INDONESIA Law and Practice Contributed by: Yogi Sudrajat Marsono, Heru Pamungkas, Agnes Maria Wardhana and Andin Aditya Rahman, Assegaf Hamzah & Partners
In terms of the tax benefits and costs of a com - pany holding real estate assets, the company can record BPHTB for the acquisition of land and buildings owned and utilised by the company, and expenses incurred for the extension of land titles (such as HGB, HP or HGU), as deduct - ible expenses from taxable income. Meanwhile, PBB remains the same in amount and applica - tion regardless of whether the real estate assets are held by a company or an individual. 5.3 REITs A REIT is an instrument used to raise funds from investors to be invested in real estate assets, assets related to real estate and/or cash equivalents, as regulated by the Financial Ser - vices Authority ( Otoritas Jasa Keuangan, or OJK) under OJK Regulation No 64/POJK.04/2017 for conventional DIRE and OJK Regulation No 30/POJK.04/2016 for Sharia-compliant DIRE. These vehicles are available to individual domes - tic investors and PMA Companies, subject to compliance with Indonesian investment regula - tions. However, the DIRE is not open to foreign individual/entity investors. The advantages of investing in REITs include: • dividend distribution: REITs are required to distribute profits to the unitholders on an annual basis in amounts of at least 90% of net profit after tax, providing investors with a stable income stream; • tax benefits: REITs are not subject to corpo - rate income tax, allowing for higher distribu - tions to investors; and • tangible assets: REITs invest in physical real estate, exposing investors to potential appre - ciation in property values over time. To qualify as a REIT, the following requirements must be fulfilled.
• Investment structure: a REIT is established based on a DIRE, a collective invest - ment contract (CIC), which is made by and between the relevant investment manager and custodian bank. The investment manager manages the portfolio, and the custodian bank oversees collective deposits. The inves - tor will hold the participation unit of the CIC as ownership. • Portfolio composition: a DIRE must invest at least 80% of its net asset value in real estate assets (either directly or indirectly through the acquisition of control in real estate compa - nies). These assets must have been income- producing assets prior to their acquisition or, if the relevant lands and buildings are still in the construction stage, must generate income within six months after the acquisition. Mean - while, the remaining value may be invested in other assets, such as securities in real estate-focused companies, money market instruments, Indonesian securities portfolios and/or other financial instruments, and/or in cash and cash equivalents. The investment manager must ensure that at least 51% of the relevant DIRE’s revenue is derived from real estate assets. • Investment restrictions: REITs are prohibited from investing in vacant land or properties under development, except for certain activi - ties like refurbishment, retrofitting and renova - tion. • Asset restrictions: REITs are prohibited from lending or pledging their real estate assets for the benefit of third parties. • Trading restrictions: REITs are prohibited from engaging in short selling or purchasing secu - rities on margin. • Debt issuance: REITs are prohibited from issuing debt securities but can borrow funds without issuing debt securities for the pur - pose of purchasing real estate assets, up to a
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