Tax Amnesty complicates the position of Nominee Property Owners in Bali

Bisnis Bali reports that a tax amnesty program recently introduced by the Indonesia Government may herald some unexpected problems and complications in the Bali property sector where the controversial use of local nominees by foreigners investing in real estate remains widely used.

Under the tax amnesty program, business owners and taxpayers are being encouraged to declare their personal assets as a means of bringing much-needed foreign exchange back to Indonesia and eventual compliance with the tax codes.

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

In Bali, many nominees used by foreign property investors are low-income Indonesians, who sign poses as nominee owners out of friendship or for a modest fee.

Moreover, if a nominee declares his “ownership” of a property in Bali and the subject property is found to be in arrears on its taxes, problems may arise over settling the resulting tax obligation arising for both the nominee and ultimately the foreign investor.

The chairman of the Indonesian Chamber of Commerce for Bali (KADIN-Bali), AA Ngurah Alit Wiraputra, said on Wednesday, August 24, 2016: “The nominees’ location is clear and his data easily identified. If his (the nominee’s) wealth is not reported, the local partner will suffer because he is shown as the owner. Moreover, if at some point in the future, the foreign investor stops cooperating with the local owner (nominee), the tax burden will devolve to the local.”

While recent changes in the rules governing foreign land ownership have been put in place that at first glance might be seen to encourage direct foreign ownership, a closer examination of these changes show that little has changed and that, in fact, direct ownership of property by foreigners is as problematic as ever. High minimum investment values and strict conditions imposed on the future sale/transfer of properties owned by foreigner or his/her estate creates obstacles and disincentives to the purchase of property by foreigners.

Wiraputra added: “The Government has to be firm in dealing with nominee owners in Bali and notaries have to cooperate in this effort in order to safeguard the interest of the local people.