When it comes to purchasing a property in Bali or Lombok, one of the first questions is whether you should buy under personal name or under a company (PT PMA)?
Besides its legality, the tax also plays a significant role in the decision-making process. Despite the cost of setting up a PT PMA, the benefits are clear. Some developers dislike the client purchasing under a PMA due to the administrative part slowing down the process for a few days, and also obligating the developer to declare the tax on the income received. However, the gain for the buyer is clear and undeniable.
In this article, we provide a detailed comparison of property ownership for foreigners in Bali and Lombok, contrasting the tax implications and legal structures of buying as an individual versus a company (PT PMA).
We also highlight that while individual ownership is limited to leasehold and faces a higher total tax burden on both rental income and resale (up to 30% and 20%, respectively), a PT PMA offers significant tax advantages. These benefits include lower taxes on rental activities and a considerably reduced tax rate on resale (10% for leasehold and 2.5% for freehold).
The article uses clear examples to illustrate how a PT PMA can lead to higher net profits. It concludes that despite the initial setup costs, operating under a company is the more profitable and legally sound option for foreign investors.
This is where ILA Global Consulting excels. For years, we’ve helped hundreds of international clients, including those investing in property in Bali and Lombok, precisely navigate Indonesia’s legal, taxation, and investment complexities.
Our team’s blend of deep local knowledge and international best practices ensures compliant, strategic solutions, making us a trusted advisor for anyone building a sustainable presence in Indonesia.
How is the Taxation on Properties Under an Individual Leasehold in Bali or Lombok?
Individuals can only rent properties in Indonesia and are not allowed to purchase a freehold property unless they open a company called PT PMA. The only option is to sign a leasehold agreement, which is equivalent to a long-term lease for a specified period with terms and conditions defined in the contract.
Rental Tax
When it comes to purchasing the leasehold rights, the individual does not have to pay any tax. However, things become more complicated and more taxation appears during the lifetime of the leasehold.
The Indonesian government applies a local tax of 10% on property rentals and also imposes a tax when funds are sent overseas to non-residents. This tax is logical to avoid any tax evasion. The tax on non-residents is equivalent to 20% which brings a total tax to 30% without considering the taxation of the buyer in its country of origin.
Tax on Property Sold as a Foreign Non-Resident
The tax that most individuals sometimes overlook is the tax that applies when the property is sold. This tax is set at 20%. The tax is not applied to the capital gain but to the lease value. For example, an investor selling a lease at 200,000 USD will pay 40,000 USD tax.
Key Terms for Individual Property Ownership
| Term | Definition |
|---|---|
| Leasehold Agreement | A legal contract that grants an individual the right to use or rent a property for a long, fixed period of time. This is the only way a foreigner can acquire property as an individual in Indonesia. |
| Freehold Property | The highest form of land ownership in Indonesia, which grants perpetual rights. Foreigners are not permitted to acquire freehold property as an individual. |
| Rental Tax | A local tax of 10% applied by the Indonesian government on income generated from property rentals. |
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How is the Taxation on Properties Under a PT PMA?
Individuals setting a PT PMA in order to purchase a freehold or a leasehold property obtain some undeniable tax advantages.
Rental tax
The local tax is similar to the tax as an Individual and is still set at 10%. However, after being taxed locally, the money is kept in the PT PMA.
- Option 1 – Rental activity is the main and only activity: The PT PMA will not be taxed anymore if the main activity is to rent out properties.
- Option 2 – The PMA has several activities: If the PT PMA has a second activity as a restaurant, or other service (travel package, etc), then the tax can be offset from the corporate income tax.
Furthermore, the owner of the PT PMA can pass some expenses under the PT PMA (such as hotel and travel costs) and reduce the company’s profit tax. Once the profit is shared, the part of the profit sent to the shareholders will be taxable at 10% (dividend tax) for the shareholders having a KITAS.
Tax on Property Sold by a Foreign Non-Resident
The tax for PMA selling a leasehold property is set at 10% while the income tax for PT PMA selling freehold (HGB) is set at 2.5%.
The tax is based on the income and not the capital gain. The capital gains will be taxed by taking into consideration the profit made by the company before sharing the dividend with the shareholders.
Key Terms for Properties Under a PT PMA
| Term | Definition |
|---|---|
| PT PMA | Perseroan Terbatas Penanaman Modal Asing. A foreign-owned limited liability company required for foreign investors to acquire property and receive tax advantages. It allows for 100% foreign investment in most sectors. |
| Dividend Tax | A 10% tax on the portion of a company’s profit that is distributed to its shareholders. This tax is applied to shareholders who hold a KITAS (limited stay permit). |
| Freehold (HGB) | Hak Guna Bangunan (Right to Build). This is a type of land certificate that grants the holder the right to build and own a building on a plot of land for a specific period of time. It is the highest land title a foreign-owned company (PT PMA) can hold in Indonesia. |
| Leasehold | A type of agreement that grants the right to use and rent a property for a long, fixed period of time. The tax for a PT PMA selling a leasehold property is 10%. |
Comparison Between Individual vs. PT PMA for Bali and Lombok Property
Example of net profit by operating under a PMA or as an individual leasehold:
| Individuals | PMA | |
|---|---|---|
| Lease Purchase | $200,000 | $200,000 |
| Rent per month | $10,000 | $10,000 |
| Tax on rent | $1,000 | $1,000 |
| Tax on money sent oversea | $2,000 | NA |
| Maintenance per month | $3,000 | $3,000 |
| Net profit | $4,000 | $6,000 |
| Tax on dividend | $0 | $600 |
| Net profit after tax | $4,000 | $5,400 |
| Net profit after 1 year | $48,000 | $64,800 |
Example of Tax After Selling the Property After Just One Month of Operation
After one year of operation, we can see that after all taxes are included, the PMA generates 37,100 USD profit, more than as individuals, which is equivalent to 40% more gain. You can imagine how big the difference can be after several years.
| Individuals | PMA | ||
|---|---|---|---|
| Property price for sales | $300,000 | $300,000 | |
| Tax on sales | $60,000 | $30,000 | |
| Net profit of the PMA before tax | NA | $97,000 | |
| Tax on the profit | NA | $9,700 | |
| TOTAL TAX | $60,000 | $39,700 | |
| Net earning after 1 year and Reselling the villa | $88,000 | $125,100 | |
| Difference | $37,100 | ||
Navigating the complexities of property ownership in Bali or Lombok is a critical first step for any foreign investor. As the comparison shows, while the individual route may seem simpler initially, it exposes you to significantly higher taxes and greater legal risks.
A PT PMA, despite the initial administrative steps, offers a more secure and profitable path, ensuring your investment is protected and optimized for the long term.
Don’t let potential tax burdens or legal ambiguities undermine your investment. Contact ILA Global Consulting today to ensure you choose the right structure and build a secure, profitable future in Bali or Lombok.
