Indonesian leasehold

Discussion in 'Accounting & Tax' started by Luthor Australia, 9th Jan, 2020.

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  1. Luthor Australia

    Luthor Australia Active Member

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    Hi forum

    I have an opportunity to purchase a 12 year lease on a high yielding villa in Bali from a distressed seller.

    All aspects of the deal are satisfactory but I am trying to get more info around structuring, taxes, deductions, depreciation and all related matters.

    Do any accounting experts here have any experience with this? If so please shout out, I am looking for paid advice. Many thanks
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You would need someone expert in Indonesian law as well as Australian law and tax.
    Will be expensive...
     
  3. TMNT

    TMNT Well-Known Member

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    foreign tax law is hard enough, Indo Tax law is even more complicated,

    good luck!!!
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The law also doesn't reflect the reality.

    I was flown to Jakarta a few years ago to help someone recover a property that was stolen...
     
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  5. Scott No Mates

    Scott No Mates Well-Known Member

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    Was it like this?

    [​IMG]
     
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  6. hammer

    hammer Well-Known Member

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    This. A thousand times this! @Luthor Australia . If you do this, it will be a risky play.

    That's not necessarily a bad thing but you'll need to factor this greatly increased risk into your thinking.

    Investing in SE Asia is rife with corruption. This can totally work for or against you depending on luck and who you know...

    Be careful.
     
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  7. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Many nations have laws which restrict rights to a non-citizen. These laws may require a local co-owner and give legal preferences to the citizen. I would imagine there are many lawyers who can advise on this in Indo.

    I did a quick search and its quite confusing : Buying Property in Bali As a Foreigner but this guide does seem to indicate a good local knowledge of the risks
     
  8. Luthor Australia

    Luthor Australia Active Member

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    Thank you all for the replies. Yup risky indeed! Which is why I want to sit down with someone who has done this before.

    The seller is Australian, can't be bothered running it due to obligations in Australia and needs cash quickly. They haven't really been running the villa as a business as much but rather mainly used it for themselves over the years.

    The villa has the required local short stay permit (Pondok Wisata) and a registered Indonesian tax agent looking after all local tax needs. The villa is in a prime Seminyak location. Where owning freehold requires a local Indonesian nominee, a leasehold can have the direct interest foreigner legally registered in Indonesia.

    To illustrate the potential for return, 3BR villas in the area (central Seminyak location) go for anywhere between $300 and $600 a night based on season. Let's conservatively say $350per night average and a 290 night occupancy pa, that would equal $101,500 gross pa. Take away expenses, local tax, booking commissions, servicing, admin, misc let's say $70k net pre tax conservatively. I can buy the 12 years lease on the villa (plus option to renew for another 10) for $240,000 AUD. Have also negotiated a vendor terms deal where I only pay 40% now ($96k) and then two payments of $72k on the anniversary of each year from the signing of the contract. So it could in theory be somewhat self funding past the first payment. But I wouldn't do it if I had to solely count on that as a factor.

    I've been running some of my properties in Australia on airbnb very successfully over the last 6 years and have obtained superhost status. So it would be easy to plug into my current setup. The villa comes with ground staff that can look after the servicing for it (have met them as I have stayed there many times over the years).

    Meeting a few AU accountants next week to fill in the gaps and find out more about how to best structure it what it all means in terms of keeping the ATO happy. Will share info further down the track in case others are ever in a similar position. Haven't made up my mind yet, though enjoying the research process and opening new doors.

    Thanks again all for the input
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    What about lawyers?
     
  10. Luthor Australia

    Luthor Australia Active Member

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    Just want to see how it works from a tax point of view first (and therefore decide on whether to proceed to next steps) but def lawyers before any actual steps are taken.

    for example, will the $240k be a capital expenses? Or lease expense. What currency movements mean, double taxation implications, etc. Lots to consider
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It is payment for the assignment of a lease I presume, so would be a capital expense.
     
  12. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I would be getting a lawyer first and foremost ideally one that does indo / Australian work but not schapelles !!! . Their urgency masks the facts ? They may be offloading their problem. The indo issues will be the answer to the structuring - Didnt you read that link ? This could be a chain of scams. Offshore Balinese property scam 101. The Indo structure is likley to mean rent is indo sourced and taxed....with potential for tax if any is repatriated here in any way. eg Indo entity pays you a share.

    Its all a CGT issue. NOTHING deductible until advised. Double taxation on Indo rents may occur. But start with the first question

    1. Can / do I want to buy & how
    2. What is a fair price
    3. If I proceed what are the tax issues

    You are placing bets on a horse that isnt born yet
     
    Last edited: 10th Jan, 2020
  13. Luthor Australia

    Luthor Australia Active Member

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    Thanks Paul and Terry

    Lots to consider indeed
     
  14. KinG3o0o

    KinG3o0o Well-Known Member

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    let me know how you go and i am very keen to see how this played out,

    all the best.
     
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  15. Luthor Australia

    Luthor Australia Active Member

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    ps the seller is someone who I’ve know really well (inner circle) for over 15 years and have previously done business together with them. So by no means a ‘bali paradise investment’ advertised type a deal. The idea was mutually born in conversation as they need some cash and I have always recognised rental potential in the villa (which I have been to many times). Lots of research do be done first
     
  16. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Yeah OK. How about you take his house here as loan security ? That can free up cash too if its so certain. PC has threads riddled with stories of people who were once trusted. Financial peril can change people.

    I know someone who got involved helping a close mate. His mate ended up being involved in a large scale drug importation. The kind friend (best man, lifetime mates etc) threw him under the bus and tried to lighten his own guilt by suggesting his mate was the ringleader and it took some time to convince the AFP that he lend a friend some cash based on his word. The AFP pieced together phone taps, email and texts and traced the money and actions etc Then advised him around 4 months later they had no plans to charge him as they could see he just was assisting a friend who needed the money and they couldnt see he knew what it would be used for.

    He lost $500K in the process. And a friend. But kept his large real estate business and integrity. Just. Cant imagine his wife was happy.
     
  17. thatbum

    thatbum Well-Known Member

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    I agree.

    If anything, the fact that its a friend adds in different risks and complications - I wouldn't have said its strictly better.
     
  18. Luthor Australia

    Luthor Australia Active Member

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    That scenario - trusted friends letting people down in various situations - can apply to any investment in Australia and anywhere else really.

    I’m currently researching the theory of how an Australian held rent producing Indonesian investment would work from a tax and legal structuring point of view. There are countless legitimate investments in Indonesia held by Australian individuals and companies and I’m trying to find out how this mechanism works best between the two countries.

    Thank you again for the collective input, very valued
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You are taxed on your worldwide income here.
     
  20. Ross Forrester

    Ross Forrester Perth business advisor and founder

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    Does anybody have any knowledge of the Bali property market right now? I have an affiliated office in Jakarta (Jimmy!) so I can handle the foreign issue.

    I don’t know (yet) any safe person in Bali for market knowledge however.