In order to provide a legal basis for the payment of the Income Tax on income received or obtained in regard to the implementation of build-to-transfer agreements, this article is developed to explain further the imposition of Article 4(2) Income Tax on such income.
Tax Subject
Article 4(2) Income Tax is imposed on individuals or corporations that receive or obtain income as the holder of land rights from investors in relation to the implementation of build-to-transfer agreements.
Build-to-Transfer is a type of cooperative agreement done between the holders of land rights and investors, which states that the holders of land rights can transfer their rights to investors in relation to Buildings during the agreement period and transfer the ownership of said Building to the land rights holders after or before the investor operates the Building.
The investor is an individual or corporation given the right to establish a Building and use said Building based on the build-to-transfer agreement during the period of the agreement.
Tax Withholder
Article 4(2) Income Tax is withheld by the Leaser. The leaser is an individual or corporation that rented land and/or building from the owner or the party that leases the land and/or building.
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.
Tax Object
Article 4(2) Income Tax is imposed on income received or obtained by individuals or corporations as the land rights holders on land from Investor in relation to the implementation of Build-to-Transfer agreements, including:
income from periodic payments during the Build-to-Transfer agreement period
income in the form of buildings handed over before the Build-to-Transfer agreement ends
income in the form of buildings, which are handed over or should be handed over when the Build-to-Transfer agreement ends, and/or
other income related to the Build-to-Transfer agreement, including payments related to the sharing of profits from building use and fines to the Build-to-Transfer agreement.
Tax Basis Imposition
Article 4(2) Income Tax is imposed on the gross amount of the leased land and/or building value, which is the income received or obtained by Individuals or Corporations in the form of Building, of which the value of said Building is received by the land rights holders from investors.
The Building Value is decided by looking at the highest value between the market value and sale value of the Building tax object.
Market value refers to the estimated amount of money that can be obtained from the exchange of an asset or liability on the valuation date, between a buyer who is interested in buying and a seller who is interested in selling, in a free transaction (no special relationship), where the marketing is carried out properly, where both parties each acts based on the understanding they have, with careful, and without coercion.
The sale value of the Building tax object is the selling value of the tax object which is the basis for the imposition of Land and Building Tax in accordance with the provisions of statutory regulations.
Tax Rate
The applicable Article 4(2) Income Tax rate is 10% of the lease value’s gross amount, both for land and/or building whether it is leased by Individual or Corporate Taxpayers.
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.
Tax Withholding Procedure
Article 4(2) Income Tax is withheld by the Leaser or by the appointed Income Tax Withholder.
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.
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.
Individuals who receive income from the rights transfer on land and/or building 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 the rights transfer on land and/or building 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 Received or Obtained by Individuals or Corporations as Holders of Land Rights from Investors Related to the Implementation of Build-to-Transfer Agreements
Illustration Example
PT XYZ is the owner of a land in the Sudirman area and is developing a Build-to-Transfer agreement with PT ABC in order to develop an office building area. After the development is finished, PT ABC will have the right to use the building for 20 years. Each month within the 20 year period, PT ABC will pay IDR100,000,000 to PT XYZ, and transfer the Building to PT XYZ by the end of the Build-to-Transfer agreement.
Thus, PT ZYX income must be withheld with Article 4(2) Income Tax on lease on land and/or building by PT ABC, which is the routinely-received income each month amounting to IDR100,000,000 and income in the form of the Building’s value gross amount received by the end of the agreement.
Article 4(2) Income Tax payable on the income received each month by PT XYZ and withheld by PT ABC is:
Payable Article 4(2) Income Tax = 10% x jumlah bruto nilai persewaan
Payable Article 4(2) Income Tax = 10% x IDR100,000,000
Payable Article 4(2) Income Tax = IDR10,000,000
Furthermore, the payable Article 4(2) Income Tax by the end of the Build-to-Transfer agreement which has to be withheld by PT ABC on the income received by PT XYZ as the land rights holder in the form of Building is as follows:
The market value of the Building at the time is IDR1,500,000,000 and the sale value of the Building tax object is IDR1,000,000,000. The Building value is decided by the highest value between the market value and the sale value of the Building tax object. Thus, the basis imposition of the imposed Article 4(2) Income Tax will use the market value.
Thus, the payable Article 4(2) Income Tax imposed on the gross amount of PT XYZ’s income in the form of Building is calculated using the market value
Payable Article 4(2) Income Tax = 10% x Building value
Payable Article 4(2) Income Tax = 10% x IDR1,500,000,000
Payable Article 4(2) Income Tax = IDR150,000,000
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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