FOREIGN PROPERTY OWNERSHIP - GLOBAL PRIVATE CLIENT SERVICES
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GLOBAL PRIVATE CLIENT SERVICES FOREIGN PROPERTY OWNERSHIP SEPTEMBER 2021
INTRODUCTION
As global mobility increases it is countries throughout the world. The
becoming common for high net wealth CRS will improve tax transparency
families to own homes in a number from 2017 onwards where financial
of countries, as well as investing in institutions will release information
commercial and other real estate each year to the tax authority in their
outside of their country. Often this can country which will be shared with
be driven by their children who have tax authorities in other countries. At
chosen to undertake their university this stage over 112 countries have
studies abroad or alternatively the committed to the CRS including most
desire to retire to another country once of the ‘tax haven’ countries like BVI,
their business’s have been sold. Guernsey, Jersey.
As a result of this, Governments In this publication we detail the legal
around the world are closely examining and tax rules of foreigners buying real
investment in real estate by foreigners estate in the Asia Pacific region as well
with many countries restricting as popular countries of Canada, USA and
ownership only to newly built houses to UK.
try and drive the construction industry.
An emerging trend across a number
of jurisdictions is the perception that
foreigners are driving 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’ MARK POLLOCK
to encourage property owners to either Private Client Strategy Group - Asia
live in their property or make it available Pacific
for rent thus adding to the supply of Disclaimer: This publication has been carefully
housing availability and affordability. prepared however has been written in general
terms and should be seen as broad guidance only.
Please see back page for full disclaimer
What is also apparent is that many
countries have been lax in recording
of foreign ownership of property with
some moving towards a register of
beneficial ownership to bring some
transparency to the degree of ownership
by people living abroad.
This combined with the introduction
of the Common Reporting Standard
(CRS) has greatly increased the level
of transparency with families with real
estate and bank accounts in many
ABOUT BDO
GLOBAL PRIVATE CLIENT SERVICES GLOBAL REAL ESTATE
Wealthy individuals, their families, and their BDO’s global real estate and construction
businesses’ financial interests often cross team is available to collaborate with you,
international borders. BDO’s Global Private wherever you do business. Our best-in-class
Client Services team is experienced working people utilise the resources and global
with high net worth and ultrahigh net worth footprint of our cross-border network to
individuals and their families, entrepreneurs, give you key audit, tax, and consultative
and family offices. advice, as well as risk management,
transaction services, corporate finance,
We work with our clients to structure their
direct taxation, VAT and forensic services.
domestic and international affairs in an
By staying focussed on your issues and
efficient and compliant manner. Our goal
opportunities we can help you navigate
is to ensure clients’ wealth is structured
the challenges of our dynamic industry
effectively for long-term preservation and in
efficiently and with confidence.
compliance with the demands of regulators.
Our experienced local teams will take the
BDO’s Global Private Client Services
time to get to know you and your real estate
team is a global network of private client
business. Whether you are a developer,
specialists who have a multi-jurisdictional
an investor or a fund manager, we will
understanding of leading issues and a
deliver tailored, commercially focussed and
commitment to exceptional client service.
technically proficient solutions to you as
The professionals on our Global Private
a client active in one of the world’s largest
Client team work together to provide
and most important industries.
a complete range of tax services to
individuals, including: Find out more about our global real
X Advice for tax efficient relocation estate services at: www.bdo.global/en-gb/
to other countries industries/real-estate-construction
X Tax advice on investing money
effectively around the globe
X Estate and gift tax planning
X Tax advice on investing in real
estate in other jurisdictions.
BDO ensures that clients get the best tax
advice no matter where they live or invest.
Find out more about Private Client Services
at BDO at: www.bdo.global/en-gb/services/
tax/global-privateclient-services
EXPERT LOCAL HELP ON YOUR REAL ESTATE ISSUES
BDO Private Client services is a leading advisor to wealthy individuals, their families and their businesses – domestically and internationally.
Our goal is to give our clients the reassurance that their wealth is compliant with the demands of regulators and structured effectively for long
term preservation.
If you would like to get in touch with a BDO adviser in another country, please see the contact details below:
JEFF KANE WENDY WALTON
CHAIR OF GLOBAL PRIVATE CLIENT HEAD OF GLOBAL PRIVATE CLIENT
STRATEGY GROUP | BDO USA SERVICES | BDO UK
+1 616 389 8619 +44 (0)207 893 2252
jkane@bdo.com wendy.walton@bdo.co.uk
DEBORAH GRAYSTONE TAMARA PETERS VAN NEIJENHOF
LEADER OF GLOBAL PRIVATE CLIENT LEADER OF GLOBAL PRIVATE CLIENT STRATEGY
STRATEGY GROUP, AMERICAS | BDO CANADA GROUP, EUROPE | BDO NETHERLANDS
+ 1 604 443 4702 +31 13 594 02 02
dgraystone@bdo.ca tamara.peters.van.neijenhof@bdo.nl
MARK POLLOCK
LEADER OF GLOBAL PRIVATE CLIENT STRATEGY
GROUP, ASIA-PACIFIC | BDO AUSTRALIA
+61 8 6382 4794
mark.pollock@bdo.com.au
vi FOREIGN PROPERTY OWNERSHIP
CONTENTS
EDITORS NOTE II
AUSTRALIA 02
CANADA 06
CHINA 10
HONG KONG 12
INDONESIA 14
MALAYSIA 18
NEW ZEALAND 20
PHILIPPINES 24
SINGAPORE 26
THAILAND 30
UNITED KINGDOM 32
UNITED STATES 38
BDO GLOBAL TEAM 42
FOREIGN PROPERTY OWNERSHIP 01 MAIN PAGE TITLE MAIN PAGE SUBTITLE
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 1a
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 1b
COMMERCIAL AND RURAL PROPERTY
TYPE OF PROPERTY TEMPORARY AND NON RESIDENTS
Commercial – Mines and Public Infrastructure A$61m – FIRB approval required
Commercial – Developed A$281m** – FIRB approval required
Vacant land for commercial development FIRB approval required
Agricultural land A$15m – FIRB approval required
**some countries have higher threshold of $1,216m
FOREIGN PROPERTY OWNERSHIP 03
RESIDENTIAL REAL ESTATE divestment orders and criminal penalties on of a primary production business, as
apply for breaches of the foreign property defined in the Act.
Australia’s foreign investment policy ownership rules. Under the current rules,
encourages foreigners to purchase newly breaches could attract criminal penalties FIRB FEES AND PENALTIES
constructed houses typically referred to as of $85,000, imprisonment of two years,
‘off-the-plan’ properties. These are more There are fees to apply for FIRB approval.
or both.
often than not apartments, which are Business, commercial real estate and
generally approved without conditions. COMMERCIAL REAL ESTATE agribusiness investments would be subject
to applications fees ranging from $5,000
Foreign persons are prohibited from Investment proposals for existing to $100,000 depending on the size of the
purchasing established houses, regardless developed commercial real estate, investment and the sector it operates in.
of whether it is to be used as an including offices, factories, retail outlets
investment property or as their residence. In addition to the current criminal
and hotels, do not require approval where
However, those classified as ‘temporary penalties, the Government has also
the value of the real estate is less than
residents’ for income tax purposes are introduced civil pecuniary penalties and
$61m for mines and public infrastructure
permitted to purchase one established infringement notices for breaches of
or $A281m million for developed
dwelling only. This is on the condition the foreign property ownership rules.
commercial properties. If the real estate
that it is used solely as their residence These changes could see infringement
is heritage listed, a lower threshold of $5
while they are in Australia, and it must notices ranging from $2,040 to $51,000
million applies. Any proposed acquisitions
generally be sold once it ceases to be their depending on the investor and whether
above this threshold must be approved by
residence. they voluntarily came forward. Civil
the FIRB prior to purchase.
penalties could range from 10% to 25% of
Applications to purchase vacant land All foreign persons must notify the FIRB the purchase price or market value of the
for development are normally approved of a proposed acquisition of vacant land property, whichever is higher.
subject to certain conditions; for example, for commercial development, regardless
construction must begin within 24 New laws from 1 July 2015 will require
of the value of the land. Such applications
months. real estate agents to apply a 12.5%
are normally approved subject to
withholding tax to the disposal by foreign
All foreign persons must notify the FIRB development conditions.
residents of certain ‘taxable Australian
of any proposed acquisition of residential property’, which will cover everything
real estate, which includes new houses,
AGRICULTURAL LAND
except residential property with value
off-the-plan properties, or vacant land All foreign persons must apply for FIRB less than $750,000. This will include
for development. In February 2015, approval for a proposed acquisition of commercial property, agricultural
the Federal Treasurer ordered the sale an interest in agricultural land where the property, mining interests and residential
of a $A39 million Sydney harbour side cumulative value of the land owned by the property over this threshold.
mansion, which had been purchased by foreign investor, including the proposed
a Chinese national who failed to seek purchased, exceeds $A15 million. This
prior approval from the FIRB. The foreign threshold has substantially reduced from
investor was given 90 days to sell the the previous threshold of $A252 million.
property, which had been purchased
through various shelf companies in Agricultural land is land which is used
Australia and Hong Kong. Currently, only wholly and exclusively for the carrying
04 FOREIGN PROPERTY OWNERSHIP
TAX RULES WITHHOLDING TAX GIFT, INHERITANCE, ESTATE TAXES
STAMP DUTY New laws from 1 July 2015 will require Australia does not impose any gift,
real estate agents to apply a 12.5% inheritance, or estate taxes on the death
On purchase of a property a stamp duty withholding tax to the disposal by foreign of an owner. On death, the beneficiary
tax is payable on the purchase price residents of certain ‘taxable Australian of an estate inherits the cost base of
payable by the purchaser. Stamp duty is property’, which will cover everything the property of the deceased. If a gift of
levied at graduated rates as a State Tax except residential property with value property is made during the lifetime of an
and the rates vary between each State. less than $750,000. This will include individual to a related party, it is deemed
Some States also impose a stamp duty commercial property, agricultural to be disposed of for the market value at
surcharge on residential property for property, mining interests and residential the time of the gift.
foreign buyers. The maximum rates are as property over this threshold.
per Figure 1.c. Figure 1c.
These measures have been introduced as
CITY STATE RATE OF SURCHARGE
the government believe that a number
LAND TAX SURCHARGES STAMP DUTY
of foreigners are buying and selling real
Adelaide SA 5.50% over 7%
All States impose land tax on certain estate in Australia and evading Australian $500,000
types of property with New South Wales, tax. This withholding tax is designed really
Brisbane QLD 5.75% over 7%
Queensland, ACT and Victoria also to bring foreigners onto the ‘radar’ of the $1,000,000
imposing surcharges for foreign investors. tax authorities as they have no other way
Darwin NT 5.95% over 0%
of detecting them. The amount withheld $5million
FEDERAL INCOME TAX is a non-final withholding tax and will
Perth WA 5.15% over 7%
be credited to the account of the foreign $725,000
Any income derived from renting the resident payee when calculating their
property and any profit made on the final income tax position for the relevant Melbourne VIC 6.5% over 8%
sale of the property is subject to federal $2million
tax year. The foreign resident will still be
income tax. The rate of tax depends upon required to have a tax file number and will Sydney NSW 7.00% over 8%
who the legal owner of the property is. $3.1million
have to lodge an Australian income tax
Companies pay tax at 30% with no further return disclosing the sale of the property. Hobart TAS 4.5% over 8%
tax payable on remittance of the funds to $725,000
the overseas investor whereas individuals VACANCY LEVY Canberra ACT 5.0% over 0%
are taxed at marginal rates which could be $1.5million
as high as 45%. Foreigners who purchase a new house
or apartment after 9 May 2017 will be
A foreign investor is required to file an subject to a levy unless the property is
annual tax return with the Australian Tax occupied for 6 months a year either by the
Office. The Australian tax year runs from owners or being rented to tenants.
1 July to 30 June. Substituted accounting
periods can be obtained in certain
circumstances.FOREIGN PROPERTY OWNERSHIP 05
06 FOREIGN PROPERTY OWNERSHIP
CANADA
LEGAL REQUIREMENTS foreign buyers (including individuals who
are not citizens or permanent residents
Canada generally encourages foreign of Canada, as well as foreign corporations
ownership of real estate, and most and entities) will pay an extra tax of 15
INTRODUCTION provinces treat foreign purchasers of – 20% on the purchase of a residential
residential and commercial real estate property in certain jurisdictions. The
Canada has seen substantial
activity in recent years by foreigners the same as residents. Any restrictions additional foreign buyers tax came into
looking to invest in residential pertain to agricultural land and exist effect on August 2, 2016 for residential
and commercial real estate and at the provincial level. One exception real properties located in certain areas
development projects. In this is Prince Edward Island, which forbids around and in the Vancouver, British
article we have considered the tax foreigners from owning more than 50 Columbia area. The additional foreign
considerations for foreigners looking meters of waterfront without special buyers tax also came into effect on April
to purchase property in Canada. permission. Some provinces have placed 22, 2017 in certain areas around and in
strict limitations on the number of acres the Toronto, Ontario area. The Federal
It is relevant to note that the BC of farmland that foreign individuals Government is also considering the
and Ontario have implemented an or corporations may own, while other implementation of a National Foreign
additional tax on foreign buyers Buyers Tax.
provinces allow non-residents to buy up
and the Federal Government has
agricultural land unrestricted. Foreign
announced that they are looking to EMPTY HOMES TAX
investors seeking to buy farm land in
implement a National Foreign Buyers
tax with details to be announced. Canada should consult their legal advisors
On January 1, 2018, the City of Vancouver,
before making an offer.
British Columbia implemented an empty
homes tax (‘Vacancy Tax’) being 1% of
TAX RULES the property’s assessed taxable value for
homes that are not being occupied as a
LAND TRANSFER TAX
principal residence or homes that have not
The provinces of New Brunswick, Quebec, been rented for at least 6 months of the
Ontario, Manitoba and British Columbia calendar year.
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%-5% in and services tax (GST). Notwithstanding
British 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
FOREIGN BUYERS TAX are exempt, most notably the sale of used
residential housing and residential rents.
In In addition to the land transfer tax,FOREIGN PROPERTY OWNERSHIP 07
In addition, various provinces impose and shares of certain corporations and requirement can be reduced to 25% of the
provincial sales taxes on the sale and lease partnership interests where at any time estimated net income (before capital cost
price of certain assets and some services. during the preceding 60 months before allowance) from the property. This can
Provincial sales tax rates range from the disposition more than 50% of its value eliminate the remittance of withholding
zero in Alberta and the three territories was derived from real estate. tax where the rental income is offset by
to a high of 10% in Nova Scotia. In sufficient rental expenses.
The rate of tax depends on the form of
general, provincial sales taxes are not VAT
ownership (i.e. corporation, individual,
systems, however, many provinces have Disposition of Property
partnership, trust), degree of commercial
harmonised with the federal GST system
activities in Canada, taxable income level, Any person purchasing real estate from a
and the combined federal and provincial
and the province of jurisdiction. Rates may onresident has an obligation to withhold
rates are applied to a transaction to
range from 25% (certain corporations) to and remit to CRA 25% of the gross sale
determine the total applicable GST (i.e.
a high of 50% for individuals in the highest proceeds with respect to the purchase.
Combined rate of 5% - 15% may apply).
personal marginal tax bracket. Capital This liability increases to 50% where
The application of GST and provincial sales gains are taxed at half of the applicable the real estate was depreciable property
taxes to real estate transactions can be rate. (a building used for rental or business
a complex area and professional advice purposes) or where the real estate was
should be obtained before entering into WITHHOLDING TAX
not held by the non-resident as capital
any real estate transaction. property (for example, held for speculative
Rental Income
STAMP DUTIES purposes). A purchaser who fails to
A flat 25% withholding tax applies on the
withhold this tax is liable for it (unless
gross amount of Canadian-source rental
Canada does not levy stamp duties. they had no reason to believe that the
income paid or credited to a non-resident.
vendor was not a Canadian resident) and
Municipal Property Taxes In the case of rental income from real
RA has the ability to enforce this liability.
estate, an individual may elect to file a
Real estate taxes are imposed in each ecause of this potential purchaser’s
Canadian income tax return in respect
province, usually at the municipal liability, it is standard practice for a
of that income and pay the applicable
government level. In general, the tax is purchaser’s legal advisor to either require
graduated rates on the net rental income.
based on the annual assessed value of the he vendor to certify in writing as to the
This process involves having the non-
real estate. Rates vary by class of property vendor’s Canadian residency status or
resident appoint a Canadian agent, and
and from municipality to municipality. require withholding of this tax.
filing a form (NR6) before the start of
the relevant calendar year with Canada The withholding tax requirements can be
INCOME TAXES reduced or eliminated if the non-resident
Revenue Agency (CRA) along with a
Any income derived from renting the statement showing estimated income vendor obtains a Certificate of Compliance
property, and any profit made on the sale and expenses for the upcoming year and from CRA on a timely basis. This process
of the property, is subject to federal and an undertaking (jointly between the non- requires the filing of a form with CRA in
provincial income taxes. Non-residents resident and their agent) to file a Canadian advance of the disposition or within 10
are subject to Canadian income tax in tax (T1) return to report the income and days thereafter, together with evidence
respect of capital gains realised on the expenses within six months after the end as to the sale proceeds and the vendor’s
disposition of real estate held directly, of the calendar year. Where an NR6 is adjusted cost base of the property.
filed and accepted, the withholding tax One result of this filing is to allow the08 FOREIGN PROPERTY OWNERSHIP
withholding tax to be calculated at 25% tax eturn must be filed for the year of the
(or 50% as applicable) of the net gain gift/death to report any deemed gain or
from the sale (sale proceeds less cost loss realised. A Certificate of Compliance
of the property). Where the vendor’s discussed above) is not required in the
proceeds are less than or equal to cost, case of a deemed disposition due to the
the withholding tax will be entirely death of the owner, however, it is required
eliminated by this process. A Certificate in the case of a gift.
of Compliance is required any time that
In addition, certain provinces assess
a disposition by a non-resident occurs
probate fees on the fair market value of
regardless of whether or not a gain is
assets transferred through an individual’s
realised on the property.
Will.
The process described in the previous
section relates to withholding tax only.
The actual Canadian income tax liability is
determined by filing a Canadian tax return
by the due date. That return will usually
only include the property disposition,
and often results in a refund of tax to
the non-resident as the withholding tax
rate typically is higher than the actual
tax liability, and the gain can be reduced
by costs of disposal, including real estate
commissions, legal fees, etc.
GIFT, INHERITANCE OR ESTATE
TAXES
Canada does not impose any gift,
inheritance or estate taxes on the death of
an owner. However, a gift of the property
o a related individual, or the death of the
owner results in a deemed disposition of
he property at fair market value at the
time of the event. A Canadian incomeFOREIGN PROPERTY OWNERSHIP 09
10 FOREIGN PROPERTY OWNERSHIP
CHINA
LEGAL REQUIREMENTS property (the specific applicable rates vary
from city to city). Lower deed tax rates
The general statutory requirements for may be allowed if certain conditions can
foreigners to purchase / own properties in be satisfied.
INTRODUCTION China are as follows:
STAMP DUTY
In practice, the requirements for X A natural person foreigner is eligible
acquisition of residential properties in to purchase one unit of residential Stamp duty is levied at 0.05% on the sales
China by foreigners vary slightly from property for self-use only (i.e. he or consideration of the property (payable
one city to another. In some cities, she must live in it). The number of each by transferors and transferees).
it is not uncommon that additional residential properties that a foreigner Currently, the transfer of residential
local requirements will have to be is allowed to own in China cannot properties by individuals is temporarily
satisfied before foreign individuals are exceed one. exempted from stamp duty in China.
allowed to buy residential properties
in China. Foreigners considering X An overseas entity that has already
set up a branch or representative VALUE-ADDED TAX
purchasing properties in China are
recommended to seek clarification office in China is eligible to purchase The sale of real estate and land use right is
on the exact local requirements commercial property for the purpose subject to VAT of 9% effective from 1 April
from legal advisors or relevant local of self-use only in the city where such 2019. A Chinese enterprise registered as
authorities in which the property is branch or representative office is a general VAT taxpayer may select the
located, before implementing any registered. general taxation method (VAT rate at 9%)
purchase plans. X If a foreigner intends to purchase a or simplified taxation method (VAT rate at
property in China for non-self-use 5%) for the sale of old real estate property
purposes, he / she needs to establish that is acquired or self-built by taxpayer
a foreign invested enterprise in China on or before 30 April 2016.
as a business vehicle to engage in such
commercial activities. All applications For general VAT taxpayers which acquire
for setting up a foreign invested real estate property under general
enterprise for such purpose are subject taxation method and record the property
to approval by the relevant Chinese as fixed assets for financial and accounting
authorities. purposes, the input VAT can be credited
against output VAT.
TAX RULES The sale of self-built and self-occupied
Buying and selling of a property in China residential property by individual is
will usually involve the following taxes. exempt from VAT. It should be noted
that the sale of residential property by
DEED TAX individuals may follow different VAT
treatments depending on the holding
Deed tax is payable by the buyer of the period and specific location of the
property and is currently computed at 3% property concerned.
to 5% of the sales consideration of theFOREIGN PROPERTY OWNERSHIP 11
LAND VALUE APPRECIATION TAX ENTERPRISE INCOME TAX value of a property is estimated at 70% to
90% of the original cost of the property.
Gains derived from disposal of land-use Gains on disposal of a residential property Residential properties held by foreign
rights and buildings are subject to a land by a Chinese enterprise form part of the individuals for self-use purposes are
value appreciation tax ranging from 30% enterprise’s taxable income which, after currently exempt from real estate tax.
to 60%. Land appreciation tax is payable allowing for deductible expenses and
by the seller of the property. The sale outgoings, is subject to enterprise income As the legal requirements and tax rules
of residential properties by individuals tax at 25%. concerning property dealings in China vary
is temporarily exempt from land from city to city and change from time to
appreciation tax in China. REAL ESTATE TAX time, please ensure that you obtain advice
specific to your circumstances from your
INDIVIDUAL INCOME TAX Real estate tax is levied on property- usual BDO contacts or your other tax
owners at a) 12% of the rental income advisers.
Gains on disposal of residential properties generated by the property or b) 1.2%
by foreign individuals are subject to per annum on the standard value of the
individual income tax at 20%. property. In the latter case, the standard
“We prive ourselves in providing exceptional
client service to our clients and proactively
seek opportunities to improve their global
tax position.”12 FOREIGN PROPERTY OWNERSHIP
HONG KONG
TAX RULES Buyer stamp duty (BSD)
All non-Hong Kong permanent residents
STAMP DUTY and companies (irrespective of their place
INTRODUCTION of incorporation) acquiring residential
Ad Valorem stamp duty (AVD) properties in Hong Kong on or after 27
Foreigners (including Chinese, Macau October 2012 are subject to BSD at a flat
and Taiwan residents) are virtually AVD is levied on the sale or transfer of rate of 15% of the consideration or market
allowed to buy and sell, without properties. The transfer of residential value of the property, whichever is higher.
restriction, residential properties properties on or after 5 November 2016 BSD is levied on top of AVD and SSD.
(such as apartments, condominiums, by individuals (including foreigners) or
etc.) and non-residential properties companies (irrespective of their place of PROPERTY TAX
(such as commercial buildings, incorporation) is subject to AVD at a flat
industrial buildings, etc.) located in rate of 15%. The rate may be reduced For properties acquired by individuals
Hong Kong. Properties can generally to 4.25% or lower but such concession (including foreigners) for rental purposes,
be held by individuals and / or only applies to Hong Kong permanent property tax will be levied. Property tax
companies set up in Hong Kong or residents under certain circumstances. is charged at 15% on all the rental income
overseas. For transfer of non-residential properties, less (1) a 20% statutory deduction for
AVD is levied at a maximum rate of 8.5% repairs and outgoings and (2) any rates
In the ensuing paragraphs we will look
which is lowered to 4.25% effective from paid by the owner of the property.
at the tax considerations for foreigners
who consider purchasing properties in 26 November 2020. AVD is levied on
the consideration or market value of the PROFITS TAX
Hong Kong.
property, whichever is higher. By law, Rental income received by a corporation
both the seller and the buyer are jointly (irrespective of its place of incorporation)
and severally liable for paying AVD (1). will be subject to profits tax instead of
property tax. Profits tax is currently
Special stamp duty (SSD) charged at 16.5% (3).
For residential properties acquired CAPITAL GAINS
on or after 27 October 2012 by
individuals (including foreigners) or Gains from realisation of assets held for
companies (irrespective of their place long-term investment purposes are not
of incorporation) and resold within 36 taxed in Hong Kong. This applies to both
months of acquisition, SSD will be levied companies and individuals. However,
at rates ranging from 10% to 20% on profits tax may be charged on the profits
the consideration or market value of of speculative transactions if they can be
the property, whichever is higher. The shown to constitute an adventure in the
maximum rate of 20% applies if the nature of trade and are having a source in
residential property is resold within 6 Hong Kong.
months of acquisition.
(1) In practice, AVD is usually borne by the buyer.
SSD is payable on top of AVD. Both (2) In practice, SSD is usually borne by the buyer.
the seller and the buyer are jointly and (3) Under the two-tier profits tax system, the tax rate
for the first HKD2 million assessable profits of eligible
severally liable for paying SSD by law (2).
entities will be reduced by half starting from the year
of assessment 2018/19.FOREIGN PROPERTY OWNERSHIP 13
14 FOREIGN PROPERTY OWNERSHIP
INDONESIA
LEGAL REQUIREMENTS Qualified Party: Closed to individual
foreigners – open to Indonesian citizens
Generally, there are six types of land title and companies that are incorporated
recognized in Indonesia. These rights are under the Indonesian law (including
INTRODUCTION summarized below. foreign investment limited liability
companies or PT PMA)
From a legal perspective, land RIGHT OF OWNERSHIP (‘HAK MILIK’)
ownership (i.e. Ownership under RIGHT TO MANAGE (‘HAK
right of ownership or ‘Hak Milik’) Hak Milik is the most comprehensive and PENGELOLAAN’)
in Indonesia is closed to foreigners, complete form of individual rights over
whether they are individuals or land. There is no time limit and the holder Hak Pengelolaan is only granted to
foreign companies (i.e. Companies has the right to use the land, including state-owned companies and government
that are not incorporated under the the earth and the water underneath it. It agencies with, usually, unlimited terms.
Indonesian laws). Nevertheless, it is does not, however, include the right over
possible for an individual foreigner Qualified Party: Closed to individual
resources underneath it. foreigners
who is residing in Indonesia to acquire
right to the use of land (‘Hak Pakai’) Qualified Party: Closed to individual
subject to certain conditions. These foreigners– open only to Indonesian RIGHT TO USE (‘HAK PAKAI’)
conditions are elaborated in the citizens
Hak Pakai is a right over land (either State-
legal aspect section of this article. owned or private), which gives the holder
Alternatively, a foreign individual RIGHT TO CULTIVATE (‘HAK GUNA
USAHA’) the right to use and obtain the product of
investor may acquire limited land
a certain piece of land. The land to which
titles in Indonesia by forming an
Hak Guna Usaha is the right to cultivate Hak Pakai is applied may be used as a
Indonesian direct foreign investment
land which is administered by the building site or for agricultural purposes.
company or acquiring an existing
limited liability company. government. This title is normally granted Qualified Party: Open to resident
to land for cultivation/ plantation individual foreigners, Indonesian citizens,
businesses. Indonesia-incorporated companies
Qualified Party: Closed to individual and foreign companies that have a
foreigners – open to Indonesian citizens representative office in Indonesia.
and companies that are incorporated
under the Indonesian law (including RIGHT TO LEASE (HAK SEWA)
foreign investment limited liability
Hak Sewa gives its holder the right to
companies or PT PMA)
construct a building on another person’s
RIGHT TO BUILD (‘HAK GUNA land in exchange for rent.
BANGUNAN’) Qualified Party: Open to resident
foreigners, Indonesian citizens, Indonesia-
Hak Guna Bangunan is a right over land incorporated companies and foreign
(either State-owned or private), with companies that have a representative
which the holder may erect and possess office in Indonesia.
buildings over the land for certain period
As seen from above, the options for a
of time.FOREIGN PROPERTY OWNERSHIP 15
foreign individual to have rights over years provided that the foreigner remains will result in income tax to become
land (and buildings) in Indonesia are an Indonesian resident or meets the status payable on the deemed gain on the
quite limited. The available options are requirements. If the foreigner departs from transfer/sale to be charged to the
discussed in the section below. Indonesia, the property must be sold or transferor/seller. The tax is specified at
the Right to Use must be transferred to 2.5% of the gross transfer value (tax base)
Under the current land law, individual
another qualified person within one year and must be paid at the time the rights
foreigners are only qualified for the Right
of departure. to land and building are transferred to the
to Use or the Right to Lease. An individual
transferee. For transfers of simple houses
foreigner is allowed to own one residential With the emergence of foreign investment
and apartments by taxpayers engaged in
property (a house or an apartment) and business in Indonesia, as an
property development business, the tax
whereby the foreigner must be deemed alternative to the above, an individual
rate is 1%. The tax payment constitutes a
to have provided benefits for the national foreigner may acquire limited land titles
final tax.
development and must be either: in Indonesia by forming an Indonesian
direct foreign investment company (or ‘PT A notary is prohibited from signing a
X An Indonesian resident (i.e. An
PMA’) or acquiring an existing Indonesian transfer of rights deed until the income
individual foreigner with a permanent
limited liability company (in which case, tax has been fully paid.
resident permit), or
the status of the company will convert to
X A non-resident domiciled in Indonesia PT PMA upon acquisition). In this case, LAND AND BUILDING TRANSFER
only at particular times in possession the individual foreigner would indirectly DUTY (BPHTB)
of appropriate visit and immigration qualify for Right to Cultivate and Right to
stamps in his/her passport. Build. A transfer of land and building rights
In addition to the above conditions, an will generally, also give rise to BPHTB
If an individual foreigner wants to for the party receiving or obtaining the
individual foreigner can purchase (or
establish a PT PMA, there will be a rights. Transactions subject to BPHTB
construct) a house on land with the
minimum investment of IDR 10 billion include sale-purchase, grants, inheritance,
Right to Use status or an apartment unit
(approximately $USD738,951) and it business mergers, consolidations and
that is built on land also with the Right
needs to be approved by the Investment expansions. Acquisition of land and
to Use status. This is possible because
Coordinating Board (BKPM). building rights in certain non-business
the Indonesian Land Law adopts the
horizontal land separation principle The period of Right to Cultivate title is 35 transfers may be exempt from BPHTB.
whereby buildings or structures on a years and may be extended for another BPHTB is calculated based on the Tax
piece of land are considered as separate 25 years, with renewal for another 35 Object Acquisition Value (NPOP),
objects such that an individual foreigner years at the most. The minimum size of which in most cases is the higher of
may acquire the Right to Use of land and land is five hectares and the maximum the market value or the NJOP of the
the building(s) over it. Foreigners are not, will be determined by the Land Office for land and building rights concerned. The
however, allowed to purchase houses corporate bodies. The maximum period for tax due is determined by applying the
or apartments classified as ‘low-cost the Right to Build is 50 years. applicable duty of 5% to the relevant
housing’ or ‘very low-cost housing’. NPOP, less an allowable non-taxable
The Right to Use title is granted for a
TAX RULES threshold. The non-taxable threshold
maximum period of 30 years, and can be amount for BPHTB varies by region, and
TRANSFER OF LAND AND BUILDING the minimum threshold currently is IDR
extended for a maximum of 20 years and
can be renewed for a maximum of 30 60 million (approximately $USD4,433).
A transfer of rights to land and building16 FOREIGN PROPERTY OWNERSHIP
For acquisitions by inheritance, the non- VALUE ADDED TAX (PPN)
taxable property value is determined
by the regional government, but the A value added tax of 10% applies to rental
minimum is set at IDR 300 million and sales of real estate properties. VAT on
(approximately $USD22,165). BPHTB is the sale price of land and buildings, as part
due on the date that the relevant deed of of a real estate or industrial estate price, is
land and building right transfer is signed imposed at the rate of 10% of the invoice
before a public notary. value. Exempted from the VAT is the
delivery of a basic house, very basic house,
A notary is prohibited from signing a basic apartment and other properties as
transfer of rights deed until the BPHTB has defined by the Minister of Finance.
been fully paid.
LUXURY SALES TAX (LST)
LAND AND BUILDING TAX (PBB)
LST is levied at 20% on non-strata title
PBB is a type of property tax chargeable luxury houses and town houses with
on all land and/or buildings, unless minimum threshold amount of IDR 20
exempted. billion (approximately $USD1,477,901),
The PBB rate is maximum 0.3% from and on strata title apartments,
the taxable sale value of the tax object condominiums, town houses with
(NJOP) less the non-taxable NJOP. minimum threshold amount of IDR 10
The non-taxable NJOP is set at IDR 10 billion (approximately $USD738,951).
million (approximately $USD739) at
the minimum. PBB is payable annually
following a Tax Due Notification Letter
issued by the Regional Government.
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.FOREIGN PROPERTY OWNERSHIP 17
18 FOREIGN PROPERTY OWNERSHIP
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
INTRODUCTION Malaysia. However, approval by the purchase of property as per Schedule 1 of
state is generally required and there may the Stamp Act 1949 can be seen in Figure
Foreign ownership of property in 2c.
Malaysia is very liberal as long as be minimum purchase price conditions
minimum requirements are met with imposed depending on the location of the
property. INCOME TAX
the Government now also encouraging
foreigners to choose to make Malaysia Rental income derived from real property
their second home, whether for long- TAX RULES in Malaysia is subjected income tax under
term stay, retirement or investment either Section 4(a) or Section 4(d) of the
Foreign individuals intending to purchase
purposes. Income Tax Act 1967. The rates of income
or sell property in Malaysia should note
the following high level tax implications. tax for rental income derived by an
individual as per Schedule 1 of the Income
REAL PROPERTY GAINS TAX (‘RPGT’) Tax Act 1967 are as per Figure 2d.
RPGT is charged on gains arising from SALES TAX AND SERVICE TAX (SST)
disposal of real property and is governed
by the Real Property Gains Tax Act 1976 Malaysia has re-implemented SST
(‘RPGT Act’). Real property is defined as effective from 1 September 2018 to
any land situated in Malaysia and any replace the previous Goods and Services
interest, option or other right in or over Tax (GST). The sale of real property in
such land. RPGT is also imposed on the Malaysia by a taxable person who is
gains arising from the disposal of share registered for SST is not subject to SST.
in a Real Property Company (‘RPC’). A The rental income derived from real
RPC is a controlled company which owns property in Malaysia is also not subject to
Real Property or shares in a RPC or both, SST.
where the value of such property or shares
is not less than 75% of the value of the OTHER TAXES
company’s total tangible assets. The RPGT There is no net wealth tax or inheritance
rates provided under Schedule 5 of the tax in Malaysia.
RPGT Act, with effect from 1 January 2019
can be seen in Figure 2a and Figure 2b.
Any gain of up to RM10,000 or 10% of
the chargeable gain (whichever is higher)
is exempted for an individual. There are
also other reliefs available for specific
situations.FOREIGN PROPERTY OWNERSHIP 19
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 10
*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 5
*An individual who is a citizen or a permanent resident
Figure 2c
VALUE OF PROPERTY (RM) AD VALOREM STAMP
DUTY RATE (%)
≤RM100,000 1
>RM100,000 – RM500,000 2
>RM500,000 – RM1,000,000 3
>RM1,000,000 4
Figure 2d
OWNER RATE
Resident individual Progressive; maximum of 30% (year of assessment
2020 onwards)
Non-resident individual 30% (year of assessment 2020 onwards)20 FOREIGN PROPERTY OWNERSHIP
NEW ZEALAND
New Zealand taxes income based on In short, sensitive land includes land
source and residence. Tax residents are of a particular type, such as farm land,
liable on their worldwide income but a that exceeds a particular area threshold.
non-resident is only liable on New Zealand For example, five hectares of farm land
INTRODUCTION sourced income. Income derived from is considered sensitive land, but three
A non-resident is able to own real property situated in New Zealand has a hectares of the same land is not. Similarly
property in New Zealand but may need New Zealand source. forestry rights over an area of less than
to obtain approval from the Overseas 1000 hectares are not subject to OIO
New Zealand does not have a specific
Investment Office (OIO) if the land is approval but larger areas of forestry will
capital gains tax but there are specific
regarded as sensitive land. be.
provisions relating to land which can tax
the proceeds from the sale of a property in Applicants for consent must satisfy a
certain situations. number of criteria, including the core
“investor test” criteria being of good
Set out below is an overview of the
character, with business acumen and
regulatory environment for property
financial commitment to the investment.
ownership and the applicable tax system.
They will also need to satisfy one of the
following tests:
LEGAL REQUIREMENTS
X The commitment to New Zealand
A non-resident looking to purchase land test – eg the relevant overseas person
in New Zealand may need to apply to the intends to reside in New Zealand
Overseas Investment Office (OIO) for permanently;
consent if they are looking to buy sensitive
X The benefit to New Zealand test - eg
land or an interest in sensitive land (eg
create jobs; introduce new technology
by buying shares in a company that owns
or increase export potential;
sensitive land).
X The increased housing on residential
Sensitive land is determined by the types land test - eg through the construction
of land and area thresholds detailed of new housing.
in the relevant Overseas Investment
In addition there are various legislation
legislation. While determining sensitive
around building consents; resource
land is sometimes straightforward, often
management and the environment and
significant legal and land expertise is
local council zonings all of which may
required, particularly if there are any
need to be taken into account depending
nearby waterways.
on what you plan to do with the property.
In a move to try and reduce the cost of
Specific advice should be obtained.
housing to New Zealanders, residential
land has been added to the definition of
sensitive land. Consequently a non-
resident will be required to apply for OIO
consent to purchase residential land.FOREIGN PROPERTY OWNERSHIP 21
TAX RULES There are specific rules for mixed use When land is sold it is necessary to
assets where the property is used both determine if any of the land transaction
INCOME TAX for private purposes and for income rules could apply to deem a gain arising on
generating purposes. An example is a the sale of the land as being taxable.
A non-resident is liable to income tax holiday home rented out to third parties
The land transaction rules are
on income which has a New Zealand while the non-resident is overseas but
comprehensive and capture:
source. Income generated from property occupied by them during a holiday in
situated in New Zealand has a New New Zealand. The rules for mixed use X land which was acquired with an
Zealand source. The income is liable to assets specifically aim to provide an intention or purpose of resale even if
tax at the non-residents marginal tax rate apportionment of the expenditure on a that intention or purpose is only one
when derived by an individual or at the prescribed basis between the private and of a number of intentions or purposes
applicable company tax rate or trustee business use. at the time the land is acquired.
rate if the property is owned through a If debt is being introduced to purchase X Residential land which is sold within
company or trust (unless the trust passes the property by a non-resident, the five or ten years of being acquired
the income on as beneficiary income). interest deduction will be subject to a (depending on which bright-line test
thin capitalisation ratio which will deny a applies, see below).
INCOME FROM USE OF PROPERTY
portion of the interest deduction which is X Land where the owner is a dealer in
Income generated from the land is taxable in excess of 60% of the asset value. The land, a property developer or builder
as income with a deduction allowed interest may also be subject to non- or persons associated with them;
for expenditure which is incurred in resident withholding tax at 15% or 10% X Land where there is a rezoning or
deriving that income. The expenditure if a DTA applies or an approved issuer resource consents issued and the value
is deductible unless one of the set levy at 2% if the interest is paid to a third of the land increases substantially as a
limitations applies - such as expenditure party. Specific advice should be sought. result of those changes;
which is capital in nature or private in Legislation is to be introduced to deny
X Land which is subject to a one-off
nature. Depreciation is available for Interest deductions on debt borrowed to
development or subdivision which
industrial and commercial buildings but acquire residential rental properties except
commences within 10 years;
not residential property. The cost of a for new builds (see future developments
building fit-out for commercial property below). X Land which is subject to major
and for certain chattels on residential development expenditure such as
Where the taxpayer incurs a residential roading, earthworks and similar
property may be able to be depreciated rental loss, the loss cannot be offset
on an annual basis where the costs can be expenditure irrespective of how long
against other income of the taxpayer. the land has been owned.
separated from the cost of the building. Instead it is ring-fenced and carried
The cost of repairs will usually be regarded Note there are certain concessions and
forward to offset against future residential
as a revenue expense unless the repairs exemptions that apply to the above taxing
rental income or if the person is taxed on
are for bringing the asset into a condition provisions. Each situation needs to be
the sale of the land. This applies from 1
where it can be used to generate income reviewed.
April 2019 for the 2019/20 income year.
or are so extensive that they are an For passive investors in residential land
improvement and therefore capital in SALE OF PROPERTY two areas are worth further comment.
nature.22 FOREIGN PROPERTY OWNERSHIP
BRIGHT LINE TEST years immediately preceding the bright person who will pay the RLWT. RLWT is
line date for the residential land or has payable on settlement and is paid before
Residential property which was acquired
engaged in a regular pattern of acquiring other disbursements. Where the vendor
on or after 27 March 2021 and is sold
and disposing of residential land. has a mortgage obligation the calculation
within ten years of being acquired
of RLWT under the first two methods may
the sale is taxed as income unless an For the purposes of the bright-line rule,
result in there being insufficient funds to
exemption applies. This is irrespective of residential land does not include farmland
discharge the vendor’s mortgage.
any intention or purpose at the time the or business premises.
land is acquired. Residential land acquired INTENTION OR PURPOSE
on or after 29 March 2018 and before 27 RESIDENTIAL LAND WITHHOLDING
March 2021 is subject to a five-year bright TAX Land which is bought with the intention
line test, and prior to 29 March 2018 land or purpose of resale remains taxable. The
A residential land withholding tax (RLWT)
acquired after 1 October 2015 the period intention or purpose does not have to be a
applies to provide a collection mechanism
of ownership was two-years. dominant purpose or intention. Instead it
when a non-resident is selling land which
may only be one of a number of intentions
The exemptions are limited to property is subject to the bright line test above.
or purposes.
which is the main family home; property
The RLWT is required to be withheld by
which is sold recently after it was acquired The intention or purpose of resale has to
the vendor’s conveyancer who is deemed
through an inheritance and property exist at the time the land is acquired and
to be the vendor’s agent in relation to
which is sold as a result of a relationship be more than a vague notion that a person
the RLWT. If the vendor does not have
split. can sell a property in the future if their
conveyancer, the purchaser’s conveyancer
circumstances change.
The “bright line” rule acts to make it will be the paying agent.
unequivocal that a gain on sale of property It is important for purchasers to document
There are three methods available to
within that time frame is taxable, and why they are buying the land and how
calculate the amount of RLWT required to
gives both Inland Revenue and the they intend to use the land – eg live in
be paid.
taxpayer certainty of application. the property or hold for long term rental
The first method is to apply the RLWT rate income - at the time the land is acquired.
Note the exemption for the main family
(33% for individuals and trusts, increasing
home, requires the land to have been Residential land which is acquired with a
to 39% from 1 April 2021, 28% for
used predominantly, for most of the time purpose or intention of resale will remain
companies) to the difference between the
of ownership, as a dwelling that was the taxable even if the bright-line period has
current purchase price and the vendor’s
main home for the owner or a beneficiary expired. Satisfying the bright line test
acquisition cost.
of a trust if the owner is a trustee of the noted above does not take residential
trust. The main home exclusion applies The second method calculates the RLWT land out of the tax net where a purpose or
only on an apportioned basis (for land as 10% to the current purchase price. intention of resale existed at the time the
acquired on or after 27 March 2021) where land was acquired.
Generally the RLWT payable will be the
the property has been used partly as a
lower of the amounts calculated under TAX FILE NUMBERS
main home and partly for rental purposes.
these first two methods.
Note the exemption does not apply if Both the vendor and purchaser are
A third method is available when the
the person has used the main home required to provide an IRD number
vendor or vendor’s conveyancer is the
exemption two or more times within twoFOREIGN PROPERTY OWNERSHIP 23
when land is bought and sold. This is a in part of land and the purchaser is also
requirement for registering the change GST registered.
in ownership with the Land Transfer
A purchaser can be registered for GST
Office and makes it easier for the Inland
where they intend to make taxable
Revenue to monitor gains on sale of land
supplies. For example where the property
which need to be returned for income tax
is commercial property and is being
purposes.
rented to tenants or used in carrying on
In addition to obtaining an IRD number a a business to supply goods and services.
non-resident may be required to open a The renting out of residential property
bank account in New Zealand and supply is generally not subject to GST except in
a tax identification number from their certain circumstances such as a serviced
home country. The obligation to open apartment complex.
a bank account ensures that the non-
resident is subject to compliance with FUTURE DEVELOPMENTS
anti-money laundering and automatic
exchange of information legislation which Inland The Government have announced
the bank is required to review before that interest deductions on residential
allowing a bank account to be opened. rental properties will be denied from 1
October 2021. For residential properties
The provision of the home country tax which were acquired before 27 March
identification number may also allow a 2021 the interest deduction will be phased
greater sharing of information between out over four years. For residential rental
the relevant tax authorities if required. properties acquired after that date interest
incurred on debt to acquire the property
GST will be non-deductible from 1 October
New Zealand has a Goods and Services 2021.
Tax (GST) regime which imposes GST at Exemptions are to be introduced for
a standard rate of 15% on the supply of property developers and for owners of
goods and services in New Zealand by a new builds. Also initial or early owners of
GST registered person. new builds will be subject to a five year
It is important to make sure the contract bright line test and not the extended ten
for the sale and purchase of land deals years noted above. The measures are
adequately with GST. If the person selling intended to increase housing supply in
a property is GST registered then the New Zealand.
supply of the land and buildings may be A Discussion Document was issued by the
subject to GST at 15% where the property Government outlining options on how
is being sold to a non-registered person. these new rules could be designed with
In some circumstances GST on a land sale the intention for legislation to passed later
may be zero rated as a supply in whole or in the year with effect from 1 October
2021.You can also read
