By Terje H. Nilsen, Co-Founder, Seven Stones Indonesia
Our last few blogs and articles have been mostly around rules, regulations, due diligence, taxes and investment road maps. There are good reasons for this; primarily to share insights into compliance, because it’s usually when you don’t comply that problems quickly follow. And nobody likes problem situations or the people that lead them there.
Our approach is to help things run as smoothly as possible. We keep our fingers on the pulse, looking for news, updates and press releases we think are relevant if you’re looking to stay in Bali and invest in Indonesia. And what we’ve come across recently is certainly worth sharing and having conversations around as there have been a growing number of articles that expose cases of unethical land transactions, visa abuse and working illegally, especially in Bali and particularly focused on Russians and Ukrainians. There have even been some articles on how to report foreigners to immigration for alleged visa abuses and suspected illegal activities.
We believe these sorts of issues are best dealt with by the relevant Indonesian authorities who should be educating people on what is expected and how to best legally comply if you want to live and work in Indonesia. We have it on good authority that immigration officials from central government are currently in Bali, and they are on it; checking on visa agencies and asking questions of those who (unwisely) believe they are flying under the radar and won’t be noticed for breaking immigration laws.
It’s worth noting here, that the recent influx of Russian and Ukrainian visitors to Bali is directly related to events in Europe, and there are some who would argue these visitors are refugees; using whatever means necessary to escape and should be unconditionally welcomed. We know a significant number do follow the rules, they get the correct visas and they establish PMAs, as the law suggests they do. We applaud this.
I was joking with an Australian friend the other day, talking about this subject and he said soon we will all be speaking Russian, and anyway, they’re all criminals. I answered that for 30-years or more it was Australians who have had the island for themselves, criminals included. And now, maybe it’s time to share.
That’s one of the reasons why it’s in nobody’s best interests to go on a witch-hunt, tagging people in social media as potential violators of the law and painting whole communities with a crude brush-stroke. It’s the start of a slippery slope and in my humble opinion, it isn’t the solution to what is actually a problem that needs addressing.
Zero Dollar Tourism
If we want to look at real problems, I think what we should be looking at is what’s been going on in Canggu for quite some time. It’s not just Canggu, but it’s certainly somewhere that’s attracting a lot of attention right now. This isn’t something specifically aimed at Russians or Ukrainians, because when there’s money to be made, people (both expats and locals) come for the opportunities, which is good. However the Canggu area seems to be a different country in terms of regulations and business streams, particularly those in the crypto and NFT ecosystem as well as cash and carry deals. Nothing against crypto, blockchains and NFT, which can be used for positive and valuable purposes, but they can also be used for nefarious intentions.
And that’s what we see; leasing land, renting villas, selling off plan, no notary, no proper due diligence, structured tax frauds (they call it planning), payments in crypto, NFT and cash, so no taxes are declared or paid. The result of this particular mindset is that the local government and often local communities themselves lose out. And it has to stop for everyone’s benefit.
Practice What You Preach
We also see a growing number of expats sipping coffee and sunset drinks talking about how eco-conscious and socially responsible they are, but the next day they come to companies like ours wanting to convert rice fields, green belts, and other kinds of protected land just so they can turn quick profits. Another request we get is around set build permits and the right of use, usually referred to as PPG and SLF. These same socially responsible expats want to go directly to SLF, because what they want to build is clearly in breach of regulations. And they know it!
We ask them if the government will actually be able to issue the SLF based on what they’re asking for. Remember, everything now is all tied up in OSS (Online Single Submission system) and even though the system is not perfect, it is tightening up every day as are the processes between central and provincial governments and regencies.
There’s no question it’s easier now for foreign investors in Indonesia. Systems are more transparent; procedures have been improved; and the time things take, arguably the most important aspect for any business owner, has been greatly reduced.
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, because there are better, and more legal ways to do business and make money.
So, the question has to be, is it worth taking the risk?
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 business you’re doing.
I’d like to outline a few areas to prove my point. Believe it or not, they’re actually based on real life examples, so some may resonate with you.
Nominees, Immigration and Taxes
The system and practice of using nominees for property transactions goes back a long way in Bali, but that doesn’t make it right, not by a long way. It’s an issue many choose to ignore but you should really be asking yourself (and your legal advisor or notary) some serious questions.
What if the nominee passes away and the heirs to the estate decide they don’t want the same arrangement anymore? What if the nominee sold the property without your knowledge or approval? Or leased it out for many years? It’s in their name on the documents after all.
What happens when the tax man knocks on your nominee’s door looking for the tax on the revenue your property’s been generating as an Airbnb or holiday rental? Or for land transaction taxes? He (or she, or they) deny owning the property, pointing at you, the real owner.
Problem is you’re on a tourist visa, VoA or a B211A and you’re not allowed to work and you don’t have a tax ID (NPWP.) Now you’re going to have to deal with tax man AND immigration! And the tax department has the right to do a tax investigation going back 15-years. This applies for any business, not just real estate.
Zoning, Land Status and Permits
What if you buy land without the correct status for the business or purpose you want? 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. Let’s say you buy a property in a residential zone and someone said you could get an operational permit to rent it out, like a 3-bedroom villa in an area that would be just great for holiday rentals, for example.
Unfortunately, in this scenario, the government would tend to allow locals to operate without the right permits in place, but as a foreigner they won’t. It hurts, I know. But it’s what happens, so it’s always best to check.
What if you buy a beautiful property or plan to build a dream home in a green-belt zone? Can you change the zoning? What if you want to sell the property and the zoning still hasn’t changed? How easy is it going to be to find a buyer and what if they ask for a due diligence before they make a down payment? Let’s say you did find a naïve buyer, how would you get the money out of the country?
These are just a few examples, and believe me, the list could be really, really long. I’m not trying to scare you or put you off with this brutal kind of approach, I’m 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! Because ignorance maybe bliss but it’s no argument under any country’s laws.
If you’d like to sit down and discuss any of the points I’ve outlined here, we’d be more than happy to walk you through the processes involved. Send us an email to email@example.com … we’d love to hear from you!