For foreigners looking to buy property in Indonesia, the existing tax system may appear complex. You’ll have to pay various taxes, including property taxes, rental income tax and several other fees. However, upon closer inspection, the Indonesian tax system isn't as complicated as it seems. In this article, we’ll discuss the mandatory payments for buyers, sellers and property owners.
Content:
- Annual property taxes in Indonesia
- Rental income tax in Indonesia
- Land and Building Transfer Tax (BPHTB)
- Luxury Tax
- Value-Added Tax (VAT)
- Documentary Stamp Tax (DST)
- Legal Fees
- Let us help you buy property in Indonesia!
Annual property taxes in Indonesia
Land and Building Tax (PBB)
Pajak Bumi dan Bangunan, commonly known as PBB, is the primary property tax paid by all property owners in the country. It’s mandatory for both individuals and legal entities that own land.
The tax amount is based on the assessed value of the land and buildings, which is determined individually. Property owners are required to pay PBB annually to the General Tax Office. Previously, the PBB rate ranged from 0.01% to 0.3%. However, in 2022, the government increased it to 0.5%.
To calculate the PBB, two key values are needed: NJOP and NJKP:
- NJOP (Nilai Jual Objek Pajak) is the average price at which a property is sold. If there hasn't been a recent transaction for the property, the local government will determine the NJOP by comparing the property to similar properties.
- NJKP (Nilai Jual Kena Pajak) is the assessed value determined from NJOP.
NJKP can be calculated using the following formula: NJKP = 40% or 20% x (NJOP - NJOPTKP),
where 40% applies if the value of the property is equal to or more than 1 billion Indonesian Rupiah (approximately USD 65,000) and 20% if the price of the property is less than this amount.
The PBB tax is then calculated using the following formula PBB = 0.5% x NJKP.
If payment is not made, the Indonesian tax authorities will send the property owner a Tax Due Notice (Surat Pemberitahuan Pajak Terutang, SPPT) stating the required amount. Payment of the PBB is due within six months of receiving this document.
Rental income tax in Indonesia
Personal Income Tax (PIT)
Foreigners who reside in Indonesia for over 183 days per year are considered tax residents and are obligated to pay Personal Income Tax (PIT) on income derived from the rental of their property. PIT is a progressive tax and the rate depends on the annual income. Below is a table summarising the tax rates:
- Income up to 60 million Indonesian Rupiah (USD 3,900): 5% rate.
- Income from 60 million to 250 million Indonesian Rupiah (USD 3,900 to USD 16,250): 15% tax rate.
- Income from 250 million to 500 million Indonesian Rupiah (USD 16,250 to USD 32,500): 25% tax rate.
- Income from 500 million to 5 billion Indonesian Rupiah (USD 32,500 to USD 325,000): 30% tax rate.
- Income over 5 billion Indonesian Rupiah (over USD 325,000): 35% tax rate.
The tax return must be filed by March 31 of the following year and payment is due on the 10th of the month following the filing of the return.
Withheld Tax (PPh)
Non-residents who own property in Indonesia and generate rental income are obligated to pay a withheld tax, also known as rental income tax. To calculate this contribution, the gross profit from renting out the property is considered. Property owners must declare their rental income and determine the tax amount in their annual declarations.
It's important to note that this income tax is distinct from the personal income tax. Foreigners who are tax residents of Indonesia and earn income from property rentals may face double taxation.
The default rate for the withheld tax is 20% and it’s applied in the absence of an agreement between Indonesia and the non-resident's home country to avoid double taxation. If such an agreement exists, the rate for non-resident individuals can be reduced accordingly, with the reduction amount contingent on the specific country.
Income tax in Indonesia for property rental should be reported by the 20th day of the following month. The payment deadline is the 10th day of the subsequent month.
Land and Building Transfer Tax (BPHTB)
Indonesia also imposes a property transfer tax known as "Bea Pengalihan Hak atas Tanah dan Bangunan" (BPHTB). This tax is obligatory when acquiring real estate or land. The rate is a fixed 5% of the object's taxable value, known as "Nilai Perolehan Objek Pajak" (NPOP), after subtracting the property value that is not subject to taxation, known as "Nilai Perolehan Objek Pajak Tidak Kena Pajak" (NPOTKP).
BPHTB is a one-time payment made during the transaction. The notary will not certify the property transfer deed until this tax is fully paid.
The purchaser is responsible for paying the property transfer tax (BPHTB).
The formula for calculating it is as follows: BPHTB = 5% x (NPOP - NPOTKP).
Luxury Tax
When selling luxury real estate in Indonesia, a luxury tax, known as "Pajak Penjualan atas Barang Mewah" (PPnBM), is also applicable. The tax rate for luxury properties is 20% of the property's value. It’s important to note that this tax is only levied on primary sales of property types such as apartments, townhouses and villas with a value of approximately USD 2 million.
Value-Added Tax (VAT)
Value-Added Tax (Pajak Pertambahan Nilai or PPN) is borne by the buyer or lessee and is applicable when buying or leasing property for commercial purposes. This tax is applicable when the consumer directly acquires or rents property from the developer or seller, such as a new house or a property under construction. Transactions involving the purchase and sale of used or secondary market property are exempt from VAT. The tax rate is 11% of the property's value.
Documentary Stamp Tax (DST)
DST is a tax imposed when drafting, issuing or transferring specific legal documents or instruments in Indonesia. It applies to various documents, including (but not limited to) deeds, mortgage loans, lease agreements, promissory notes and more. The fixed tax amount is 10,000 Indonesian Rupiah (USD 0.65) and is payable upon notarisation of the document.
Legal Fees
To complete real estate transactions, the involvement of land officials' is required. These officials are appointed by the head of the National Land Office or the head of the local district. The cost of this service is 1% of the property's value.
Legal fees associated with real estate transactions are typically calculated as a percentage of the total transaction value and range from 0.5% to 1.5%. Additionally, the seller is responsible for paying the agent's fee, usually around 5% of the transaction value.
Let us help you buy property in Indonesia!
While taxes in Indonesia have their peculiarities, they are not significantly different from systems in other countries when it comes to buying or renting property.
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