If a foreigner invests in a foreign country, he/she will be confronted by one of three possible different legal systems:
1. Free Market
Foreign investments can be made in the country without any restrictions. One can sell and buy as much as one wishes. This applies to the United States, for example or Canada, Germany, France and Great Britain to name a few. Where a free market exists, little concern about reselling will exist, but the investor should familiarise himself/herself with the tax issues and a chartered accountant should be consulted in respect of deed transfer tax, stamp duty, inheritance tax, gift tax and if the island is sold at a profit, what the tax is on realised gain.
2. Restricted Market
The host country allows a foreigner to purchase but only with a government sanction. In many countries, where government sanctions are necessary, governments check the character of the buyer as well as his/her intentions with the property in question. In many cases, where intentions have speculative character, the purchase will be disallowed. Where jobs are created, purchasers are welcome. It is very important to be extremely careful when applying for a sanction. Every word on the application should be true and reflect the true intentions of the buyer, as otherwise the buyer is exposed to problems, if not expropriation or forced sale.
Furthermore, the investor should realise that there are two groups of countries with a restricted market. Countries such as for example Switzerland, New Zealand, Australia to name only a few, have their own local market. This means that when the foreign investor wishes to resell, he/she can at least rely on a local market within which he/she will be able to sell the island. In such cases, the island owner can always expect to receive market prices for the property. There are other countries such as the Tahiti, Grenada, Seychelles, where a government permit is necessary. However if the permit is denied, the only option which the Vendor has is to sell to the local market. In those cases, the buying power may not be so strong.
To find out which countries require a permit, it is advisable to call the relevant embassies in your own country, who should be in a position to provide such information.
3. Foreigners are not allowed to purchase
In these countries, such as the Philippines, Indonesia, Malaysia and other countries in the Pacific Ocean to name a few, foreigners are not permitted to purchase freehold islands/land. Many websites and vendors try to convince buyers to form companies or use trust bodies in order to sell their properties. In the end, they circumvent the law which we cannot recommend. In such countries, people are better off renting an island for their holidays and simply waiting for the government policy to change in their favor before making an acquisition.
As an example, the Embassy of the Philippines in Berlin, Germany provided us with the following letter, specifying what a foreigner is allowed and not allowed to purchase >>more
One issue is legal requirements, another is the welcoming of foreign investments in a country. Again, should you rent an island in the country of your choice, you will be able to determine the reaction of the locals to foreign investments. On our extensive travels, we have seen very few areas, where foreigners are met with reservation. In the majority of cases, it is not an issue, if the foreigner is able and willing to blend into the surroundings. However the extent to which a foreigner is welcomed should be considered – the best way is to rent an island, as an unfriendly situation will become apparent very quickly.
Some local people are right to be concerned, if foreigners subdivide the island or use the island as a speculation object. We would just like to inform the buyer to take careful steps and be respectful of the area.