Guide to Property Taxes in Indonesia

Non-resident individuals are generally subject to Indonesian tax on income arising from Indonesian sources. As a general rule, Indonesian-source income received by a non-resident individual is subject to 20% withholding tax, although an applicable double taxation agreement may provide a lower rate.

However, certain categories of income, including income from the rental and transfer of Indonesian land and buildings, are subject to special final tax regimes rather than the general 20% non-resident withholding rate.

Rental Income Tax

Income derived from the rental of land and/or buildings in Indonesia is generally subject to a final income tax of 10% of gross rental income.

The tax is calculated on the gross rental amount without deductions for expenses. The gross amount may include payments associated with the rented property, including certain maintenance, service, security and facility charges connected with the lease.

Depending on the status of the tenant, the tax may either be withheld by the tenant or paid directly by the property owner.

As the tax is final and imposed on gross rental income, the effective tax burden for a standard real estate rental is generally:

Gross rental income × 10% = Final rental income tax

Consequently, deductible property expenses do not generally reduce this final rental tax.

Capital Gains and Property Sales

Indonesia generally taxes capital gains together with an individual's other taxable income. However, the transfer of land and/or buildings is subject to a separate final income tax regime.

The seller of Indonesian land or buildings is generally subject to final income tax equal to 2.5% of the gross transfer value, rather than tax calculated on the actual capital gain.

Accordingly, the tax is generally calculated as:

Gross property transfer value × 2.5% = Final income tax payable by the seller

The relevant tax base may be determined by reference to the transaction value or the applicable government-determined value under Indonesian tax rules.

The buyer may separately be subject to the Duty on the Acquisition of Land and Building Rights (BPHTB). The BPHTB rate is determined regionally and may be imposed at a rate of up to 5% of the relevant acquisition value after the applicable non-taxable threshold.

Corporate Tax

Indonesia generally applies a flat 22% corporate income tax rate to the net taxable profits of resident companies and Indonesian permanent establishments of foreign companies.

Taxable business profits are generally determined after deducting qualifying expenses incurred to obtain, collect and maintain taxable income.

However, the standard 22% corporate income tax rate does not necessarily apply to all real estate income. Certain categories of income are subject to final income tax regimes.

In particular, income from the rental of Indonesian land and buildings is generally subject to the 10% final tax on gross rental income, while proceeds from the transfer of land and buildings are generally subject to the 2.5% final income tax on the relevant gross transfer value.

Therefore, these real estate transactions should not simply be modeled as net income or capital gains taxed at the standard 22% corporate rate.

Buying and Selling Costs/Taxes

Property Holding Tax

Land and Building Tax (Pajak Bumi dan Bangunan – PBB)

Owners of Indonesian real estate may be subject to an annual Land and Building Tax (PBB). For ordinary urban and rural real estate, the tax is administered primarily by regional governments under the PBB-P2 system.

The tax is based on the property's officially assessed sales value (Nilai Jual Objek Pajak – NJOP), rather than necessarily on its actual market or purchase price. The NJOP is determined by the relevant local authority and takes into account factors such as location, land area, building area, use and other property characteristics.

Regional governments determine the applicable PBB-P2 rates through local regulations, subject to the limits established under Indonesian law. As a result, there is no single nationwide progressive property tax schedule applicable to all residential properties.

Under the current national framework, the PBB-P2 rate may be set at up to 0.5%, although the actual rate and calculation methodology vary between regions. Local exemptions, non-taxable thresholds and assessment percentages may further reduce the effective tax burden.

Consequently, the annual property tax payable on an investment property depends heavily on its location and officially assessed NJOP value, and the effective burden may be substantially lower than the statutory maximum rate.