Complying with Tax Payments during Property Transactions

In Indonesia, individuals and property developers often attempt to optimize their tax strategy during property transactions, aiming to minimize transaction costs as much as possible. However, many of these approaches should consider the prevailing tax regulations to avoid administrative fees.

A common practice is to use a Preliminary Sale and Purchase Agreement (Perjanjian Pengikatan Jual Beli/PPJB) and a Power of Attorney to Sell (Surat Kuasa Menjual/SKM) to replace the Deed of Sale and Purchase (Akta Jual Beli/AJB), to delay the payment of Income Tax (Pajak Penghasilan/PPh) and Land and Building Acquisition Duty (Bea Perolehan Hak atas Tanah dan Bangunan/BPHTB). Some developers may suggest postponing tax payments until the land subdivision is complete or when the construction process is ready to commence.

However, such schemes are not compliant with Indonesian tax law and can result in severe administrative and criminal penalties if not addressed quickly.

Timing for Tax Compliance in Property Transactions

Many property buyers and sellers are unsure about their tax obligations during a property transaction. It’s a common misconception that taxes are only due at the time of the AJB signing. In reality, the obligation to pay taxes, such as BPHTB for the buyer and PPh for the seller, must be fulfilled much earlier, once the PPJB is executed and payment is made.

Legal Basis

Government Regulation No. 34/2016 on Income Tax from Land and/or Building Transfers and Preliminary Sale and Purchase Agreement.
1. Article 1(1)(b): PPJBs are subject to final income tax.
2. Article 3: Final Income Tax is due when payment is received under the PPJB, not during the AJB.
Finance Minister Regulation No. 261/PMK.03/2016 on Types of Documents and/or Additional Information that Must be Stored by Taxpayers Conducting Transactions with Related Parties, and Procedures Management.
Article 2(1): The seller or buyer, depending on the transaction deal, must pay the tax.
Article 4: Payment must be made by the 15th of the month following receipt of funds.
PER-18/PJ/2017, PER-26/PJ/2018, PER-8/PJ/2023.
The land deed official (PPAT) must confirm PPh and BPHTB payments before processing the AJB.

The BPHTB is due for these reasons:

The buyer has already taken control of the property.
Payment for the property has been made.
The legal intent and impact of the transaction have taken effect.

Even if the AJB has not been signed yet, if a PPJB has been made and payment received, both PPh and BPHTB are already due. Once the buyer has paid and taken possession of the property, they are responsible for paying BPHTB.

Risks of Delaying Taxes

Administrative Sanctions:
Fines, penalties, or even inability to complete the AJB, as notaries and conveyancers (Pejabat Pembuat Akta Tanah/PPAT) are now digitally integrated with the Directorate General of Taxation (Direktorat Jenderal Pajak/DJP).

Refusal to Process AJB:
If PPh and BPHTB payment receipt is not provided, the notary or conveyancer has the right to refuse the execution of AJB.

Future Tax Burden:
If the tax object selling value (Nilai Jual Objek Pajak/NJOP) increases, taxes will be calculated based on the higher value at the AJB signing, potentially resulting in PPh and BPHTB exceeding the expected value at PPJB.

Criminal Tax Exposure:
Systematic tax evasion through artificial arrangements can be classified as a criminal act by the DJP, especially if there’s evidence of intent to conceal the taxable objects.

Solution for Tax Strategies

Consult with a notary or legal consultant to obtain the correct strategy for property transaction structures and tax regulations.
Avoid assumptions or advice from buyers to execute long-term powers of attorney just to delay upcoming due taxes.
Calculate necessary taxes during the PPJB stage, not only at the AJB.
Pay final income tax and BPHTB according to the PPJB’s due dates.

Choosing the Correct Strategy to Minimize Additional Cost

Postponing tax payments increases the compliance risk for the related parties. As digital integration between government agencies tightens, tax avoidance becomes nearly impossible. Short-term benefits from uncertain strategies can lead to higher costs and legal risks in the future.

Proper compliance and planning are always more beneficial during a property transaction. Putranto Alliance is prepared to support compliance strategy during property transactions, such as buying, selling, executing a joint venture, or partnering with investors, in accordance with prevailing regulations.

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