Land and Building Transfer Tax

Land and buildings are integral to the socio-economic fabric of Indonesian society. Ownership of property is often seen as a marker of financial stability and social standing. Legal provisions governing land ownership in Indonesia date back to the Dutch colonial period, when land use was regulated under the Agrarische Wet (Agrarian Law) of 1870. At the time, the land tax system was known as landrente, imposed as a form of tribute to the colonial government. However, no specific taxation applied to land sale and purchase transactions as we know them today.

In modern times, the land and building transfer tax has become a crucial element of Indonesia’s taxation framework. This tax applies to income derived from transactions involving the transfer of rights over land and/or buildings (e.g., sales, exchanges, grants, and inheritance). The objective is to boost state revenue while promoting fairness in property transactions.

A Brief History

Although legal instruments addressing land ownership and transactions have existed since 1870, including the enactment of the 1960 Basic Agrarian Law by the Indonesian Government, they did not specifically regulate taxes on the sale and purchase of land and buildings. 

The formal imposition of a land and building transfer tax was introduced through Law of the Republic of Indonesia Number 7 of 1983 concerning Income Tax (Undang-Undang Pajak Penghasilan/UU PPh), as amended by Law of the Republic of Indonesia Number 7 of 2021 concerning Harmonization of Tax Regulations (Undang-Undang Harmonisasi Peraturan Perpajakan/UU HPP). Under Article 4, Paragraph 2, Letter d, of the UU PPh, income from the transfer of land and/or buildings, construction services, real estate businesses, and property rentals is classified as income subject to final tax.

Current Provisions

These provisions are elaborated in Government Regulation (Peraturan Pemerintah/PP) Number 48 of 1994 concerning Payment of Income Tax on Income from the Transfer of Rights Over Land and/or Buildings, as amended by PP Number 34 of 2016. PP Number 48 of 1994 initially set the final income tax rate for land and building transfers at 5% of the transaction value. However, PP Number 34 of 2016 revised this rate to 2.5%.

The regulation also introduced differentiated rates. Transfers involving affordable housing and public flats by developers are subject to a 1% final tax. Meanwhile, transfers to the government, state-owned enterprises (SEOs), or municipal enterprises assigned with special public duties are subject to a 0% tax. Below is the tariff comparison table:
 

Exempt Individuals and Entities

Final income tax on the transfer of land and buildings must be paid before the deed of conveyance is signed by an authorized official. However, certain individuals and entities are exempt from paying or withholding this tax, including:

• individuals earning below the non-taxable income threshold;
• transfers valued under IDR 60 million (non-split assets);
• grants to direct family members, religious, educational, or social organizations, including foundations and cooperatives;
• transfers due to inheritance;
• transfers for mergers, acquisitions, or business expansion, as determined by the Minister of Finance using book value; and
• transfers by non-tax subjects.

Payment and Compliance

Taxpayers involved in transferring rights over land and/or buildings must pay the final income tax to the state treasury via a designated bank or post office by the 20th of the following month after the transaction occurs.

Proof of this tax payment must be submitted to the land deed official before the transaction can be formalized. This requirement is based on Article 3, Paragraph 5, of PP Number 34 of 2016, which states that a deed, decision, or minutes of auction related to the transfer of land/building rights may not be signed by the authorized official without proof of tax payment.

Global Comparisons

Indonesia is not alone in taxing property transfers. Several countries in the region apply similar systems. For instance, Malaysia imposes a Real Property Gains Tax (RPGT) at a progressive rate based on the duration of ownership. Singapore, on the other hand, charges a Seller’s Stamp Duty (SSD) on properties sold within a certain timeframe, with rates decreasing over time. Meanwhile, Australia applies a Capital Gains Tax (CGT) on property sale profits, though primary residences are typically exempt.

While land and building transfer tax is a significant revenue source for Indonesia and supports infrastructure funding, high rates can burden lower-income individuals. To address this, the government has introduced special rates and exemptions to help ease the impact on certain taxpayers and sectors.

The land and building transfer tax is a crucial component of Indonesia’s taxation system, with deep historical roots and evolving legal frameworks. As shown by comparisons with other jurisdictions, countries adopt diverse methods to ensure fairness and efficiency in taxing property transactions. To ensure optimal implementation, strong collaboration between the government and the public is essential, particularly in encouraging tax compliance and promoting transparency in property dealings.

This concludes our overview of the land and building transfer tax. If you need professional assistance, Ideatax is here to help.

Legal References:

• Agrarische wet (Agrarian Law) of 1870.
• Law of the Republic of Indonesia Number 5 of 1960 concerning Basic Agrarian Principles.
• Law of the Republic of Indonesia Number 7 of 1983 concerning Income Tax, as amended by Law of the Republic of Indonesia Number 7 of 2021 concerning Harmonization of Tax Regulations.
• Government Regulation Number 48 of 1994 concerning Payment of Income Tax on Income from the Transfer of Rights Over Land and/or Buildings, as amended by Government Regulation Number 34 of 2016.