Investing in Bali
A short guide, by VBM, presenting all you need to know for your upcoming
investment on the Island of Gods.
Interested in investing in Bali and you don't know where to start? Here is a short guide introduction we have created to try to answer some questions you might have.
First and foremost, to save time and money, you must first define your needs and the goal of your investment. This will determine the options you have and the steps you'll have to take.
Leasing? Buying? Building? Will it be for your main residence, secondary residence with occasional rentals, or serve as a pure investment for the vacation rental market to maximize your ROI (return on investment) ?
VBM Property is here to accompany you along the way, and offer you the best opportunities based on your needs.
01- Define the goal of your project
Main residence: I want to settle in Bali and/or spend more than 6 months there per year. In this case it is not necessary to invest in a property in the center of town where the price is at its highest. A pretty rice field view at a reasonable distance from the center suits me.
Secondary residence with occasional rentals: I want to come to Bali once or several times a year and rent out my villa the rest of the time, I have to find a property that is close to tourist demand and adapt the villa for the rental market.
Pure investment to maximize ROI: I am making an investment in Bali and want to get the best possible ROI (return on investment), 2 options are available to me:
1- I don't take any risk and I buy right in the tourist center but I pay a high price which reduces the return on investment.
2- I invest in up-and-coming neighborhoods in order to take advantage of the price increase in the years to come, which will allow me to further increase my return on investment.
02 - Should I buy or lease? (freehold & leasehold)
In Indonesia, only Indonesian citizens have the right to buy (freehold) a land and/or a villa using their own name, which is why most foreign investors opt for a leasehold option (generally a lease of 25 to 30 year, with potential extensions written in the contract agreements).
However, you still have the option of creating a company with foreign capital "PT PMA" under your name, which allows the company to buy the property in freehold for you, the certificate of this would then pass from 'Hak milik' (certificate under an individual name) to 'Hak guna bangunan' (certificate under the name of a company), valid for a maximum of 50 years and renewable.
In order to obtain a better return on investment, the leasehold is generally recommended. In some areas of Bali (North/East/West and Center), the price of freehold remains very affordable. For example in the region of Lovina (North of Bali) the price of a freehold Are with sea view is about 90,000.000 rp/are (or +/- 5,600 euros/are)
03 - What about building?
Building the villa of your dreams remains in most cases the best option to optimize a ROI (return on investment), but this requires several additional steps to follow:
- find a land
- find a builder
- furnish the villa
If you have time to spare, building your own property allows you to fully personnalize it based on the goal of your investment, which is why it is usually the best option to go with.
04 - Advantages of creating a company (PT. PMA)
The creation of a "PT" company is useful for multiple points:
1- Reduce the amount of taxes levied on dividends and resale tax (from 20% to 10%)
2- Obtain a "KITAS" resident permit
3- Get a personal NPWP (tax registration number)
4- Include in the amount of the expenses of the villa(s) and the depreciation thereof in order to reduce the amount of the company's taxes from its 4th year of existence.
It becomes more profitable to create a company if the property generates more than 30,000 usd in annual profit
05 - NPWP & NPWPD (fiscal identification numbers)
For your property: The NPWPD
(Nomor Pokok Wajib Wajak Daerah / Local tax identification number)
The NPWPD makes it possible to pay the so-called regional taxes, present in certain regions of Indonesia but not all, and in particular the PHR (Pajak Hotel dan Restoran) -10% on daily rental income -
Public prices advertised on rental platforms must include this 10% PHR, which are paid by the guest staying in the property, and transferred the following month by the villa to the regional tax office.
For you or your company: The NPWP
(Nomor Pokok Wajib Pajak / National tax identification number)
The NPWP is a tax identification number to pay national taxes throughout Indonesia. There are NPWPs for companies, otherwise known as "legal" entities, and personal NPWPs for individuals /people. If a company in Indonesia obtains an NPWP by default, for an individual it is first necessary to obtain a Kitas (Working Visa or Investor Visa), or a Resident Permit, which must itself be "sponsored" by a company.
To obtain a Kitas, and therefore an NPWP, most owners opt for the creation of an Indonesian limited liability company with foreign capital, also called PT PMA (See part “04“ above regarding the advantages of creating a company).
Without NPWP, villa(s) owners are subject to a 20% profit tax achieved, after expenses for maintenance, management, etc.
06 - Taxes, who pays what?
Customers (guests)
By renting your property, each customer/guest is subject to a 10% tax. The amount of this tourist tax is included in the public price of the rental because you must collect this tax during the following month.
Villa through the NPWPD
a rental villa must pay two monthly taxes:
- PHR (Pajak Hotel Restaurant) 10% on daily rental income
- PAT (Pajak Air Tanah) Tax on water consumption
Company through the NPWP
1 - PP23 0.5% on total income (valid for the first 3 years only, and for villas that generate less than 330,000 usd/year)
2 - Taxes on salaries PPh21 (for salaries in excess of 4,500,000 rp only)
3 - PPNGLN tax on the OTA fee (20%) already paid by OTA
Property owner through his personal NPWP
-PBB (Pajak Bumi and Bangunan) Land taxes with land owner's NPWP once a year
- Final PPH 10% on Dividends
07- Advantages & disadvantages
A. Property owner WITHOUT a NPWP
Advantages: The money from rental income does not pass through the management company, it is your responsibility to declare your taxes or not (final PPH of 20% on the amounts received)
Disadvantages: The risk of control is the highest, which can lead to a penalty of 300% on rental income retroactively and an obligation for your property to become a PE or to create a company for the management of it.
B. Property owner WITH a NPWP
Advantages: The money does not pass through the management company, it is your responsibility to declare or not your taxes (final PPH of 10%)
Disadvantages: The amounts collected on dividends are considered as personal income* and during your annual and monthly declaration of income, all amounts collected will then be taxed as such by the Indonesian authorities.
C. Property owner with a P.T. PMA
Advantages: The money taken as a dividend is taxed at 10% / possibility of investing in freehold and entering the property as company capital / obtaining a Kitas
Disadvantages: The amounts collected on dividends are considered as personal income* (*see details in the example below) and during your annual and monthly declaration of income, all amounts collected will then be taxed as such by the Indonesian authorities.
Example for a 5-bedroom property generating 48,000 usd profit per year
*Tax on personal income
-
Under 65.000.000rp -> 5%
-
60.000.000rp to 250.000.000rp -> 15%
-
250.000.000rp to 500.000.000rp -> 25%
-
500.000.000rp to 5.000.000.000rp -> 30%
-
> 5.000.000.000rp -> 35%
08 - What has changed in recent years.
For several years, the Indonesian government has been implementing an increasingly effective tax control system, it is now more than ever imperative to follow and respect all regulations.
A treaty has been signed with more than 120 countries allowing the exchange of data between banks and governments. A tax audit in Indonesia may trigger a tax audit in your country of residence.
OTAs (online rental agencies such as Airbnb / Booking / etc) are subject to a 11% VAT on the commissions collected, by transmitting their report to the Indonesian government which can now make the reconciliation with the declarations of the villa(s), and the amounts of taxes actually paid.
You have any more questions? Contact us!
If you wish to invest in Bali and want some additional information, or for us to see what is the best solution based on your needs and budget, don't hesitate to contact us by email either at
contact@vbmproperty.com or info@villabalimanagement.com
Kindly note that VBM Property's own website is coming very soon!
Kindly note that the information above is not Financial advise.
Please refer to your consultant(s) for any official regulation advises or updates.