In the previous article, we discussed the real estate market in Bali and the conditions and restrictions for foreign citizens owning local property. In this article, we'll focus on another crucial topic — taxation. You’ll learn about the different property taxes, when they are applicable, and opportunities for reduction. If you're considering a property for construction or starting a business in Bali or elsewhere in Indonesia, understanding these nuances is essential.
To briefly recap, foreigners face restrictions on property purchases, with full ownership rights reserved for Indonesian citizens. Foreigners can only acquire property through long-term leases or by establishing a company with construction rights.
During a real estate transaction, both parties are responsible for tax obligations. The first tax is BPHTB, which stands for Bea Pengalihan Hak atas Tanah dan Bangunan (Transfer Duty on Land and Buildings). This tax must be paid before the notary signs the deed.
The tax is calculated using a fixed rate of 5% and varies based on the region and exempt properties. Exempt properties are referred to as NPOPTKP (Nilai Perolehan Objek Pajak Tidak Kena Pajak or Exempt Value). NPOPTKP is deducted from the purchase price of the taxable object, known as NPOP or Nilai Perolehan Objek Pajak.
Let's look at the use of this formula with an example:
BPHTB = 5% * (NPOP – NPOPTKP)
For property sold at 4,000,000,000 IDR in Jakarta, NPOP is 4 billion IDR. The government sets NPOPTKP at 90,000,000 IDR in Jakarta. Therefore: 5% * (4,000,000,000 IDR – 90,000,000 IDR) = 195,500,000 IDR
Tourism-related properties like villas, hotels, and bungalows are highly profitable; Bali is an ideal island for this. Foreigners can obtain a construction permit by opening a PT PMA (Perseroan Terbatas Penanaman Modal Asing) or if they are co-founders.
Another real estate tax in Indonesia is PBB (Pajak Bumi dan Bangunan) or Land and Construction Tax. It is calculated using a fixed rate of 0.5% and an additional rate determined by the local region.
The local government defines:
• NJOP (Nilai Jual Objek Pajak) — Sale value of the property. This is the average price from the last property transaction or determined by comparing market properties if no recent transactions exist.
• NJKP (Nilai Jual Kena Pajak) — Taxable value based on NJOP:
40% for properties valued over 1 billion IDR
20% for properties valued below 1 billion IDR
In simpler terms: 0.5% 20% (or 40%) NJOP (or NJKP) = PBB
If the property is rented out, the landlord must pay tax based on the rental value. In Bali, the rental tax is 20% for non-residents and 10% for residents (KITAS/KITAP holders). To optimize taxation, landlords can get temporary residency before the transaction. This tax is paid after signing the lease agreement.
Buyers often need to pay VAT (PPN or Pajak Pertambahan Nilai). VAT is paid by the tenant or buyer when dealing with contractors or developers registered as VAT collectors. The standard rate is 11%, but this does not apply to used properties.
If you are purchasing property for business in Indonesia, make sure that the seller is registered as a VAT collector. Not every seller is registered as a VAT collector for the government, so it is important to check if they are entitled to charge you VAT.
This tax is based on the building's cost estimate, or Rancangan Anggaran Biaya (RAB). The rate is 1.75% for small businesses or individuals with a competence certificate (4% if the company is unqualified). A rate of 3.5% applies to companies declaring themselves as developers (6% if unqualified). Usually, PPH is paid by the contractor.
Stamp duty serves as legal proof when signing documents. The standard stamp duty has fluctuated over the years but is currently stable at less than 16,000 IDR.
Thus, we see how the Indonesian government has established a reliable property tax system. Interested in investing in this economically developing country or starting a business in Bali or another part of Indonesia? Need support from experts familiar with local laws and regulations? Our consulting company, Good Luck Group, will guide you through every stage of establishment. Contact us for a free consultation.
