INDONESIA Law and Practice Contributed by: Yogi Sudrajat Marsono, Heru Pamungkas, Agnes Maria Wardhana and Andin Aditya Rahman, Assegaf Hamzah & Partners
contractor lacks sufficient assets to secure the project in the event of performance default, the project owner may insist on a corporate guaran - tee from the contractor’s parent company. 7.6 Liens or Encumbrances in the Event of Non-payment In practice, contractors will not be given any form of land title and may not place any lien or encumbrance on the project, since ownership of the land and building remains with the project owner. However, in cases of non-payment, the con - struction company may notify the local land office of a dispute and request to block the land title. Subsequently, the land office may block any attempts by the project owner to transfer prop - erty ownership or alter the land title, which will be in effect for 30 calendar days unless a court order/decision is obtained. 7.7 Requirements Before Use or Inhabitation Buildings are legally required to obtain a Cer - tificate of Building Worthiness ( Sertifikat Laik Fungsi, or SLF), which is applied for after the completion of the construction and prior to the building utilisation. An SLF is issued by the regional government, except for complex and hi-tech buildings that are reserved to be issued by the Ministry of Public Works and Public Hous - ings.
As of 2022, VAT exemptions may apply to the sale of landed retail houses and apartments. Similarly, CIT exemptions may apply to transac - tions involving the sale and purchase of land and buildings with government entities, state-owned enterprises with special assignments from the government, or regional government-owned enterprises with special assignments from the regional government. 8.2 Mitigation of Tax Liability To mitigate tax liabilities, buyers frequently opt to acquire land located within SEZs. Based on Government Regulation No 40 of 2021 on Spe - cial Economic Zones, a SEZ offers exemptions from CIT and VAT for the sale and purchase of PBB is imposed on property owners. If the prop - erty is leased, the lease agreement may stipulate that the lessee bears or compensates the les - sor for any PBB incurred by the lessor. These taxes are paid to the municipal government. In addition, depending on each municipal govern - ment, a municipal retribution may be collected for occupying business premises. land and/or buildings. 8.3 Municipal Taxes Companies operating in an SEZ may receive incentives in the form of tax deductions for PBB and other municipal taxes, as well as retribution. The deduction ranges from 50% up to 100%. 8.4 Income Tax Withholding for Foreign Investors The Agrarian Law prohibits foreign entities from directly owning land in the country. Consequent - ly, foreign individuals or companies are unable to hold land titles in Indonesia. However, a poten - tial avenue for foreign entities is to establish a company within Indonesia to hold properties and generate income through rental activities.
8. Tax 8.1 VAT and Sales Tax
VAT is imposed on the buyer of new property at a rate of 11%. Conversely, Corporate Income Tax (CIT) is imposed on the seller for both new and second-hand property at a rate of 2.5%.
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