Tax on Land and/or Building Rental

RENTING land and/or buildings is an attractive option for some people to generate profits. People try to rent out land, rooms, factories, and other forms of buildings to get passive income.

It should be noted that income received or earned through leasing land and/or buildings does not escape the imposition of income tax (PPh). In particular, income originating from the rental of land and/or buildings is an object of final income tax.

This provision is mainly regulated in Article 4 paragraph (2) letter d of Law no. 36 of 2008 concerning Income Tax stated Law no. 7 of 2021 concerning Harmonization of Tax Regulations ( PPh Law stated UU HPP ).

Meanwhile, further arrangements related to tariffs, tax bases (DPP), obligations of withholding parties, and other technical regulations are contained in PP 34/2017.

Based on Article 2 paragraph (2) of PP 34/2017, the imposition of final income tax on land and/or building rental includes 4 groups. First, is income from periodic payments during the Build-Use-Transfer (BGS) agreement.

Second, income in the form of buildings is submitted before the BGS agreement ends. Third, income in the form of buildings that are submitted or should be submitted at the end of the BGS agreement. Fourth, other income related to the BGS agreement, including payments related to the use of the building and the BGS agreement fines.

To calculate the income tax payable for the four income groups, the taxpayer simply multiplies the rate by the tax base (DPP) for leasing land and/or buildings.

As regulated in Article 4 paragraph (1) of PP 34/2017, the final income tax rate imposed on land and/or building rentals is 10%. Meanwhile, DPP on this income object is equal to the gross amount of the rental value of land and/or buildings.

It should be noted that the gross amount of the rental value of land and/or buildings includes the amount paid or recognized as debt by the lessee and other costs related to the lease. These costs include, among others, costs for maintenance, maintenance, security, services, and other facilities, whether the agreement is made separately or in combination.

In addition, the determination of the value of the building is based on the highest value between the market value and the selling value of the tax object (NJOP) of the building. That is, if the market value is higher than the NJOP of the building, the value of the building used is the market value. Vice versa, if the NJOP is higher than the market value, the NJOP becomes the reference for the value of the building.


TO obtain a deeper understanding of the calculation of final PPh on land and/or building rentals, the following is an illustration of calculating the value of PPh payable on land and/or building rentals.

PT X owns a building that is rented out for offices. Then, PT X leases the building to PT Y. By the lease agreement, PT Y is obliged to pay a rental fee of Rp. 100,000,000 and a security and cleaning fee of Rp. 15,000,000 annually to PT X. How much final income tax must be paid by PT X.

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