Background

Government of Republic of Indonesia recently issued Government Regulation No. 34 of 2017 regarding Income Tax on the Revenue of Renting out Land And/or Building (“Government Regulation 34/2017”). This regulation will come into force on 2 January 2018.

Government Regulation 34/2017 revokes the Government Regulation No. 29 of 2017 regarding Income Tax Payment on the Revenue of Renting Out Land And/or Building (“Government Regulation 29/1996”) along with its amendment.

 

Income Tax on the Renting Out Land And/or Building

Under Article 2 paragraph (1) of Government Regulation 34/2017, income tax of renting out land and/or building, either partly or wholly received and obtained by individual or corporate is final in nature. Income of renting out the land and/or building, includes the income received and obtained from investor related to the performance of Build Operate and Transfer (“BOT”) agreement being the income tax object under this regulation.

BOT agreement is a form of joint agreement between the land rights holder and the investor, stipulating that the landowner grants the right to build on the land to investor during the agreement and assigns the building ownership toward the landowner after the investor operates such building or before the investor operates it. The income of the BOT agreement performance pursuant to Article 2 paragraph (2) Government Regulation 34/2017 consists:

  1. periodic payment during the BOT agreement;
  2. in the form of building which is delivered before the expiry BOT agreement;
  3. in the form of building which is delivered or should have been delivered at the time of expiry BOT agreement and/or;
  4. Other income related to BOT agreement, including the payment affiliated to profit sharing of the building usage and fine of BOT agreement.
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It is to be noted, income tax within this context excludes the income received or obtained from lodging services along with its accommodation services.

The amount of income tax pursuant to Article 4 paragraph (1) Government Regulation 34/2017 is 10% (ten percent) from the gross amount of renting out land and/or building value.

Comparison Between Government Regulation 34/2017 And Government Regulation 29/1996

There are several substances that are different from the previous Government Regulation 29/1996. First, the renting out object may form in whole or part of the land and/or building. Second, the income tax includes the income deriving from BOT agreement. Moreover, the tax withholder extends to government agency, domestic corporate taxpayer, operator of activities, permanent establishment, joint operation, regional representative of foreign company, and individual taxpayer appointed by Director General of Taxation, Ministry of Finance.

Aside from the renewal, Government Regulation 34/2017 still maintains the unification related to the amount of income tax between individual taxpayer and corporate taxpayer, as previously regulated within the Government Regulation 29/1996.

Muhammad Putera Fajar Utama