Taxation Aspect of Property Sale and Purchase

Background

Business sale and purchase of property has been demanded by many people. In performing the business sale and purchase of property, it does not only need an agreement between seller and buyer, but there are things that shall be performed by both parties as one of the obligations to State. The relevant obligation is payment of a tax in acquisition of property that should be performed by buyer and seller.

In Indonesia, it has been known some types of tax that has to be met by seller and buyer in business sale and purchase of property, as follows:

1.         Land and Building Tax (L&B Tax)

The regulation on L&B Tax is contained in the Law Number 12 of 1985 on Land and Building Tax as amended by the Law Number 12 of 1994 on the Amendment of Law Number 12 of 1985 on Land and Building Tax ("L&B Tax Law").

Based on the Elucidation in Article 3 paragraph (2) of L&B Tax Law, L&B Tax is a state tax which is the majority of its revenue is a regional income that is used for the provision of facility that is also enjoyed by the Central Government and Local Government. In the beginning, L&B Tax is a tax where is its administration process is performed by the central government and all revenues are distributed to the regions with a certain proportion. In the next development, the Law Number 28 of 2009 on Regional Tax and Retribution ("Law No. 28/2009") is applied in which the entire management process of L&B Tax, especially in rural and urban sector will be performed by local government. Tariff of L&B Tax which is imposed to tax object is 0, 5%.

Based on the Minister of Finance Decree Number 362/KMK.04/1999 on the Grant of Land and Building Tax Reduction, as amended by the Minister of Finance Regulation Number 110/PMK.03/2009 on the Amendment of Minister of Finance Decree Number 362/KMK.04/1999 on the Grant of Land and Building Tax Reduction, the amounts of L&B Tax incentive are:

  • Taxable Sales Value (NJKP) of 20% for the Tax Object Sales Value (NJOP) < Rp 1 Billion;
  • The grant of Tax Object Sales Value which is not imposed Tax (NJOPTKP);
  • The grant of reduction because of certain condition of tax object which is related to the tax subject and/or because of other specific causes.

2.         Acquisition Levy on Right of Land and Building (Bea Perolehan Hak Atas Tanah dan Bangunan / BPHTB)

The regulation on Acquisition Levy on Right of Land and Building is governed in the Law Number 21 of 1997 on Acquisition Levy on Right of Land and Building as amended by Law Number 20 of 2000 on the Amendment of Law Number 21 of 1997 on Acquisition Levy on Right of Land and Building (“BPHTB Law”).

Under the Article 1 paragraph (1) of BPHTB Law, Acquisition Levy on Right of Land and Building is a tax which is imposed to the acquisition of right of land and or building. The Acquisition Levy on Right of Land and Building is imposed to the buyer (Article 2 paragraph (1) and paragraph (2) of BPHTB Law). Tariff of Acquisition Levy on Right of Land and Building is 5% (five percent).

Under the Minister of Finance Decree Number 561/KMK.03/2004 on the Grant of Acquisition on Right of Land and or Building Reduction, as amended by the Minister of Finance Regulation Number 104/PMK.01/2005, as amended by Minister of Finance Regulation Number 91/PMK.03/2006 on the Second Amendment of Minister of Finance Regulation Number 561/KMK.03/2004 on the Grant of Acquisition on Right of Land and or Building Reduction, the incentive of Acquisition Levy on Right of Land and Building property are:

  • The grant of Tax Object Sales Value which is not imposed a Tax (NPOPTKP);
  • The grant of reduction because of certain condition of taxpayer which is related to tax object and/or because of other certain causes.

3. The Income Tax of the Income from Transfer on Right of Land and Building (the Income Tax in Article 4 paragraph 2)

The regulation on Income Tax on The Income from Transfer on Right of Land and Building is set forth in the Article 4 paragraph (2) of Law Number 7 of 1983 on the Income Tax, as amended by Law Number 7 of 1991, as amended by Law Number 10 of 1994, as amended by Law Number 17 of 2000, as amended by Law Number 36 of 2008 on the Fourth Amendment of Law Number 7 of 1983 on the Income Tax ("Income Tax Law").

Income tax which is imposed to the income of transfer on right of land and or building is 5% (five percent) of gross amount of transfer on land’s or building’s value. Income tax of transfer on right of Simple House and Simple Condominium which is performed by taxpayer that is his/her principal business to transfer on right of land and/or building is 1% (one percent) of gross amount of transfer value.

Under the Article 4 paragraph (2) of Income Tax Law, the income that may be imposed the final tax are:

a. the income of deposit interest and other savings, bond interest and state debenture, and saving interest which are paid by the cooperative to the individual cooperative member;

b. the income of lottery prize;

c. the income of shares and other securities transaction, derivative transaction which is traded on the stock, and the share sale transaction or transfer of equity shares in the company's partner which is earned by venture capital company;

d. the income of transfer of asset transaction in the form of land and/or building, construction service business, real estate business, and rent of land and/or building; and

e. the other certain incomes, which is set by or under a Government Regulation.

Based on the provision in the Article 4 paragraph (2) letter d, it may be concluded that the income of sale and purchase of property transaction is imposed to the income tax.

Under the Government Regulation Number 48 of 1994 on Payment of Income Tax on Income from The Transfer on Right of Land and/or Building, as amended by Government Regulation Number 27 of 1996, as amended by Government Regulation Number 79 of 1999, as amended by Government Regulation Number 71 of 2008 on the Third Amendment of Government Regulation Number 48 of 1994 on Payment of Income Tax on Income from the Transfer on Right of Land and/or Building, the incentive of income tax on the income from transfer on right of property land are:

  • The Income Tax Exemption for individual person who has an income below the tax exempt income (PTKP/Penghasilan Tidak Kena Pajak) which is performing the transfer on right of land and/or building with transfer gross amount less than Rp 60,000,000.00 (sixty million Rupiahs) and is not a broken amount;
  • The imposition of 1% (one percent) tariff from the gross amount of transfer value on the transfer on right of Simple House and Simple Condominium which is performed by Taxpayer which is the essential business is performing the transfer on right of land and/or building (general tariff of 5%).

4. Value Added Tax (VAT)

The regulation of VAT is set forth in the Law Number 8 of 1983 as amended by Law Number 11 of 1994, as amended by Law Number 18 of 2000, as amended by Law Number 42 of 2009 on Third Amendment of Law Number 8 of 1983 on Value Added Tax of Goods and Services Value and Luxury Sales Tax (“VAT Law”).

Under the Elucidation of VAT Law, Value Added Tax is a tax on the consumption of goods and services in the Custom Area which is imposed in multilevel in every production and distribution lines. Custom Area is the region of Republic of Indonesia which covers land, water, and air space above it, and certain places in the Exclusive Economic Zone and continental shelf which is applied to the Law that is set out of customs. Tariff of VAT is 10% (ten percent) of transaction value.

Article 4 paragraph (1) of VAT Law states that the VAT is imposed on:

a. delivery of taxable goods in the Customs Area which is performed by the entrepreneur;

b. import of taxable goods;

c. delivery of taxable services in the Customs Area by entrepreneur;

d. the utilization of Intangible Taxable Goods from the outside of Customs Area in the Customs Area;

e. the utilization of Taxable Services from the outside of Customs Area in the Customs Area;

f. export of Tangible Taxable Goods by a Taxable Entrepreneur;

g. export of Intangible Taxable Goods by a Taxable Entrepreneur; and

h. export of Taxable services by Taxable Entrepreneur.

The Exception for the VAT Collection

1. For Simple House and Very Simple House

Under the Minister of Finance Regulation Number 36/PMK.03/2007 on the Limitation of Simple House, Very Simple House, Simple Condominium, Pondok Boro, Student Dormitory, and other houses, which is based on Delivery is Exempted from Value Added Tax, as amended by Minister of Finance Regulation Number 80/PMK.03/2008, as amended by Minister of Finance Regulation Number 31/PMK.03/2011 on the Second Amendment of the Minister of Finance Regulation Number 36/PMK.03/2007 on the Limitation of Simple House, Very Simple House, Simple Condominium, Pondok Boro, Student Dormitory, and other houses, which is based on Delivery is Exempted from Value Added Tax; the Simple House and Very Simple House which is exempted from Value Added Tax is a house which is the acquisition is cash or financed through subsidized or not subsidized credit facility, or through the financing based on the Islamic principle, which meets the following provisions:

a. The building area is not more than 36 m2 (thirty-six square meters);

b. The sale price is not more than Rp 70,000,000.00 (seventy million Rupiah);

c. It is the first house that is owned and used alone as a residence and not transferred within a 5 years period of time since it is owned.

2. For Simple Condominium

Under the Minister of Finance Regulation Number 36/PMK.03/2007 on the Limitation of Simple House, Very Simple House, Simple Condominium, Pondok Boro, Student Dormitory, and other houses, which is based on Delivery is Exempted from Value Added Tax, as amended by Minister of Finance Regulation Number 80/PMK.03/2008, as amended by Minister of Finance Regulation Number 31/PMK.03/2011 on the Second Amendment of the Minister of Finance Regulation Number 36/PMK.03/2007 on the Limitation of Simple House, Very Simple House, Simple Condominium, Pondok Boro, Student Dormitory, and other houses, which is based on Delivery is Exempted from Value Added Tax; Simple Condominium which is exempted from Value Added Tax is a multistory building which is built in an environment that used as a dwelling place which is equipped with bathroom (WC) and kitchen either united with dwelling or separate unit with communal usage, which is the acquisition in cash or financed through subsidized or not subsidized credit facility, which meet the following conditions:

a. the selling price of each dwelling include condominium is not more than Rp 75,000,000.00 (seventy five million rupiahs);

b. building area of each dwelling is not more than 21 m2 (twenty-one square meter);

c. the construction refers to the Minister of Public Work Regulation which manages the Technical Requirement of Condominium’s Construction, and

d. It is the first residential unit that is owned, used alone as a residence and is not transferable within 5 (five) years since it is owned.

3. For Simple Ownership Condominium (Rumah Susun Sederhana Milik/ Rusunami)

Under The Minister of Finance Regulation Number 155/KMK.03/2001 on the Implementation of Value Added Tax which is exempted on Import and/or Delivery of Certain Taxable Goods that is Strategic, as amended by Minister of Finance Regulation Number  363/KMK.03/2002, as amended by Minister of Finance Regulation Number 371/KMK.03/2003, as amended by Minister of Finance Regulation Number 11/PMK.03/2007, as amended by Minister of Finance Regulation Number 31/PMK.03/2008 on the Fourth Amendment of Minister of Finance Regulation Number 155/KMK.03/2001 on the Implementation of Value Added Tax which is exempted on Import and/or Delivery of Certain Taxable Goods that is Strategic; Simple Ownership Condominium is a multistory building which is built in an environment that used as a dwelling place which is equipped with bathroom (WC) and kitchen, either united with dwelling or separate unit with communal usage, which is the acquisition is financed through subsidized or not subsidized ownership house credit, which meet the following conditions:

a. The area for each residence is more than 21 m2 and not more than 36 m2;

b. The sale price for each residence is not more than Rp 144,000,000;

c. It is intended for an individual person who has an income which is not more than Rp 4,500,000 per month and has had a Tax Identification Number (TIN);

d. The construction refers to the Minister of Public Works Regulation on the technical requirement of simple condominium construction, and

e. It is the first residence unit that is owned, used alone as a residence and is not transferred within a 5 years period of time since it is owned.

5. Sales Tax on Luxury Goods (Pajak Penjualan atas Barang Mewah/ PPnBM)

Sales Tax on Luxury Goods is a tax which is imposed on the taxable luxury goods in the Customs Area (the Elucidation of Article 8 paragraph (2) of VAT Law). Under the Article 8 paragraph (1) of VAT Law, the Sales Tax on Luxury Goods tariff is set forth as the lowest of 10% (ten percent) and the highest of 200% (two hundred percent). The export of taxable luxury goods is imposed a tax with the 0% (zero percent) tariff.

The Sales Tax on Luxury Goods tariff for luxury residential groups such as luxury house, apartment, condominium, town house, and a type similar to it is 20% (twenty percent). Sales Tax on Luxury Goods is imposed to only 1 (one) time when delivery of taxable luxury goods is performed by entrepreneur who produces or imports of taxable luxury goods.

Under the Article 5 paragraph (1) of VAT Law, the Sales Tax on Luxury Goods is imposed to:

a. delivery of taxable luxury goods which is performed by entrepreneur who produces the goods in the Customs Area in business or work activities; and

b. import of taxable luxury goods.

On delivery of taxable luxury goods by producer or on the import of taxable luxury goods, beside it is imposed a VAT, it is also imposed a Sales Tax on Luxury Goods on the consideration of:

a. need a balance of taxation between low-income consumers and high-income consumers;

b. need to control of consumption pattern of taxable luxury goods;

c. need a protection of small or traditional producers; and

d. need to secure a state revenue.

Under the Minister of Finance Regulation Number 620/PMK.03/2004 on the Type of Taxable Luxury Goods besides motor vehicle which is imposed the Sales Tax on Luxury Goods, as amended by Minister of Finance Regulation Number 35/PMK.03/2008, as amended by Minister of Finance Regulation Number 137/PMK.011/2008, as amended by Minister of Finance Regulation Number 103/PMK.03/2009 on the Third Amendment of Minister of Finance Regulation Number 620/PMK.03/2004 on the Type of Taxable Luxury Goods besides motor vehicle which is imposed the Sales Tax on Luxury Goods, the Sales Tax on Luxury Goods in the form of:

  • The restriction of the Sales Tax on Luxury Goods imposition is only imposed to the luxury residence groups such as luxury house, apartment, condominium, town house, and a type similar to it from non-condominium type with a building area of 350 m2 or more and from the type of condominium with a building area of 150 m2 or more.

Alsha Alexandra Kartika

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Taxation Aspect of Property Sale and Purchase
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