Tax Amnesty and Gifts from Foreign Husband To Wife

CaturMuka

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I'm asking this question on behalf of a friend but it has implications for myself (and I assume all WNA/WNI couples).

About 3 weeks ago he had tax officers arrive unannounced to his house and request copies of the sale documents for the land their house sits on. They originally bought empty land and built the house themselves. He's a WNA so the land is in his wife's name, they have a prenup (thanks to me).

Today he's received a letter saying that they need to report the property to the tax office and participate in the last stage of the Tax Amnesty, thereby paying 5% of the value of the land.

I asked him if he'd already reported the land on his wife's tax return and he's pretty sure they hadn't.

I was under the assumption that while you have to report the house and land as an asset on your wife's tax return, the amount isn't included as taxable income because it's a gift between husband and wife.

However after checking around, I'm now convinced that this isn't true.


Here's the relevant law which is from UNDANG-UNDANG REPUBLIK INDONESIA, NOMOR 36 TAHUN 2008 (See here in Indonesian: http://www.jdih.kemenkeu.go.id/fullText/2008/36TAHUN2008UU.HTM)
Yang dikecualikan dari objek pajak adalah:
a. 2. harta hibahan yang diterima oleh keluarga sedarah dalam garis keturunan lurus satu derajat . . .

Here's an english translation from here(http://www.expat.or.id/info/2008-IncomeTaxSDSN.pdf):
There shall be excluded from taxable object:
a. 2. gifts received by relatives within one degree of direct lineage.

So, because husband and wives aren't "relatives within one degree of direct lineage" any gifts between them are considered taxable income. Is there something I'm missing? This just doesn't seem right and is definitely not the case in Australia.

My friend is a bit freaked out and me too. I'm almost certain we (that is to say my wife) have never paid income tax for the house and land, let alone the car, that I've bought for her.

I've never seen this brought up in the forums before so it's come as a bit of a shock. Can anyone confirm what I'm saying is true?
 

R Cameron

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I'm guessing there's a separate area of law that discusses the joint finances of a married couple. It wasn't a gift if the money used for the purchase legally belongs to both of them, regardless of which account it is in and who earned it. That's how it works in the US, and it would make things very complicated to work any other way. Maybe you'll get sufficiently certain advice here, but I would suggest your friend contact a lawyer.
 

dafluff

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I'm asking this question on behalf of a friend but it has implications for myself (and I assume all WNA/WNI couples).

About 3 weeks ago he had tax officers arrive unannounced to his house and request copies of the sale documents for the land their house sits on. They originally bought empty land and built the house themselves. He's a WNA so the land is in his wife's name, they have a prenup (thanks to me).

Today he's received a letter saying that they need to report the property to the tax office and participate in the last stage of the Tax Amnesty, thereby paying 5% of the value of the land.

I asked him if he'd already reported the land on his wife's tax return and he's pretty sure they hadn't.

I was under the assumption that while you have to report the house and land as an asset on your wife's tax return, the amount isn't included as taxable income because it's a gift between husband and wife.

However after checking around, I'm now convinced that this isn't true.


Here's the relevant law which is from UNDANG-UNDANG REPUBLIK INDONESIA, NOMOR 36 TAHUN 2008 (See here in Indonesian: http://www.jdih.kemenkeu.go.id/fullText/2008/36TAHUN2008UU.HTM)


Here's an english translation from here(http://www.expat.or.id/info/2008-IncomeTaxSDSN.pdf):


So, because husband and wives aren't "relatives within one degree of direct lineage" any gifts between them are considered taxable income. Is there something I'm missing? This just doesn't seem right and is definitely not the case in Australia.

My friend is a bit freaked out and me too. I'm almost certain we (that is to say my wife) have never paid income tax for the house and land, let alone the car, that I've bought for her.

I've never seen this brought up in the forums before so it's come as a bit of a shock. Can anyone confirm what I'm saying is true?

The problem is that with the prenup (and we should stop calling it that, it is really a separation of finances agreement), the wife and husband are no longer co-owner of joint property. Neither are their finances commingled. Therefore any monies transferred between husband and wife in that situation is considered taxable income (taxable gifts, ie gifts not directly from either parents or children).

In summary, your assessment is correct. You are not missing anything.
 

R Cameron

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Of course, not being married to a WNI, I forgot about the implications of a prenup. That makes more sense. So, if you have a child together, put the house in your child's name.
 

CaturMuka

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So, if you have a child together, put the house in your child's name.

Makes sense, but I'm pretty sure children aren't allowed to own land in Indonesia. I think if they inherit land, it's kept in a trust or something, I'm not really sure about the details.
 

dafluff

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Another alternative is instead of gifting the house, is to "loan" the money to the wife. So the wife's assets is the house, while the liability is the loan, no increase in assets. Hence no taxable income.

Then, at least on paper, have a generous repayment plan that doesn't trigger the income tax threshold. Something around Rp 50 million a year.

This is also another layer to secure the property to the foreign spouse.
 

CaturMuka

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The problem is that with the prenup (and we should stop calling it that, it is really a separation of finances agreement), the wife and husband are no longer co-owner of joint property. Neither are their finances commingled. Therefore any monies transferred between husband and wife in that situation is considered taxable income (taxable gifts, ie gifts not directly from either parents or children).

In summary, your assessment is correct. You are not missing anything.

Thanks, that makes sense. The reason I'm shocked is that I've never heard of any WNI spouse paying income tax on a house or car that their WNA partner had bought for them.

I'm off to the Tax Accountant tomorrow with my friend. If the Tax Accountant says my friend's wife has to pay the Tax Amnesty, then I think my wife will be joining them. I've run the numbers on our house and we're much better off paying the Tax Amnesty than the income tax (and I suppose whatever the penalty would be for not paying the first time).

I could just do nothing, I suppose, but then I'd be taking the risk of a huge penalty if my wife ever got audited, and there's no guarantee there will be another Tax Amnesty.

Aduh! It just seems like a huge gotcha that no-one's ever mentioned before. Wouldn't this affect half the people in this forum?
 

CaturMuka

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Another alternative is instead of gifting the house, is to "loan" the money to the wife. So the wife's assets is the house, while the liability is the loan, no increase in assets. Hence no taxable income.

Then, at least on paper, have a generous repayment plan that doesn't trigger the income tax threshold. Something around Rp 50 million a year.

This is also another layer to secure the property to the foreign spouse.

Thanks very much, I'll run this past the Tax Accountants and see what that say.
 

Davita

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Another alternative is instead of gifting the house, is to "loan" the money to the wife. So the wife's assets is the house, while the liability is the loan, no increase in assets. Hence no taxable income.

There isn't any tax on the increase in value of property in RI. i.e. Capital Gain. https://www2.deloitte.com/content/d...indonesia-individual-tax-guide-2015-noexp.pdf....'Capital Gains exceptions..Sale of land and/or building located in RI. The tax is 5% of the taxable sale value or the actual proceeds whichever is higher.'

I can never understand why everyone is jumping up an down paying amnesty when it may not be required. It is only necessary if revenue has been earned, and not previously reported, on an individuals SPT. If not reported and not generating income just report on next SPT and maybe pay an admin fee.

It has always been the case that assets are declared on an individuals SPT but, unless revenue has been generated from that asset, there hasn't been a need to be taxed. Those that are scared, and claiming amnesty, are those who have previously been earning money and not declaring those earnings.
 

centurion

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In your tax report, there is a section "assets" where this kind of asset should be reported. There is also a section" liabilities" where your liabilities should be listed(bank loans and similar).
I think (I am not sure so better check by yourself) that gifts between spouses with prenup are taxable. If there is no prenup they are considered as one entity and everything is joint property.
What me and my wife did:
My wife reported:
-Report tax report for 2015, first in her life.
-She stated the asset-apartment
-Listed her debts-bank loan for the apartment and loan from me for the apartment downpayment
-She paid 100.000 Rp fine for late reporting
-Recorded her tax paid for her salaries

I corrected my tax report for 2015 and listed
-assets-my car and loan to my wife for apartment downpayment
-I paid 100,000 rp fine for correction of report

My reported revenues last 5 years in Indonesia support the loans that I extended to my wife and purchasing of the car.
 

dafluff

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There isn't any tax on the increase in value of property in RI. i.e. Capital Gain. https://www2.deloitte.com/content/d...indonesia-individual-tax-guide-2015-noexp.pdf....'Capital Gains exceptions..Sale of land and/or building located in RI. The tax is 5% of the taxable sale value or the actual proceeds whichever is higher.'

I can never understand why everyone is jumping up an down paying amnesty when it may not be required. It is only necessary if revenue has been earned, and not previously reported, on an individuals SPT. If not reported and not generating income just report on next SPT and maybe pay an admin fee.

It has always been the case that assets are declared on an individuals SPT but, unless revenue has been generated from that asset, there hasn't been a need to be taxed. Those that are scared, and claiming amnesty, are those who have previously been earning money and not declaring those earnings.

My post that you quoted does not concern capital gain. The loan is merely there to show that the house wasn't a gift.

Indonesia requires you to list all assets and liabilities with tax return and explain any increases in assets. If you didn't have an assets previously and now you do, you have to substantiate that the increase in assets do not stem from taxable income. Or you pay taxes on it. Or until the end of this month, you can pay 5% amnesty rate.

In the case of the gift of a house from a financially separated spouse, the receiver is required to pay a gift tax, just like if the gift was given by a total stranger. Or you can set it up so that there was no gift, and it was a loan, then no tax.
 

[email protected]

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At the beginning of the tax amnesty last year, my wife declared the land and car I had bought and given to her. We paid the tax at the time. It was my understanding the gift tax was a higher rate so I thought it was a good deal. I note that we do not have a financial agreement (pre or post).
 

Davita

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My post that you quoted does not concern capital gain. The loan is merely there to show that the house wasn't a gift.

Indonesia requires you to list all assets and liabilities with tax return and explain any increases in assets. If you didn't have an assets previously and now you do, you have to substantiate that the increase in assets do not stem from taxable income. Or you pay taxes on it. Or until the end of this month, you can pay 5% amnesty rate.

In the case of the gift of a house from a financially separated spouse, the receiver is required to pay a gift tax, just like if the gift was given by a total stranger. Or you can set it up so that there was no gift, and it was a loan, then no tax.

OK sorry dafluff....We are both saying the same thing. I thought you meant, in your previous, there was an increase in the value of the asset (property)...I can now see you meant an increase in the number of assets.

I've done the same as you suggest...my in-law family are nominee owners and it's their property. I lent the money with a promise they'll pay me back...which they do. I just live there free of charge until the debt is paid...which may take a while.
 

scouser59

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At the beginning of the tax amnesty last year, my wife declared the land and car I had bought and given to her. We paid the tax at the time. It was my understanding the gift tax was a higher rate so I thought it was a good deal. I note that we do not have a financial agreement (pre or post).


hi , I note that you did not have a pre or post nup , so how was the land bought legally ?
 

CaturMuka

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So. I've had a long day talking with a couple of accountants and then the Tax Office.

There wasn't much love for the idea of a loan, I think you can only get away with this if you've done it upfront. Neither of the accountants were willing to help setup a fake loan retroactively. Which is to their credit I suppose.

I was hoping that they'd have something up their sleeves, some sort of work around or an inside contact at the Tax Office to smooth things over. Something like "Yeah yeah yeah, don't worry about all that, just do this, this and this and you'll be fine." But nope, they were very straight and proper and also very expensive.

There's 2 options:

1. Just pay the Tax Amnesty and be done with it. Easy but expensive. However, you'll be protected from any legal/tax ramifications from that point on.

or:

2. Pretend you've never heard of a pre-nup (pisah harta) and redo all your tax returns from the time you bought the house and explain that your wife doesn't need to pay tax on the money you gave to her because she's your wife (which is the case for couples who are both WNI).

After talking to the Tax Accountants, it was clear that the ramifications of a pre-nup (pisah harta) are not well known. I had to explain it to them and they both called their higher ups for clarification.

So knowing this, we went to the Tax Office to explain our situations BUT we didn't mention anything about the pre-nup (pisah harta). We just apologised for not reporting the assets and asked how we could go about fixing it up. Which turns out to be option number 2. Now obviously, our wives can't actually own land without a prenup (pisah harta), but there was no indication that the Tax Officer knew this.

So we're both going to do option 2.

It's a bit scarier for my friend because they're already an open case, and he'll have to provide proof in an interview that the money his wife used to buy the house and land came from him. I'll be just resubmitting all my wife's tax returns and will only have to show proof if she gets audited (I hope).

If we're lucky, all we'll be paying is the fee for re-submitting the Tax Returns. It's definitely risky compared to paying the Tax Amnesty, but I think the risk is low.
 

dafluff

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So. I've had a long day talking with a couple of accountants and then the Tax Office.

There wasn't much love for the idea of a loan, I think you can only get away with this if you've done it upfront. Neither of the accountants were willing to help setup a fake loan retroactively. Which is to their credit I suppose.

Yes, my suggestion was not meant to do this retroactively. It was as an alternative to putting it under the kids' name when purchasing land, as suggested earlier. Apologies if this wasn't clear.

After talking to the Tax Accountants, it was clear that the ramifications of a pre-nup (pisah harta) are not well known. I had to explain it to them and they both called their higher ups for clarification.

Interesting, but not surprising. I find that Tax Advisers in Indonesia are only 2nd behind lawyers in number of so called professionals who are completely clueless about their job. Understandable, since in years prior, both job descriptions mostly concern ferrying money to placate government offcials.

So knowing this, we went to the Tax Office to explain our situations BUT we didn't mention anything about the pre-nup (pisah harta). We just apologised for not reporting the assets and asked how we could go about fixing it up. Which turns out to be option number 2. Now obviously, our wives can't actually own land without a prenup (pisah harta), but there was no indication that the Tax Officer knew this.

Well, the prenup itself is registered in the local civil registry, the tax people don't really care about the details of buying and selling land (not their department), so you maybe safe in this regard. That is unless you get unlucky and some sharp tax auditor finds out about this.

It's a bit scarier for my friend because they're already an open case, and he'll have to provide proof in an interview that the money his wife used to buy the house and land came from him. I'll be just resubmitting all my wife's tax returns and will only have to show proof if she gets audited (I hope).

Your friend is screwed. His best case is for his wife to do Tax Amnesty at 5%. Depending on how he substantiates it, he may get away with only declaring the value of the land as a gift, while the house is built and owned by him. On the bright side, participating in Tax Amnesty immediately ends the investigation.

That some tax officials targeted him and his WNI wife indicates that at least some tax officials are aware of the prenup situation, and I predict more than a few surprised foreigners in the near future.
 

CaturMuka

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Well, the prenup itself is registered in the local civil registry, the tax people don't really care about the details of buying and selling land (not their department), so you maybe safe in this regard.

I think this might be our saving grace. If we claim that we don't have a pre-nup (pisah harta) then there's no way the Tax Office can easily check that we do and there's no way they can force our wives to list the money we've given them as taxable income. I suppose they still could if you couldn't prove that the money came from the husband. It that happens, you're better off just paying the 5% tax amnesty.

I'll be feigning ignorance and hiding my copy of the pre-nup under the mattress from now on.

Your friend is screwed. His best case is for his wife to do Tax Amnesty at 5%.

Sorry, I should have mentioned that the Tax Officer we saw today is the same one that will be doing the interview so hopefully the advice he's given today should hold. I suppose the worst that can happen is that he'll be forced to pay the 5% Tax Amnesty.

That some tax officials targeted him and his WNI wife indicates that at least some tax officials are aware of the prenup situation. . .

Oh yeah, I asked my friend about this and he said that they weren't specifically targeting him and his wife, they were just going door-to-door to all the houses in his perumahan.
 

Davita

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Sometimes I think we of mixed marriage and expats overthink this amnesty. It was never intended for any other purpose than to weed out the big bucks some wealthy individuals and companies have ferreted away in places like Singapore. When the banking transparency law comes effective next year we'll see another scurry.

A by-product is many WNI have jumped on the band wagon to declare amnesty and have their ill-gotten local-gains expunged. Many, many WNI lend money to others to obtain assets..does anyone really think the tax inspector will go after those people.

IMO...expats are looking into this too deeply and maybe causing tax inspectors/notary ears to prick..."Oh goody...here's another way to gip those rich bules!"
As CaturMuka has observed in his post #16.....most don't know their own law....they interpret as they see how much they can gouge.
 

CaturMuka

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IMO...expats are looking into this too deeply and maybe causing tax inspectors/notary ears to prick..."Oh goody...here's another way to gip those rich bules!"

I can honestly say that I haven't felt like we've been unfairly targeted, as my friend said, they were checking all the houses in his perumahan. What I do feel is that the days of being able to bend/ignore the rules and get away with it are almost over in Indonesia.

Personally, I should have taken care of this years ago, I just assumed the Notaris had reported it and that was that. Because my wife doesn't work I have been simply zeroing out all her Tax Returns without thinking about the assets she needed to declare. I was just being lazy.
 

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