The Minister of Finance has issued a new regulation (MOF Regulation No. 200/PMK.03/2015 – the “New Regulation”) that formally recognizes, defines and affords favorable tax treatment for the first time to collective investment contracts (Kontrak Investasi Kolektif / “KIK”) focused on real estate (the Indonesian equivalent of the real estate investment trust/REIT).
The key points of the New Regulation, which entered into effect on 10 November 2015, are as follows:
Paragraph 4 above means that if a loss is suffered by the transferor, no tax liability will arise. However, all in the garden is not rosy, particularly for investors or developers that purchased real estate assets before the property boom of the last few years significantly inflated their value. As the corporate income tax rate is 25 percent, the capital gain accruing to such investors must not exceed 20 percent if they are to benefit from the exemption from Article 4(2) of the Income Tax Law. If the capital gain exceeds 20 percent, then they will actually end up worse off if they transfer property assets to an SPC or KIK DIRE. As most of the longer established real estate players have seen capital gains of 30-40 percent on their property holdings over the last few years, they are likely to be unwilling to transfer such assets to a DIRE.”
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AHP Client Alert is a publication of Assegaf Hamzah & Partners. It brings an overview of selected Indonesian laws and regulations to the attention of clients but is not intended to be viewed or relied upon as legal advice. Clients should seek advice of qualified Indonesian legal practitioners with respect to the precise effect of the laws and regulations referred to in AHP Client Alert. Whilst care has been taken in the preparation of AHP Client Alert, no warranty is given as to the accuracy of the information it contains and no liability is accepted for any statement, opinion, error or omission.