Indonesia, with its diverse and thriving real estate market, has established a robust framework for property taxation. Understanding the intricacies of these taxes is essential for anyone involved in buying, selling, or owning property in the archipelago. In this article, we’ll delve into the key aspects of property taxation in Indonesia, focusing on rental income, land and building tax, and income tax implications for property owners.
Property taxation in Indonesia and Bali
1. BPHTB – Sales and purchase tax
When it comes to settling a buying property transaction, both parties have some tax obligations. The first one is the land acquisition tax or Bea Pengalihan Hak atas Tanah dan Bangunan (BPHTB). This tax has to be settled before the notary signs the deed. Land and tax is calculated at a flat rate of 5%. The calculation of the tax varies from a region to another one based on the non-taxable real estate objects, called Nilai Perolehan Objek Pajak Tidak Kena Pajak (NPOPTKP) that is deducted from the Tax Object Acquisition Value, called Nilai Perolehan Objek Pajak (NPOP).
BPHTB = 5% x (NPOP – NPOPTKP)
Let’s take an example for a property sold at 3 000 000 000 IDR in Jakarta (to change from Bali). The NPOP is then equal to 3 Billion IDR.
The government is fixing the NPOPTKP at Rp 100,000,000 IDR in Jakarta the calculation become:
5% x (Rp 3,000,000,000 – Rp 100,000,000) = Rp 145 000 000
2. PBB – Land and Building Tax
One of the property taxes in Indonesia is PBB. The land and building tax in Indonesia (Pajak Bumi dan Bangunan) has been set at a maximum national rate of 0.5% and is determined by each region in Indonesia.
The local government determines:
The NJOP (Nilai Jual Objek Pajak) that can be described as the sales value of the property. This amount is the average price obtained during the last real estate transaction. If there has not been a real estate transaction recently, the NJOP is determined by the local government by comparing the property on the market.
NJKP (Nilai Jual Kena Pajak) is the appraisal value calculated based on the NJOP.
40% for properties above IDR 1 billion
20% for properties under IDR 1 billion
To make it simple, if the property transaction is valued at 2 000 000 000 the tax based on the PBB will be 20% x 2 000 000 000.
The final tax will be 0.5% x 20% x 2 000 000 000 = 20 000 000 IDR.
3. PPH – Lease tax in Indonesia
Lessors are responsible for this tax. The tax is based on the lease value. The amount of the lease tax in Bali is set at 20% for non-residents and 10% for residents (KITAS/ KITAP holders).
For tax optimization, the landlord might look at getting a temporary residence before the transaction. This tax is due after the signature of the lease and the transaction.
4. VAT (PPN)
Oftenly missed, buyers may have to pay a VAT on the property called PPN Pajak Pertambahan Nilai. The PPN or VAT is paid by the lessee or buyer when a transaction occurs with a contractor or a developer registered as VAT collector.
The rate is set at 11%. However this tax doesn’t apply for second hand properties.
It is important to check if the seller is registered and will collect the VAT for the government and is in right to charge the VAT to you.
5. Construction tax
PPH 4.2 is a tax based on the Rancangan Anggaran Biaya” (RAB) of the building.
1.75% if the construction is done by a company classified as a small business classification or individual with a competency certificate (4% if the company has no business qualification)
3.5% for a company declaring itself designing and managing the building project as a developer (6% if the company has no business qualification)
PPH is usually paid by the contractor.
6. Stamp Duty (DST)
The Payment of Documentary Stamp Tax serves as legal evidence during the signature of the boh parties.
The standard stamp duty has changed the last few years but is stabilizing at less than 1 USD.
How can we help you?
Here’s how ILA Global Consulting can help you navigate these intricate landscapes:
Property tax compliance and tax planning
For individuals and businesses involved in property transactions, ILA Global Consulting offers expert guidance on property tax planning. We help clients to optimize their tax liabilities while ensuring full compliance with Indonesian tax laws. This includes assistance with Transfer Tax (BPHTB), Land and Building Tax (PBB), and other related taxes.
Transaction structuring
ILA Global Consulting assists clients in structuring their transactions in the most tax-efficient manner. By considering the specific details of each transaction, they can provide tailored advice on how to minimize tax exposure while adhering to legal requirements.
