PP 34/2017 in English: the 10% tax on rent from land and buildings

Most foreign holdings in Bali begin with a lease. The regulation that taxes the rent — and the line it draws between a lease and a nightly villa letting.

PP 34/2017, the articles a lessor or lessee meets, in order

Most foreign holdings in Bali begin with a lease, and a lease means rent. PP 34/2017 is the regulation that taxes that rent. It also draws a line that matters to anyone who lets a villa out: a lease is inside it, nightly accommodation is not.

A lease: 10% of everything the tenant pays

Rent from land or buildings is taxed at 10% of the gross rent (PP 34/2017 art. 4(1)), and the tax is final (PP 34/2017 art. 2(1)). Gross rent means everything the tenant pays or owes in connection with the property, under any name — maintenance, upkeep, security, service and facility charges included, whether agreed separately or together (PP 34/2017 art. 4(2)) — so splitting a lease into “rent” and “service” agreements does not shrink the base.

Who hands the money to the tax office depends on the tenant. The tax is withheld by the tenant (PP 34/2017 art. 3(1)) where the tenant is one of government bodies, domestic corporate taxpayers, event organisers, permanent establishments, joint operations, foreign company representatives, and domestic individuals the Director General of Taxes appoints (PP 34/2017 art. 3(2)); otherwise it is paid by the landlord itself (PP 34/2017 art. 3(3)). A foreign individual is not on that list. On our reading, an Indonesian landowner leasing to a foreign individual pays the 10% itself, while a landowner leasing to a PT PMA has it withheld by the company.

For a lessee the practical point is the price. Whether the agreed rent assumes the landowner bears the 10% is worth confirming in writing; a lease that makes the lessee carry the landowner’s tax should say so. Leasehold explained.

Nightly lettings are a different tax

The regulation excludes income from lodging services and accommodation (PP 34/2017 art. 2(3)). That is the line between a villa let for a year and a villa let by the night. The second is accommodation: it carries the regional hotel-services tax, and the operator’s income falls outside this flat 10% regime — which income-tax rule applies to it instead is not something this regulation answers. The villa rental tax (PBJT). Renting a villa out.

It is also the line in the business classification: under KBLI 2025, a let of a year or more is real estate rather than accommodation. The real estate codes.

Build, operate, hand back

A build-operate-transfer is where a landholder lets an investor put up a building for the agreement's term and hand it over to the landholder, after or before operating it (PP 34/2017 art. 1(3)). The landholder’s income from it includes periodic payments, a building handed over before or at the end of the agreement, and other income including revenue shares and penalties (PP 34/2017 art. 2(2)), and a building received is valued at the higher of market value and the building's NJOP (PP 34/2017 art. 4(3)-(4)). Many Bali leases end with the villa passing to the landowner. Whether such a lease is a BOT in the regulation’s sense — so that the villa itself is taxable income to the landowner at the end — is a question for a tax adviser on the contract’s wording; the regulation defines BOT but does not mention leases.

Three events, three taxes

The same villa can generate three different taxes depending on what happens to it. They are often confused, and they are in three different instruments.

Sources in the last column. The nightly row’s rate is the national ceiling; each regency sets its own rate by by-law. PP 34/2016, the sale tax.

Older leases

For leases already running when the regulation took effect, of buildings other than houses, flats, offices, shops and similar, the income stayed taxed under the general income-tax rates until the lease term ends (PP 34/2017 art. 5(1)(a)). A Bali villa is a house, so most villa leases were inside the 10% regime from the start; the transition matters for unusual buildings only — our reading of which list a villa falls in.

The regulation replaced PP 29/1996, as amended by PP 5/2002 (PP 34/2017 art. 6) and has applied since 2 January 2018 (PP 34/2017 art. 7).

This is commentary, not tax advice. Withholding procedure is in a Finance Minister regulation (art. 3(5)) we have not read.

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