Buying land in spouse name

[kabouter]

Any members here in a mixed marriage who have bought land in their Indonesian spouse's name?
We have a prenup and my plan was to gift my wife the money and she would purchase the land. Obviously I wouldn't have any rights to the land in case of a divorce, I'm well aware of that.
However our notary claims that without a loan agreement we would most likely be taxed over the "gift" (about 25%) since we have a prenup and are therefor separated for tax purposes. He advises to set up a loan agreement without interest for that reason. Is this normal because this sounds like a nominee agreement to me?

 

[Mark]

Hi kabouter, I'm in a mixed marriage as well and we bought land in my wife's name over 6 years ago. We also have a prenup. I'm guessing your concern is due to your Indonesian tax residence? At the time of our purchase, neither of us had tax residency in Indonesia so the issue wasn't relevant. However, my understanding is that gifts within one degree of relation (e.g., husband to wife, parents and children) are exempt from taxation. Just because you separated your personal economies in Indonesia (but not elsewhere) via a prenup does not mean you are not husband and wife. Think about it, on your notary's line of reasoning, everything you do to financially support your wife (paying rent on a lease in her name, buying a car or motorbike in her name, buying gifts for her, giving her cash etc.) would be considered a taxable gift, which is a nonsense. Personally, I wouldn't worry about the issue, though if you remain concerned you should seek advice from a tax specialist, not a notary who would not be the right person to give related tax advice unrelated to real estate. Also, I'd be very surprised if the tax authorities would be able to conflate the tax laws with the prenup (which they would have no notice of - it's simply a contract between the two of you and filed in the civil registry - you will only need to disclose it if requested by the government of Indonesia in relation to property ownership - extremely unlikely - or if/when you try to sell the land and only if requested to do so by the buyer). Do let us know if you find a more definitive answer. Finally, I'd be more concerned about a no interest loan, since in that case the tax authorities may try to impute interest and tax your wife on the income. Perhaps the notary is just looking for a bit more work...

 

[Mark]

As a follow up, let me share what I understand about prenuptial agreements in Indonesia... From the legal advice I obtained at the time of entering into one, they are contracts enforceable only by one party to the marriage against the other, and vice versa. They have no relevance to and are not enforceable as against any third parties, including the State. For example, the tax law states that a husband and wife can be taxed separately if they request to do so based on an agreement for separation of income and property (prenup). In other words, as taxpayers you must separately request this on the basis of the prenup, it is not automatic or assumed because you have a prenup, since the prenup does not per se bind the third party, in this case the State. Typically, in a mixed marriage, couples who wish to own real property in the future enter into a prenuptial agreement separating their personal economies in Indonesia. The act of the WNA foregoing his/her legal right to share in the property of the WNI spouse 'allows' the WNI spouse to own hak milik property, since the WNA has voluntarily relinquished their legal claim to the property, thereby avoiding a conflict with the Agrarian law that states that only WNI's can own land. However, as the prenup is not binding so far as third parties are concerned, there are NO tax implications for voluntary gifts between the spouses - in fact I believe there is a law that imposes an obligation on a husband to financially support his wife, and failure to do so is a recognized grounds for divorce. There has been a lot of confusion in the past on this issue, especially when the tax amnesty program was in force and the small fry panicked based on rumours, fake news and fear, even though the program was designed for the big fish hoarding money abroad. Bottom line, don't worry. And forget everything I've written if you are not yet Indonesian tax resident, as you and your wife would have no tax obligations under any interpretation of the law.

 

[kabouter]

Thanks for your reply Mark.

I'm guessing your concern is due to your Indonesian tax residence?

At the moment I'm not living in Indonesia, but my wife is still registered there as a tax resident. I'm more worried about where she is registered since she will be on the receiving end of the gift, the taxes would have to be paid by her.

Think about it, on your notary's line of reasoning, everything you do to financially support your wife (paying rent on a lease in her name, buying a car or motorbike in her name, buying gifts for her, giving her cash etc.) would be considered a taxable gift, which is a nonsense

I agree, but of course it works this way as well in the western world regarding gifts. The difference being that a "small" gift most likely won't get you in trouble but a large bank transaction might cause the tax department to investigate.

Personally, I wouldn't worry about the issue, though if you remain concerned you should seek advice from a tax specialist

I definitely will do that, just wanted to see if someone here has some first hand experience.

Finally, I'd be more concerned about a no interest loan, since in that case the tax authorities may try to impute interest and tax your wife on the income. Perhaps the notary is just looking for a bit more work...

My thoughts exactly!

I'll meet up with a tax consultant and the tax authorities once I'm back in Indonesia. I'll post my results here by then.
In the meantime if anyone here has done something similar and their spouse declared it on their tax return as a gift I would love to know how that ended up.

 

[Fred2]

You need to search the forum we talked about this some time back, the loan needs to state the interest and how long the loan will be. Your name will go on the land deed as the person who has loaned the money, you can only get your money back + interest if stated. You cannot take the land if money is not repaid, you are only the money man. This will come with fees but totally legal.

 

[bojogcenik]

Hi can anybody give me some insight on my situation please?

I lived in Bali for many years as an expat. I bought some land in my then girlfriends/fiances name.
We split and the land is still in her name, but we still communicate now and then regarding this and have been on good terms.
I am now married with another Indonesian and we have two young boys, we live in Australia(I'm an Aussie).
I was planning to sell the land for which my ex will have to come and sign the relevant documents at the notary.
It's been a few years and I need to either sell the land or change it over to my wife's name as my ex is now married to an Indoensian.
What are the possibilities regarding transfer of title without it actually being a sale and incurring the normal sellers and purchasers tax?
A notaris once advise me that it is possible to transfer the title via "Hibah" which is generally a transfer from a family member to another and therefore incur a lower tax. Although I am not a WNI, I explained my situation to the notaris that I funded the purchase of the land and my ex was the sponsor, we had no contract or agreement as such.She said the Hibah process is possible.
I spoke to another notaris who said the title can be transferred but I would have to pay the sellers tax and the buyers tax as if it were a normal transaction, which seems ridiculous as I may as well try to sell it if I am to pay the full tax anyway.
Our two sons were born in Australia with Australian passports but they have dual citizenship as we process the Indonesian document called Avidavit. Is it possible to transfer the title to one of my sons name and I be the power of attorney hence giving me the rights to sell it later on?
I would imagine doing this would still be the same as a sale of the land from my ex to my son and thus paying full tax.
The land was in my ex name before she got married this year so I think that her new husband does not have any rights to the land, is this correct?
Apparently Indonesian couples only have legal rights to their spouses property if bought together after marriage but not before.
By the way, my wife and I did make a prenup before we got married so if we decided to sell later then we can and yes I know it means she legally has full rights to the land and it's my risk.


Please of anyone can provide some accurate info that would be great.

 

[Mark]

Hi can anybody give me some insight on my situation please?

I lived in Bali for many years as an expat. I bought some land in my then girlfriends/fiances name.
We split and the land is still in her name, but we still communicate now and then regarding this and have been on good terms.
I am now married with another Indonesian and we have two young boys, we live in Australia(I'm an Aussie).
I was planning to sell the land for which my ex will have to come and sign the relevant documents at the notary.
It's been a few years and I need to either sell the land or change it over to my wife's name as my ex is now married to an Indoensian.
What are the possibilities regarding transfer of title without it actually being a sale and incurring the normal sellers and purchasers tax? As far as I know, you cannot avoid the transfer tax if the title is changed to an unrelated party (ie, in this case your current spouse). However, talk to your notary about minimizing the tax by basing it on the NJOP (Nilai Jual Objek Pajak), which is the government's tax value of the property. This should be doable, since there is no cash consideration being paid. Normally, the tax is based on the higher of NJOP or the actual purchase price.
A notaris once advise me that it is possible to transfer the title via "Hibah" which is generally a transfer from a family member to another and therefore incur a lower tax. Although I am not a WNI, I explained my situation to the notaris that I funded the purchase of the land and my ex was the sponsor, we had no contract or agreement as such.She said the Hibah process is possible. Doesn't make sense as the transfer is to a third party, not a family member, notwithstanding the circumstances of your purchase.
I spoke to another notaris who said the title can be transferred but I would have to pay the sellers tax and the buyers tax as if it were a normal transaction, which seems ridiculous as I may as well try to sell it if I am to pay the full tax anyway. See my comment above, if tax is based on NJOP it may not be as high as you think...
Our two sons were born in Australia with Australian passports but they have dual citizenship as we process the Indonesian document called Avidavit. Is it possible to transfer the title to one of my sons name and I be the power of attorney hence giving me the rights to sell it later on? If under 18, I think this is a non-starter.
I would imagine doing this would still be the same as a sale of the land from my ex to my son and thus paying full tax. Correct.
The land was in my ex name before she got married this year so I think that her new husband does not have any rights to the land, is this correct? Correct.
Apparently Indonesian couples only have legal rights to their spouses property if bought together after marriage but not before.
By the way, my wife and I did make a prenup before we got married so if we decided to sell later then we can and yes I know it means she legally has full rights to the land and it's my risk. This was a wise move.


Please of anyone can provide some accurate info that would be great.

Please see my comments in red. To sum up, my two cents is that you should arrange the transfer to your current spouse and pay the transfer tax based on the NJOP, ie government tax value of the land.

 

[Fred2]

I would transfer ASAP, the new husband may think he's wife signature is expensive.

 

[bojogcenik]

I would transfer ASAP, the new husband may think he's wife signature is expensive.

Yeah I know, I discussed my concern with her and she advised that he is not materialistic, basically she was defending him thinking I was worried he might get involved. She said she told him and would come with me to do the signing when I was ready. I better move on it quick before things change.

 

[bojogcenik]

Please see my comments in red. To sum up, my two cents is that you should arrange the transfer to your current spouse and pay the transfer tax based on the NJOP, ie government tax value of the land.

Appreciate you comments Mark. According to some notaris' they dont' use the NJOP anymore as they know that the land in certain areas sells for alot higher. The relative department (I think it's called Dispenda) makes their own calculation on the land values then the buyers and sellers tax is calculated on their figure. Seems pointless having an NJOP (Nilai JUal Obek Pajak) on the land tax documents if another department is going to give a figure based on something else.