Understanding property taxes in Bali is a must for both buyers and sellers of property.
Many vendors are surprised when they find out how much they have to pay in taxes when selling their property. And many transactions fail just because of that!
You need to factor in your entire tax exposure before you enter into a transaction. Get help from a registered tax advisor. The topic is too complex to handle without the right expertise.
This is particularly true for foreigners selling their property and wanting to get paid to an offshore account. If you haven’t paid the taxes that are due, you may find your money stuck in a local bank that refuses to transfer it overseas without the correct underlying documents.
Read on and find out how to prevent that.
What Types Of Property Taxes Are There In Bali?
There are at least seven different types of taxes that is involved with property.
1. Land and Building Tax
Let’s start with the simple Land and Building Tax (Pajak Bumi dan Bangunan, or short PBB), which is due annually. This is a relatively small but nevertheless crucial tax.
In order for you to sell a property, you need to show proof that your annual land and building tax has been paid without any gaps. If that is not the case, you can simply go to an appointed government bank and pay the outstanding amounts with a penalty, in case you have missed out in the past on due payments.
If you are the owner of a leasehold, you are typically charged by the landlord with paying for this tax.
How is the Land and Building Tax calculated? The basic formula is to take 20% of the so called taxable sales value of a property (nilai jual objek pajak, or short NJOP) and multiply that by 0.5%. You can find the NJOP on your tax payment slip called SPPT. Example: if the taxable value of a property is 100 then the payable amount per annum is 1.
2. Property Transfer Tax
Next comes the Property Transfer Tax. As a seller of a freehold property you will have to pay the seller’s part of this tax called PPH (or Pajak Penghasilan) amounting to 2.5% of the value declared in the Sales Deed (Akta Jual Beli ,or AJB).
The buyer will have to pay the so called BPHTB (Bea Perolehan Hak atas Tanah dan Bangunan) amounting to 5% of said value. PPH is an income tax which is final (‘pajak final’). This means that your income tax is considered paid and will not be levied again when you file your annual tax report.
The Property Transfer Tax for a leasehold property is also called PPH but it is much higher. It is paid by the lessor and amounts to 10% of the declared value if you have a tax number in Indonesia. There are not taxes due for the lessee!
If you are a foreigner selling a leasehold and you don’t have an Indonesian tax number (NPWP), then you are subject to a 20% tax! And if you are a tax resident in a country that has a double tax avoidance treaty with Indonesia, you can credit this payment when you file your income tax at home.
3. Construction Tax
Construction Tax is another important tax that sometimes is forgotten. Verify that it has indeed been paid by the seller before you buy, otherwise you risk being charged at some stage for it.
The tax is due once a building is completed and it is based on the construction budget or “Rancangan Anggaran Biaya” (RAB) of the building.
Depending on whether the construction was done in private or by a contractor will determine who is responsible for the tax and how much it is. It varies from a low 1.75% up to 6% of the construction budget.
4. Value Added Tax
Value Added Tax, called PPN (Pajak Pertambahan Nilai) in Indonesia may apply if a property is sold by a professional developer. It has recently been increased from 10% to 11%.
This tax is only due for properties sold by a developer and not for private sales. Certain low cost housing projects are exempt.
5. Luxury Tax
Luxury property sales attract a 20% Luxury Tax (Pajak Penjualan atas Barang Mewah, in short PPnBM), which applies only for primary sales and for properties like apartments, townhouses, villas with a price tag of IDR 30 billion or above which is approximately USD 2 million at today’s rate of exchange.
6. Name Change Tax
Last but not least, there is a small Name Change Tax to allow for changing the name on a certificate from the buyer to the new owner, which is called Bea Balik Nama or BBN.
It is calculated by dividing the price per square meter of land by 1.000 and multiplying it by the amount of square meters that you are buying.
How is property tax calculated?
The answer to this important question is a bit more complicated than you may have thought. One would naturally assume that all these different tax rates explained above would simply be applied to the sale price. But that’s not how it works. Let me explain.
The Indonesian government has come up with something that you may call a property reference price. It is called NJOP, which stands for Nilai Jual Obyek Pajak (“sales value of a tax object”).
NJOP is used by the government to fix the annual land and building tax. In Bali, this is adjusted each year. It is the price, the government thinks a property is currently worth in a market transaction between a willing seller and a willing buyer. the good news is that you can go online and check the NJOP in your area. Here is an example for online tax information for the district of Badung: https://bapenda.badungkab.go.id/.
NJOP is also an important reference point when it comes to selling and buying property. It is used in negotiating with the provincial tax authority the price for a property that is acceptable for the government as the basis to assess the seller’s and buyer’s tax.
In reality, the price paid for a property may be well below or well above NJOP. If the sale price for a property is below NJOP, then you will still end up paying taxes as if the sale price were around NJOP. On the other hand, if the price is above NJOP you will pay taxes on the real price of the property.
What this tells us is that before you enter into a sale and purchase agreement, you need your notary to assess the tax exposure. This way you won't have any negative surprises.
Key takeaways
If you need an initial assessment before deciding to sell your property, we are happy to assist you and provide you with an estimation of your tax exposure.
One of the most important topics to discuss with you is your tax optimization strategy or how to reduce your tax exposure. We have years of experience and cooperate with professional tax advisors to achieve solutions that allows you to maximize your revenue from selling your property.
Contact our team of professional Bali based real estate agents now.
