There is nothing certain in the world but death and taxes. Dealing with Indonesian Hotels Taxes, if you want to invest or operate a hotel, you must remember to pay these taxes to the government and the municipalities where your hotel is situated. These are the 4 taxes that hotels must pay in Indonesia:
- Property Taxes
- Value Added Tax (VAT)
- Income Taxes
- Local Taxes
Property Taxes Incurred for Indonesian Hotels Owners
Property taxes are taxes that levied if you own or buy or sell any kind of property. The tax is levied by the governing authority of the jurisdiction in which the property is located. It may be imposed annually or at the time of a property transaction.
Indonesian property taxes that levied at the time of a property transaction include Fees for Acquisition of Rights on Land and Buildings (Bea Perolehan Hak atas Tanah dan Bangunan or BPHTB). The rate of BPHTB is 5% of the transaction value net of the acquisition value of a tax object is not taxable (Nilai Perolehan Objek Pajak Tidak Kena Pajak or NPOPTKP). The lowest NPOPTKP being IDR60 million is set by the municipalities where the property is located.
If you own a piece of land and building where your hotel is located, then you have to pay another property tax annually. It is land and building taxes (Pajak Bumi dan Bangunan or PBB). The tax is based on Law no 28 year 2007 about regional tax and levies. Therefore, PBB is levied by the municipal government where your land and building are located.
PBB tax rate is 0.5% of Taxable Selling Value (Nilai Jual Kena Pajak or NJKP). NJKP is set at 20% of Selling Value of the Tax object (Nilai Jual Objek Pajak or NJOP) if NJOP of the property worth less than IDR 1 billion.
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Value Added Tax that Indonesian Hotels Have to Charge to Their Guests
Value Added Tax is a consumption tax placed on a product or service whenever value is added at each stage of the supply chain, from production to the end users. VAT is not just in Indonesia. It is all over the world.
Value-added taxation is based on taxpayers’ consumption rather than their income. Paying VAT is not a big of a burden for hotels because at the end, they will charge the guests for it.
Indonesian VAT is set at 10% based on Law no 42 year 2009 except for certain products and services specified by the law and its derivation. Taxable Entrepreneurs (Pengusaha Kena Pajak or PKP) are the parties that are required to deposit and report VAT, in this case is the hotel.
VAT is charged for all kind of services offered by the hotel. It ranges from the room rental, laundry services, Food and Beverages sold, and even additional services such as spa and massage. VAT is also charged for guests that are not staying in the hotel but enjoy the hotel’s services, such as guests that only dine in the hotel restaurants.
Income Taxes if Your Hotel is Profitable
An income tax is a tax imposed on individuals or entities that varies with respective income or profits (taxable income). Income tax in hotels is imposed both on the company that own the hotel, operate the hotel, the owners of the companies, and the employees working in the hotel.
Income tax article 21 (PPh pasal 21) is imposed on the employees. Every time the hotel pays its employees it has to cut a part of the paid salary and deposit it for taxes. In principle, the employees have to pay the taxes themselves, but Indonesian tax laws regulate that a company has to be a tax collector and tax payer (pemungut pajak).
If the hotel is profitable and at some point, wants to pay dividend to its individual owners, then it has to pay final dividend tax of 15% based on article 23 of the income tax. The tax is not levied if the dividend is paid to a corporate that owns the hotel because a corporate can take into account losses from other businesses.
And so we arrive at Corporate Income Tax (PPh Badan), that is taxes imposed on the profit generated by a corporate. Up to 2019, the Indonesian corporate income tax rate was 25%. But due to the pandemic situation and the effectivity of the tax collection by the government, the ministry of finance cut the rate to 22% for 2020 and 2021 and 20% for 2022 going forward.
Corporate income tax is calculated by taking into account all revenues and expenses reported in the year, including depreciation expenses. Then you will arrive at a number that we call Earning Before Taxes (EBT). This EBT will then be multiplied by the applied tax rate of 22%, resulting in a tax amount that we have to pay.
Local Taxes That Sometimes is Forgotten
Some municipal governments also impose local taxes to hotels and other businesses situated in their territory. These taxes can differ from one area to another depending on the regulation set by each municipal government. You as a hotel owner or operator should be aware of these local taxes to avoid future problems.
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