The oft-quoted phrase by 18th-century American statesman Benjamin Franklin about nothing being certain in this world except death and taxes has endured through the years for its sobering truth. At the Sands Expo & Convention Centre on July 30, real estate investors gathered to discuss just that – the certainty of taxes, weighed against the uncertainty of investment returns.
How the former impacts the latter was a key topic at PropertyGuru’s Invest Asia Property Show, which dedicated one panel session to the legal and tax considerations in three Southeast Asian countries: Malaysia, Indonesia and Thailand.
Winston Lee, PropertyGuru Group’s Director of Special Projects who moderated the session, noted that it was a rare occasion where regional legal experts were gathered. And the audience seized the chance to seek their advice on tax and inheritance issues, sparking a lively discussion on a usually prosaic topic.
“Music To The Ears of Singaporeans”
Most of the day’s panels had stoked the imagination of participants with talk of holiday homes in Bali and regional markets brimming with growth opportunities. This session, however, was a reality check, with Lee reminding the audience of how tax is a “fundamental hygiene factor” – an often overlooked yet crucial aspect of investing.
“What are the key tax frameworks that foreign investors need to be aware of?” he asked, stressing that the tax question is a pertinent one through all three stages of real-estate investment: buying, holding and selling an asset.
Panellist Latha Pillay, the first to share her perspective on the Malaysian market, pointed to two main taxes: stamp duty, which is payable on a new transaction, and foreign levy.
The Managing Partner at law firm Syed Alwi, Ng & Co. added that stamp duty can rise to 4 per cent for a property aboveRM1 million, while the foreign levy varies across states, from RM500 to 2 percent of the property cost.
In Thailand, buyers and sellers usually split a 2 per cent transfer fee equally. Transfer tax also includes a “special business tax” of 3.3 per cent, said Boonyaporn Donnapee, Partner at legal advisory KPMG Phoomchai Legal. However, she added that only a stamp duty of 0.5 per cent is required instead of the special business tax if they fulfil certain conditions, such as owning the property for more than five years.
The process is slightly simpler in Indonesia, with a “one-time” title transfer tax of 5 per cent for the buyer, explained Achimi Athia Anita, Partner at legal firm Roosdiono & Partners.
“I think (these figures) are definitely music to the ears of Singaporeans,” quipped Lee of the single-digit stamp duty. Singaporeans pay 20 per cent stamp duty on a second property. Meanwhile, foreigners saw their stamp duty on Singapore properties double to 60per cent earlier this year, sparking predictions that buyers will seek alternatives in regional markets.
There are ways to qualify for further tax exemptions in these countries. For example, Latha said foreigners who incorporate a company in Malaysia where more than 51 per cent of its shares is held by a Malaysian, will be exempted from paying a foreign levy. They also paya lower tax on rental income – 24 per cent instead of 30 per cent.
You can also save on Real Property Gains Tax (RPGT) if you purchase property under a company. RPGT for a foreigner, is30 per cent for a disposal within five years of date of acquisition. In comparison, RPGT for a Malaysian-incorporated company is 30 per cent if the property is sold within three years from the date of acquisition, 20 per cent in the fourth year and 15 per cent in the fifth year from date of acquisition.
“As such, if you intend to buy a property and flip it, you should do it under a company,” she said.
This was insightful advice for audience members such as Mike Koh, a retired technician who is eyeing property in Johor Bahru, such as in Iskandar Puteri.
Noting the lower cost of living across the Causeway as the ringgit continued to weaken against the Singapore dollar, he said: “Maybe we can live there.” The 68-year-old, who was at the event with his wife, added that his son could be interested in similar investments too.
Where There’s a Will, There’s a (Faster) Way
The idea of intergenerational investments and property inheritance was also brought up by another participant, who asked the panellists about inheritance tax in the various neighbouring countries. While such tax applies in Thailand for properties above 100 million baht (S$2.9million), there is no inheritance tax in Malaysia or Indonesia.
The conversation transitioned to the importance of having a will. “Singapore investors want to know if the will they write applies in the region,” said Lee, adding that elderly buyers may be concerned about the execution of a will overseas.
In response, Latha said that having a will would significantly shorten the property selling process for an heir – from around 14 months to 10 months. “I highly recommend it to save costs and time,” she said.
From writing a will to optimising tax eligibility, attendees left with a bit more certainty in the matters of taxes and death.