INCOME TAX ON BUILT, OPERATE & TRANSFER

by : Rochmat

rochmat@kanaka.co.id

Built, Operate and Transfer is a form of co-operation agreement carried out between holders of land rights with investors, stating that holders of land rights give the right to the investor to build buildings during the agreement of built, operate and transfer, and transfer the ownership of building to the holders of land rights at the end of built, operate and trasnfer agreement.

Buildings that are built by investors can be office buildings, apartments, shopping centers, home stores (shops), hotels, and / or other buildings.

The parties that carry out the built, operate and transfer agreement are investors who are given the right to construct buildings and use or operate the building during the period of built, operate and transfer agreement, and The holders of land rights that give rights to investors.

Investor’s income and expenses

• Income

Investors’s income in connection with a built operate and transfer agreement is income received or obtained by investors from the utilization of buildings that are built, among others:

1. rent and income in connection with the use of assets;
2. Income related to building concession rights such as income from hotel concessions, sports facilities centers (“Sport centers”), entertainment venues, etc .;
3. reimbursement or compensation received or obtained from the holder of land rights if the period of built, operate and transfer agreement is shortened from from a predetermined period.

• Expenses

1. Basically all expenses may be deducted from gross income, but there are a number of expenses that may not be deducted from gross income which are specifically regulated by Indonesian Taxation Law;
2. The expenses incurred by the Investor to bulid a building constitute the acquisition value by the investor to use or the right to cultivate the building, and the acquisition value by the investor is amortized in the same amount each year during the Built, Operate and Transfer agreement;
3. If the period of Built, Operate and Transfer agreement is shorter than the period specified in the agreement, the remaining unamortized development costs, amortized at the same time by the investor in the expiration of the shorth of Built, Operate and Transfer agreement;
4. If the period of Built, Operate and Transfer agreement is longer than the period specified in the agreement due to the addition of the building, then the additional cost is added to the remainder of the unamortized costs and by the investor the amount is amortized until the expiration of the longer of Built, Operate and Transfer agreement;
5. Amortization of building costs begins in the year the building is used or cultivated. If the construction covers a period of more than one year before it can be used or cultivated, the costs incurred must be capitalized.

The holders of land rights’s income and expenses

• Income

Income received or obtained by an individual or entity holding land rights from the Investor in connection with the implementation of the bulit, operate and transfer agreement, includes:

1. income from periodic payments during the period of the bulit, operate and transfer agreement;
2. income in the form of a building that is transfered before the end of the bulit, operate and transfer agreement;
3. income in the form of a building that is transfered or should have been transfered at the end of the bulit, operate and transfer agreement; and / or
4. other income related to the bulit, operate and transfer agreement, including payments related to the profit sharing on utilization of building and penalty of the bulit, operate and transfer agreement

• Expenses

Expenses related to income that have been subject to final Income Tax may not be deducted from gross income.

• Income Tax

Income received or obtained by an individual or entity that holding land rights from an Investor related to the implementation of bulit, operate and transfer Agreement is subject to 10% (ten percent) final Income Tax  from the gross amount.

The gross amount of the income received or obtained by an individual or entity in the form of a building on build, operate and transfer agreement is the value of the building received by the holder of land rights from the investor.

Building Value is determined based on the highest value between the market value and the selling value tax object (NJOP) of building.