FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES - BDO
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GLOBAL PRIVATE CLIENT SERVICES FOREIGN PROPERTY OWNERSHIP MAY 2018
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 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
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 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.
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 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
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 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
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 periodFOREIGN 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).
”As part of the world’s fifth
largest accounting network
with over 1200 offices in over
150 countries around the
world, we are able to utilise
BDO’s global reach and local
knowledge to provide holistic
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 residential18 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
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