Conventus Law: How does the new valuation system affect the taxation of real estate transactions in Indonesia?
Metalaw: The purposes of the valuation under the new regulation is to determine the land and building tax. This may cause indirect impact to the real estate transactions in Indonesia concerning the payment of the land and building tax of the real estate objects in a lease transaction.
Can you explain the key differences between the previous valuation system and the current one in terms of tax implications?
Before the issuance of Minister of Finance Regulation No. 79 of 2023 (PMK 79), there were no detailed guidelines on the valuation of land and building tax, tangible assets, intangible assets, and business. There was a more generic regulation that is issued in the directorate general of taxation circulation letter.
“The new valuation regulation affects real properties (for the determination of the land and building tax), tangible assets, intangible assets, and business.”
What types of assets or properties are subject to valuation changes for tax purposes in Indonesia?
The new valuation regulation affects real properties (for the determination of the land and building tax), tangible assets, intangible assets, and business.
Are there any specific valuation methods or guidelines that taxpayers must follow under the new regulations?
The regulation does not specifically regulate about the valuation methods that must be used by the taxpayers. However, it regulates the approach that can be used for the tax officials in conducting the assessment.
“Since there is a clear guideline for the tax officers in conducting the valuation procedures, this should create more legal certainty/fairness to all property owners, investors and business in Indonesia.”
How do these changes impact property owners, investors, and businesses in Indonesia?
Since there is a clear guideline for the tax officers in conducting the valuation procedures, this should create more legal certainty/fairness to all property owners, investors and business in Indonesia.
Are there any exemptions or special provisions for certain types of properties or transactions?
There is no exemption or special provision.
What should individuals and businesses do to ensure compliance with the updated valuation rules and minimize their tax liabilities?
There related individuals/businesses should do their tax calculation properly to avoid being investigated by the tax authority. They may try using the same approach as the one regulated under the PMK 79 to ensure that their calculation would be the same should they been investigated/valuated by the tax authority under the guidelines of PMK 79.
“The main objective is to create legal certainty and fairness on the valuation for tax purposes in Indonesia.”
What is the main objective of the PMK 79 on Valuation Guidelines for Tax Purposes in Indonesia?
The main objective is to create legal certainty and fairness on the valuation for tax purposes in Indonesia.
When did this regulation come into effect, and what aspects of taxation does it primarily address?
The regulation comes to force on 24 September 2023. PMK 79 primarily addresses guidelines for the valuation for tax purposes – as stated in the title of the regulation.
What are the two types of valuation methods mentioned in the article for determining the Sales Value of Taxable Object (NJOP) for land and building tax?
The valuation method can be in the form of (i) office valuation and (ii) field valuation.
In what situations is field valuation typically employed, and how does it differ from office valuation?
This method is usually used for the implementation of supervision, inspection, objection settlement, reduction of incorrect PBB assessments, examination of preliminary evidence, and investigations. The field valuation is carried out by identifying, collecting, and analysing relevant data with the PBB’s object while the office valuation is carried out by analysing the documents submitted by the taxpayers in the Taxpayer’s Object Tax Return.
Could you provide examples of the objects that are valued under this regulation for tangible assets, intangible assets, and business?
The examples of the objects are among others:
- Tangible Assets: land/waters, buildings, machines/equipment, furniture, electronic devices, art/jewellery,
- Intangible Assets: marketing-related intangible assets, customer-related intangible assets, art-related intangible assets, goodwill
- Business: business entity, participation in a company, financial instruments in companies.
How are the results of valuations conducted under this regulation used in the context of tax obligations and disputes?
The result of the valuation would be used for among others (i) a basis for calculating the tax payable on the fulfilment of tax obligations, (ii) a basis for determining a reasonable transfer pricing analysis and negotiation position during the mutual agreement procedures, (iii) the basis for calculating the tax payable in the decision on the resolution of an objection, and (iv) the basis for calculating the tax payable in decisions concerning the resolution of requests for reduction or cancellation of tax assessment.
What is the process for establishing a Valuation Team, and who issues the valuation order?
The valuation team would be established by the Directorate General of Taxation. The team would start the process based on the valuation order that is issued by the directorate general of taxation.
Can you explain the different valuation approaches that can be used for tangible assets, intangible assets, and business, as outlined in the article?
- Market Approach: approach method that compares the valuation object with other similar objects.
- Revenue Approach: approach method that converts the economic benefits or estimated revenue with a discounted rate.
- Cost Approach: approach method that calculates the cost of a new reproduction or new replacement cost of the valuation objects and reduces it with depreciation or obsolescence.
- Asset Approach: approach method that adjusts all assets and liabilities to market value following with the value premises used in the valuation to determine the value of the business.
For Further Information, Please Contact:
MetaLAW, Legal Consultant, Jakarta, Indonesia