As a way to provide more information and the basis of the Income Tax payment on income from land and/or building lease, as well as the legal basis regarding the definition of a building, it is important to recalibrate the provision regarding Income Tax on Land and/or Building Lease.
Tax Subject
Article 4(2) Income Tax is imposed on individuals or corporations that are owners or the party that receives or obtains income from land and/or building lease, both for a part of or for the whole building.
Tax Withholder
Article 4(2) Income Tax is withheld by the lessees. Lessee is an individual or corporation renting the leaser-owned land and/or building. The withholders include governmental institutions, domestic corporate tax subjects, affair organizers, permanent establishments, joint operations, representatives of other foreign companies, and individuals as domestic taxpayers appointed by the Directorate General of Taxes, Ministry of Finance.
Tax Object
Article 4(2) Income Tax is imposed on income from land and/or building lease, both for a part of or for the whole building, received or obtained by individuals or corporations. Leases on land and/or buildings consist of leases on land, buildings, flats, apartments, condominiums, office buildings, store buildings, meeting halls and their components, home offices, stores, shophouses, warehouses, and industrial buildings.
Buildings refer to a technical construction planted or attached permanently on land and/or water. Part of a building refers to an area, either inside or outside, which is a part of the building, including building terraces, rooms in a house, pavilions, swimming pools, and so on.
The income mentioned here does not include income received or obtained from lodging services and accommodation.
Tax Basis Imposition
Article 4(2) Income Tax is the gross amount of the lease value, which is all the paid amount or the amount recognized as payables of the Leaser in any kind of name or form in relation to the leased land and/or building. This includes handling fees, maintenance fees, security fees, service fees, and other fees, of which the agreements are made separately or combined. Service fees are usually called service charges.
Separate or combined agreements are agreements on payment of handling fees, maintenance fees, security fees, service fees, and other fees, made separately or combined with the leased land and/or building agreement.
Tax Rate
Article 4(2) Income Tax is set at 10% of the gross lease value of the land and/or building, both for Individual or Corporate Taxpayers Leaser.
Tax Due Date
Article 4(2) Income Tax on income from land and/or building lease is imposed with payable tax at the time of payment or rent payable, depending on which event occurs first.
Withholding Tax Procedure
The withholding of Article 4(2) Income Tax is done by the Leaser who acts or is appointed as an Income Tax Withholder. Income Tax Withholders include governmental institutions, domestic corporate tax subjects, affair organizers, permanent establishments, joint operations, representatives of other foreign companies, and individuals as domestic taxpayers appointed by the Directorate General of Taxes, Ministry of Finance.
If the Leaser is not the Income Tax Withholder, the payable Income Tax must be paid independently by individuals or corporations that receive or obtain said income. Taxpayers that pay their own payable Income Tax must pay and file said Income Tax.
Tax Payment Procedure
The Income Tax Withholder must pay the Income Tax to the Tax Office or banks appointed by the Ministry of Finance, no later than the 10th (tenth) day of the following month after the month the tax withholding is made.
The payment is made using a Tax Payment Slip with the tax account code 411128 for Article 4(2) Income Tax and the payment code 403.
If the tax payment due date coincides with a holiday including Saturday, Sunday, national holidays, days off for holding the General Election, or national collective leave, the payment can be made on the next working day.
Tax Filing Procedure
Withholders of Article 4(2) Income Tax must report the withheld income tax on the Unification Income Tax Returns no later than the 20th (twentieth) day after the tax period ends.
If the filing due date of the Article 4(2) Final Income Tax return coincides with a holiday including Saturday, Sunday, national holidays, days off for holding the General Election, or national collective leave, the filing can be made on the next working day.
Individual Taxpayers who receive income from land and/or building lease which has been withheld with Article 4(2) Income Tax must report the income and the withheld Article 4(2) Income Tax on their Annual Individual Income Tax Returns by 3 (three) months after the end of the Tax Year.
Corporate Taxpayers who receive income from land and/or building lease which has been withheld with Article 4(2) Income Tax must report the income and the withheld Article 4(2) Income Tax on Attachment IV of the Corporate Taxpayers Annual Tax Returns by 4 (four) months after the end of the Tax Year.
In the bookkeeping records of the Leaser Taxpayer, the income and fees related to the land and/or building lease must be set apart by income and other fees. Taxpayers solely engaging in the land and/or building leasing business are not required to pay Article 25 Income Tax.
Example Calculation of Article 4(2) Income Tax on Income from Land and/or Building Lease
Example Calculation
PT ABC is the owner of the commercial office building named Office Tower, which is open for public rental. To manage Office Tower, PT ABC collaborated with PT Y, where PT Y is obligated to manage the security, cleaning, and maintenance of Office Tower. PT Y will then receive a fee based on the maintenance work with an amount of IDR800,000,000 each year from PT ABC.
One of the lessees in Office Tower is PT Z, and they paid a maintenance fee of IDR200,000,000 as well as a Service charge of IDR15,000,000 for 1 (one) year. PT Y provides assistance in billing the maintenance fee and Service charge for the lessees.
On the income received by PT ABC on the land and/or building lease, a Final Article 4(2) Income Tax is payable. PT Z as the lessee must withhold the Final Income Tax on the income received by PT ABC from land and/or building lease.
Even though the lease and service charge payment is under the management of PT Y, PT Z rented a room in the Office Tower owned by PT ABC, and the security, cleaning, and maintenance is by principal an obligation that must be fulfilled by PT ABC as the owner of the office building, lease, and service charge payment is then a payment in relation to land and/or building lease, which is the source of income for PT ABC. Thus, it must be withheld with Final Income Tax by PT Z.
Article 4(2) Income Tax that must be withheld by PT Z is:
Payable Article 4(2) Income Tax = 10% x gross amount of the lease value
Payable Article 4(2) Income Tax = 10% x (IDR200,000,000 + IDR15,000,000)
Payable Article 4(2) Income Tax = IDR21,500,000
Legal Basis:
Law Number 7 Year 1983 regarding Income Tax as lastly amended by Law Number 7 Year 2021 regarding Harmonization of Tax Regulations
The Government Regulations Number 34 Year 2024 regarding Income Tax on Income from Land and/or Building Lease
The Ministry of Finance Decree Number 120/KMK.03/2002 regarding Amendments of The Minister of Finance Decision Number 394/KMK.04/1996 regarding The Payment and Withholding of Income Tax on Income From Land and/or Building Lease
The Directorate General of Taxes Decree Number KEP-227/PJ./2002 regarding Procedures of Payment and Reporting of Income Tax from Land and/or Building Lease
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