• New Final Tax Rules on Rental of Land and/or Building
Newsletter:

New Final Tax Rules on Rental of Land and/or Building

24 January 2018

The Indonesian Government issued Government Regulation No. 34/2017 (GR-34) regarding income tax on the rental of land and/or building. This regulation is effective since 2 January 2018. GR-34 revokes Government Regulation No. 29/1996 (GR-29) as amended by GR No. 5/2002.

The Changes

GR-34 covers more types of income that are subject to final income tax under Article 4(2) of 10%. It not only covers income gained from rental of residential and commercial building, it now also covers other constructions such as telecommunication towers and tanks.

Other incomes subject to final tax of 10% under GR-34 are as follow:

1. Income gained from rental of land and/or building which includes other constructions, is as follows:

a. Income gained from current lease which commenced before 2 January 2018 is subject to Article 23 Withholding Tax (WHT) of 2% until the end of lease period. Any addendum made after 2 January 2018 will be subject to GR-34.

b. Income gained from a lease which commenced after 2 January 2018 but income received from advance payments before 2 January 2018 is subject to Article 23 Withholding Tax (WHT) of 2% throughout the lease period. Any payment received after 2 January 2018 will be subject to GR-34.

2. Income gained from a Build Operate Transfer (BOT) arrangement, which is a cooperation between a land owner and investor. Revenue received by the land owner who grants rights for the investor to construct building during the agreement period which will then be transferred to the land owner after being operated by the investor or prior to the operation period, is as follows:

a. Periodic payment received during the BOT period

b. Building value transferred prior to the end of the BOT period

c. Building value transferred at the end of the BOT period

d. Other income in relation to BOT, including revenue sharing from building operation and penalties stipulated in the BOT agreement

Income received from land and/or building rental includes all amounts paid or payable by tenants by whatever name and in whatever form, including maintenance cost, service charge, security cost, and other facilities, whether agreed under a single agreement or in separate agreements.

The value of the building transfer in BOT is taxed based on the higher amount of the market value or sale value of the tax object for Land and/or Building Tax Purposes.

 

BDO INDONESIA BDO PROVIDES A FULL SPECTRUM OF TAX AND BUSINESS ADVISORY SERVICES TO LOCAL ENTERPRISES, PUBLIC-LISTED COMPANIES, MULTI-NATIONAL COMPANIES AND INDIVIDUALS.

 

For more information on how PT BDO Bisnis Solusi Indonesia can help you in planning and navigate these major changes, please contact our experts:

IRWAN KUSUMANTO

Head of Tax BDO Indonesia

ikusumanto@bdo.co.id

 

BUDI PRASONGKO

Associate Director of Tax

bprasongko@bdo.co.id