The real estate sector in Fiji is thriving. Properties are put into the market for sale continuously and the sector is considered to be a major contributor to Fiji’s economy.
In most countries the real estate sector has been branded as a sector used to facilitate tax fraud and money laundering.
This includes generating and investing unreported income.
In Fiji there have been few cases where large amounts of cash has been used to purchase properties.
The sources of these funds are also unknown.
The method of concealing ownership has three main variations.
They are onshore acquisitions through off-shore companies and/or through a complex structure of ownership, unreported acquisition of properties overseas and use of nominees.
The Fiji Revenue and Customs Authority signed a memorandum of understanding (MOU) with the Real Estate Agents Licensing Board last year (2016) to obtain real time data on the number of properties sold in the country.
These data will state whether the property sold gets reflected in the tax collection for that particular month.
This week we will look at the Real Estate agent and the tax obligation they have towards the Fiji Revenue and Customs Authority.
In, Fiji only those real estate agents who are registered with the Real Estate Agents Licensing Board are allowed to sell properties.
Normally in Fiji a licensed real estate agent (LREA) is given powers to sell the property within a designated time.
The LREA would market the property in whatever way it feels right and arranges for viewing (entering the property and showing around) at its own time (convenient to the vendor).
Once this is done or within this period the seller does not have any right to sell the property on its own or by any other agent; and the exclusive right to sell is given to this particular agent.
A stamp duty of $50 is levied on such appointments and it has to be paid by the vendor.
Apart from disposing their properties, people in Fiji also engage real estate agents to either collect rents on their behalf or advertise for tenants.
For real estate agents that collect rent, our inspectors (FRCA inspectors) will be conducting checks and verification to see that the rental income reporting system is adhered to.
There are so many former Fiji residents who are now residing elsewhere, but still deriving income from their properties rented out here.
These rents are collected by the real estate agents on behalf of the owners.
Income tax and VAT, where it is correctly due, have to be paid by the real estate agents.
FRCA has also come across a number of people acting as real estate agents but are not registered.
A person is deemed to be a real estate agent if the he or she acts, or holds himself or herself out to the public as ready to act, for reward as an agent in respect of the sale or other disposition of land or business or the purchase or other acquisition of land or of business, or in respect of the leasing and letting of land, whether or not the person carries on any other business.
Taxes such as capital gains tax, Stamp Duty, VAT and income tax should be paid where applicable and FRCA will be vigilant in these tax areas.
We wish to stress that the requirement for international investor for a real estate license is the same of that of a local; however, we would like to once again highlight the importance of the rental income reporting system for any person that is involved in the real estate industry.
International real estate agents, who deal in properties situated in Fiji, are also deriving income from sources in Fiji. Commissions payable to these agents are subject to 5 per cent withholding tax.
The Real Estate Sector is a complex industry in terms of monitoring and we often get assistance and information from third parties and through our whistle blowing policy.
Some challenges which we continuously face in relation to the real estate industry are:
* property sales being conducted out of Fiji;
* the understatement of valuation of property so as to avoid taxes;
* less stamp duty on the transfer of property because of undervaluation;
* less capital gains tax because of undervaluation;
* unfiled rental income reporting returns (stating rent collected); expenses claimed with no proper invoices; and
* verification of cost for the property for CGT purpose and depreciation and incorrect classifications of expenses — capital from revenue.
The real estate agents are required by law to declare their business dealings with landlord to the FRCA.
This requirement is stipulated under Section 107 of the new Income Tax Act.
A real estate agent must file a report for a tax year by the last day of February after the end of the tax year.
If two or more persons carry on business jointly as real estate agents, each of those persons is treated as a real estate agent.
The FRCA is requesting the real estate agents to provide the following information while lodging their returns about the landlord.
The name and address of each landlord for whom the real estate agent has collected rent, the address of the property for which the real estate agent collected the rent on behalf of the landlord, the total amount of the rent collected on behalf of each landlord, for each property of that landlord, the net amount of rent referred to in paragraph, after deduction of commission and other expenses in relation to the management of the property and any other income derived.
All these necessary information will make your work as well as the work of FRCA easier.
FRCA is continuously improving its process and is creating an environment conducive to encourage taxpayers to freely come forward and declare their income.
We are moving towards self-assessment and voluntary compliance, putting the onus of compliance with the taxpayers, ensuring that the framework of the VAT legislation and withholding tax provisions of Income Tax Act 2015 is strictly adhered to at all times.
Any non-compliance will have to face the full brunt of the law in terms of prosecutions or to penalties up to 300 per cent of tax shortfalls.
* This is a weekly column specifically targeting tax issues. If you have any topics that you want Talk Tax to focus on, please email msingh@fijitimes.com.fj
This was originally published in The Fiji Times on February 8, 2017.
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