A major shift is on the horizon for those planning to build their own properties in Indonesia. Beginning in January 2025, the tax rate for self-construction activities will be rising. This adjustment is designed to create a more equitable tax system. Let’s find out the details.
Fairer Tax System
In mid-September 2024, the Indonesian Ministry of Finance announced a significant change impacting individuals planning to build their own homes. The tax rate for self-construction activities will increase starting in January 2025.
Self-building tax is indeed not as familiar as Income Tax, or Land and building tax , however the concept of Value Added Tax (VAT) on self-building activities isn’t new. It has been established in Law No. 11 of 1994 and the upcoming adjustment aims to create a fairer tax system. This means that building a house independently will now be subject to a similar tax structure as using a contractor.
Understanding the New Self-construction Tax
The new regulation outlines a 20% tax on self-built properties. This tax is calculated based on the current VAT rate. Since the VAT is set to rise from 11% to 12% in 2025, the effective tax burden for self-construction will consequently increase from 2.2% to 2.4%.
What is subject to the new tax?
The new tax rate applies to self-built homes that meet the following criteria:
1. Construction Materials: The primary construction materials used must be wood, concrete, brick, or steel, or a combination of these.
2. Purpose of the Property: The property’s intended use must be either residential or commercial.
3. Building Size: The minimum building area must be at least 200 square meters. Properties smaller than 200 square meters are exempt from this tax.
4. Construction Timeline: Construction must be completed within a two-year timeframe. Alternatively, it can be completed in stages, as long as the interval between stages doesn’t exceed two years.
5. Staged Construction: If construction takes longer than two years and is completed in stages, each stage will be considered a separate project and potentially subject to the tax.
Navigating the New Tax Landscape
The upcoming changes in self-construction tax may bring new considerations for homeowners planning to build their own properties. Understanding the details of the regulation and how it might impact your specific project is crucial.
Seven Stones Indonesia is here to assist you with expert guidance on property tax matters. Our experienced team can help you navigate the new self-construction tax regulations, understand your obligations, and ensure you comply with all relevant tax laws. We can also provide assistance with calculating your tax liability and filing your tax returns.
Don’t hesitate to reach out to us for a free consultation! Text us at Whatsapp +62 877-7711-7701 or send us email to hello@sevenstonesindonesia.com
By seeking expert advice, you can ensure a smooth and compliant experience throughout your self-construction project.Â