sought.              The exemptions are limited to property
applicable company tax rate or trustee                                                         which is the main family home; property
rate if the property is owned through a         SALE OF PROPERTY
                                                                                               which is sold recently after it was acquired
company or trust.                                                                              through an inheritance and property
                                                When land is sold it is necessary to
                                                determine if any of the land transaction       which is sold as a result of a relationship
INCOME FROM USE OF PROPERTY                                                                    split.
                                                rules could apply to deem a gain arising on
Income generated from the land is taxable       the sale of the land as being taxable.         The five year rule acts as a ‘bright line’
as income with a deduction allowed              The land transaction rules are                 making it unequivocal that a gain on sale
for expenditure which is incurred in            comprehensive and capture:                     of property within that time frame is
deriving that income. The expenditure                                                          taxable.
is deductible unless one of the set             • land which was acquired with an
limitations applies - such as expenditure         intention or purpose of resale even if       Note the exemption for the main family
which is capital in nature or private in          that intention or purpose is only one of     home, requires the land to have been
nature. Depreciation is available for the         a number of intentions or purposes at        used predominantly, for most of the time
purchase of certain forms of depreciable          the time the land is acquired.               of ownership, as a dwelling that was the
property but there is no depreciation on        • residential land which is sold within five   main home for the owner or a beneficiary
land and on most buildings with a life            years of being acquired.                     of a trust if the owner is a trustee of the
expectancy of 50 years or more. The                                                            trust.
                                                • land where the owner is a dealer in
cost of a building fit-out for commercial         land, a property developer or builder or     Note the exemption does not apply if
property and for certain chattels on              persons associated with them;                the person has used the main home
residential property may be able to be          • land where there is a rezoning or            exemption two or more times within two
depreciated on an annual basis where              resource consents issued and the value       years immediately preceding the bright
the costs can be separated from the cost          of the land increases substantially as a     line date for the residential land or has
of the building. The cost of repairs will         result of those changes;                     engaged in a regular pattern of acquiring
usually be regarded as a revenue expense                                                       and disposing of residential land.
unless the repairs are for bringing the asset   • land which is subject to a one-off
into a condition where it can be used to          development or subdivision which             RESIDENTIAL LAND WITHHOLDING
generate income or are so extensive that          commences within 10 years;                   TAX
they are an improvement and therefore           • land which is subject to major
capital in nature.                                development expenditure such as              A residential land withholding tax (RLWT)
                                                  roading, earthworks and similar              applies to provide a collection mechanism
There are specific rules also for mixed           expenditure irrespective of how long         when a non-resident is selling land which
use assets where the property is used             the land has been owned.                     is subject to the bright line test above.
both for private purposes and for income                                                       The RLWT is required to be withheld by
generating purposes. An example is a            Note there are certain concessions and         the vendor’s conveyancer who is deemed
holiday home rented out to third parties        exemptions that apply to some of these         to be the vendor’s agent in relation to
while the non-resident is overseas but          areas of land acquisition and need to be       the RLWT. If the vendor does not have
occupied by them during a holiday in New        reviewed according to each situation.          conveyancer, the purchaser’s conveyancer
Zealand. The mixed use assets specifically      For passive investors in residential land      will be the paying agent.
aim to provide an apportionment of the          two areas are worth further comment.
expenditure on a prescribed basis between                                                      There are three methods available to
the private and business use.                                                                  calculate the amount of RLWT required to
                                                                                               be paid.
FOREIGN PROPERTY OWNERSHIP     17

The first method is to apply the RLWT         land out of the tax net where a purpose or    A purchaser can be registered for GST
rate (33% for individuals, 28% for            intention of resale existed at the time the   where they intend to make taxable
companies) to the difference between the      land was acquired.                            supplies. For example where the property
current purchase price and the vendor’s                                                     is commercial property and is being
acquisition cost.                             TAX FILE NUMBERS                              rented to tenants or used in carrying on
                                                                                            a business to supply goods and services.
The second method calculates the RLWT         Both the vendor and purchaser will
                                                                                            The renting out of residential property
as 10% to the current purchase price.         be required to provide an IRD number
                                                                                            is generally not subject to GST except in
                                              when land is bought and sold. This is a
Generally the RLWT payable will be the                                                      certain circumstances such as a serviced
                                              requirement for registering the change
lower of the amounts calculated under                                                       apartment complex.
                                              in ownership with the Land Transfer
these first two methods.
                                              Office and makes it easier for the Inland
A third method is available when the          Revenue to monitor gains on sale of land
                                                                                            FUTURE DEVELOPMENTS
vendor or vendor’s conveyancer is the         which need to be returned for income tax      At the time of writing an official’s issues
person who will pay the RLWT. RLWT is         purposes.                                     paper has been released by Inland Revenue
payable on settlement and is paid before                                                    and Treasury promoting that rental
                                              In addition to obtaining an IRD number a
other disbursements. Where the vendor                                                       losses from residential property should
                                              non-resident may be required to open a
has a mortgage obligation the calculation                                                   be quarantined to be carried forward
                                              bank account in New Zealand and supply
of RLWT under the first two methods may                                                     and offset against future income from
                                              a tax identification number from their
result in there being insufficient funds to                                                 residential property not against other
                                              home country. The obligation to open
discharge the vendor’s mortgage.                                                            income. If introduced it would likely come
                                              a bank account ensures that the non-
The third method calculates the RLWT as       resident is subject to compliance with        into effect from the start of the 2019/20
the surplus of the current purchase price     anti-money laundering and automatic           income year (usually 1 April 2019).
less the amount required to discharge the     exchange of information legislation which     The second potential development could
mortgage security and any outstanding         the bank is required to review before         arise out of the findings of the Tax Working
property rates with the local authorities.    allowing a bank account to be opened.         Group which is due to report back by
                                              The provision of the home country tax         the end of 2018. The Tax Working Group
INTENTION OR PURPOSE                                                                        is looking into whether the tax system
                                              identification number may also allow a
Land which is bought with the intention       greater sharing of information between        remains fit for purpose in the current
or purpose of resale remains taxable. The     the relevant tax authorities if required.     economic environment. One of the areas
intention or purpose does not have to be a                                                  they are likely to comment on is the
dominant purpose or intention. Instead it     GST                                           appropriateness of a capital gains tax on
may only be one of a number of intentions                                                   assets other than the main family home.
                                              New Zealand has a Goods and Services
or purposes.
                                              Tax (GST) regime which imposes GST at
The intention or purpose of resale has to     a standard rate of 15% on the supply of
exist at the time the land is acquired and    goods and services in New Zealand by a
be more than a vague notion that a person     GST registered person.
can sell a property in the future if their
                                              It is important to make sure the contract
circumstances change.
                                              for the sale and purchase of land deals
It is important for purchasers to document    adequately with GST. If the person selling
why they are buying the land and how          a property is GST registered then the
they intend to use the land – eg live in      supply of the land and buildings may be
the property or hold for long term rental     subject to GST at 15% where the property
income - at the time the land is acquired.    is being sold to a non-registered person.
Residential land which is acquired with a     In some circumstances GST on a land sale
purpose or intention of resale will remain    may be zero rated as a supply in whole or
taxable even if sold after five years of      in part of land and the purchaser is also
ownership. Satisfying the bright line test    GST registered.
noted above does not take residential
18   FOREIGN PROPERTY OWNERSHIP
FOREIGN PROPERTY OWNERSHIP   19
20 FOREIGN PROPERTY OWNERSHIP

PHILIPPINES

                                      LEGAL REQUIREMENTS                                 renewable for another twenty-five (25)
                                                                                         years.
                                      Under the 1987 Constitution of the
                                                                                         A foreign national or corporation may own
                                      Philippines, only Filipino citizens and
INTRODUCTION                          corporations or partnerships that are at
                                                                                         a condominium unit and shares in the
                                                                                         condominium corporation up to 40% of
In general, only Filipino citizens    least 60% Philippine owned are entitled
                                                                                         the total and outstanding capital stock of
and controlled Filipino controlled    to acquire or own land in the Philippines.
                                                                                         a Filipino owned or controlled corporation.
corporations are entitled to own      Land ownership are reserved strictly for
                                      persons or entities considered as Philippine
or acquire land in the Philippines,
                                      nationals or Filipino citizens. A corporation
                                                                                         TAX RULES
however foreigners or non-
Philippine nationals may purchase     which is 60% owned by Filipino citizens is         The acquisition of real estate by a
condominiums, buildings, and enter    regarded as a Philippine national.                 foreigner under those cases allowed by
into a long term land lease.          As an exception to this rule, a foreign            law, is subject to the following taxes:
                                      individual or entity can acquire real estate       If the real property is classified as an
                                      in the Philippines in the following cases:         ordinary asset which means that the latter
                                      • Acquisition before the 1935 constitution         is used in business of the taxpayer, the
                                      • Acquisition         through        hereditary    seller shall be liable to pay:
                                          succession, if the foreigner is a legal heir
                                                                                         INCOME TAX
                                      • Purchase of not more than 40% interest
                                          as a whole in a condominium project            For corporate sellers – regular corporate
                                      • Purchase by a former natural born                income tax rate of 30% is imposed on
                                          Filipino citizen subject to the limitations    the gain on sale. It shall form part of the
                                          prescribed by law.                             taxable income for the year.

                                      A Filipino who is married to a foreigner           For individual sellers – individual income
                                      retains their Philippine citizenship, unless       tax rate of 5% to 32% is imposed on the
                                      by his act or omission he is deemed to             gain on sale. This forms part of the taxable
                                      have renounced his Philippine citizenship.         income for the year.
                                      The maximum area allowed is as follows:
                                                                                         WITHHOLDING TAX (WHT)
                                      • One Thousand (1,000) square meters
                                         for residential land;                           If the seller is habitually engaged in real
                                      • One (1) hectare for agricultural or farm         estate business, a creditable withholding
                                         land;                                           is required to be withheld by the buyer at
                                                                                         the following rates:
                                      • For business purpose – 5,000 square
                                         meters of urban land and three (3)              • 1.5% if the selling price is P500,00 or
                                         hectares of rural land.                             less
                                                                                         • 3.0% if the selling price is more
                                      Foreign nationals or corporation may lease
                                                                                             than P500,000 but not more than
                                      land for a period of fifty (50) years and
                                                                                             P2,000,000
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