The last few blogs and articles we’ve published have been around regulations, due diligence and road maps.
There are good reasons for this.
The Indonesian government is normalizing all regulations and streamlining rules and processes between central government, provincial government and regencies.
They’re easing up further on foreign investments, making it easier and more transparent to open businesses and apply for relevant permits.
With all of this happening it begs the question, at least it does to us, why is it that so many businesses and investors and consultants still try to create short cuts and circumvent the laws?
Don’t get us wrong we’re the first ones to admit there’s more than one way to set up a business, depending on what business you’re in of course, but there are some basics to understand and be aware of, no matter what you’re doing.
We’re using the Urban Dictionary definition of the phrase “What could possibly go wrong?” through this post because it’s a tongue-in-cheek statement of optimism and also an immediate trigger for Murphy’s Law (if something can go wrong, it will), which is then followed by a cascade of unexpected and terrible consequences.
So, let’s look at a few scenarios of what we see in our industry, which is real estate and tourism.
Believe it or not, many of these are based on real life examples.
And some of them may give you the shivers.
If any of the following ring bells you may want to grab a chair and take a few deep breaths.
Here we go …
What could possibly go wrong if you own a property under a nominee you fully trust?
“Actually I don’t even know the nominee. It was just a name and a signature on a document I was asked to sign, so I could buy my villa under a freehold title. It seemed to work just fine and there won’t be a problem with it.”
Oh dear.
Well, for one, a nominee could be under financial pressure from his or her family and they could be looking at how they could get something out of the property.
And what if the nominee passes away?
And what if the tax office found out you were the beneficial owner and had been receiving active income for the last 5-10 years? You don’t think they know how to check Facebook accounts and Airbnb?
And what if the nominee had paid taxes but you hadn’t?
And what if the nominee on your Pondok Wisata license suddenly didn’t want to be on it anymore?
And what if the nominee sold the property? Or leased it out for many years.
There are a lot more questions, scenarios and situations like this around using a nominee.
Let’s move on.
What could possibly go wrong if you buy land without the correct status for what it is you want to build?
Well, for a start you won’t be able to register your business on it and that would mean you won’t be able to get the permits you need. Makes sense right? If it doesn’t, it should.
Let’s say you buy a property in a residential zone and someone said you could get an operational permit to rent it out. You know, like a 3-bedroom villa that would be just great for holiday rentals.
Here’s some hard truth served real cold.
In this kind of scenario, the government would tend to allow locals to operate without the right permits, but as a foreigner they won’t.
It hurts, we know. But it’s what happens. So how do you get around it?
Next scenarios are again linked to the nominee solution (or problem, depending on which way you want to look at it.)
What could possibly go wrong if you or your nominee did not take advantage of the recent tax amnesty?
You definitely do want to sit down for this one.
The tax amnesty is ending, and at this stage of the process you would end up paying either 12.5 or 30-percent of the tax value on your property when you sold it, in addition to relevant sales taxes.
“Then we just won’t sell,” you say, “there’s no way I’m paying that much tax! We’ll forget about selling it and either continue living in it or just rent it out.”
Hang on a second. Don’t you think the government will come for their taxes anyway, even if you’re not selling? (Spoiler alert – the answer is ‘yes!’)
There are already cases where the tax office hits you with a 200-percent penalty for this kind of thing.
They also have the right to do a tax investigation going back 15-years. This applies for any business, not just real estate.
What could possibly go wrong if you leased a property for 30-years and then commercialized it on Airbnb through the freehold owner?
First of all, if the property is in the right zone that allows for this kind of thing, then all is good. And if you have all of the right permits to do this kind of thing, then all is good.
But, if it is in the wrong zone it may be that you just have a temporary permit and IMB. And once that expired you wouldn’t be able to extend. Best to check.
And what if your nominee decided not to support you anymore?
And what do you then do with your business?
And what if the tax office found out?
And what are you liable for in terms of taxes?
And, oh my god, what if immigration found out? Because isn’t receiving a direct income from a business considered “work” and therefore subject to having the correct visa?
I know some of these scenarios seem a little far-fetched, and for us they’re almost unbelievable because we’ve been trying to advise people to get all of their ducks in a row for quite some time, but they are real.
Here’s some more food for thought, just to illustrate possibilities.
What could possibly go wrong if the property you purchase doesn’t have the correct license to the end objective or purpose?
What could possibly go wrong if the property you’re buying doesn’t have a building license?
What could possibly go wrong if you purchase a property off-plan?
What could possibly go wrong if you don’t pay the taxes on a property transaction?
What could possibly go wrong if you run a business without a company and the correct licenses?
What could possibly go wrong if you sold a property as a non-registered owner and want to take funds back to your home country?
What could possibly go wrong if you paid deposits to an escrow account without proper documentation?
What could possibly go wrong if you used an un-licensed real estate agent?
These are just a few examples, and believe me, the list could be really, really long.
We’re not trying to scare you or put you off with this brutal kind of approach, we’re just trying to make you aware so you don’t fall into the trap many people here have fallen in to.
The bottom line is this; please make sure, and then make double sure the information you’ve been given is correct. Please double-check everything!
And remember ignorance maybe bliss but it’s no argument under any country’s laws.
