On September 6, 2016, the Indonesian Government issued Government Regulation number 40 of year 2016 regarding Income Tax for Income Generated from the Transfer of and Conditional Sales and Purchase Agreements for Land and/or Buildings and its Amendments (GR 40/2016). The GR 40/2016 revokes and replaces Government Regulation No. 48 of 1994 and Government Regulation No. 71 of 2008. In this column we will discuss the new method of calculation, imposition and settlement of income tax, based on GR 40/2016.
Parties which are subject to GR 40/2016
The new method of calculation, imposition and settlement of income tax in the GR 40/2016 applies to the following parties:
- Firstly, parties such as property developers who are active in the business field of transfer of land and buildings to other parties. In most cases this will be in the form of sale and purchase of land and buildings.
- Secondly, the sellers of land and/or buildings who generate income from such sale as stated in a Conditional Sales and Purchase Agreement for Land and/or Buildings and its amendment (Perjanjian Pengikatan Jual Beli/”PPJB”); and
- Thirdly, buyers of land and/or buildings who generate income by at a later moment selling the purchased land and/or buildings again.
Calculation of Income Tax
The GR 40/2016 sets the income tax for business as follows:
- 0% of the gross transaction value of transfer of land and/or buildings to the government or government related companies
- 1% of the gross transaction value of simple houses and apartments
- 5% of the gross transaction value of other transactions
Exceptions to pay Income Tax
The Government will not impose income tax on the sale and purchase of land and/or buildings by the following parties:
- Individual transfers subject to non-taxable income tax, if the gross transaction value is less than 60 million rupiah;
- Individuals or businesses that donate their land and/or buildings to third parties under certain conditions;
- Transfer of land and/or buildings by way of inheritance;
- Merger, consolidation or business expansion, which causes a transfer of land and/or buildings;
- Transfer of building rights as an implementation of a build-operate-transfer, build-transfer-operate scheme, or as a utilization of state-owned assets; and/or
- Individuals or businesses which are not subject to any tax-related transfers of land and/or buildings.
This column is provided by PNB Law Firm Jakarta