Building a villa for vacation or long-term rental is one of the most common real estate investments for foreigners in Bali.
But, some bureaucratic aspects are often left disregarded, which you actually need to know when building in Bali for a villa.
Cost of building and renting out a villa in Bali
The building cost in Bali varies depending on the square meterage of floor area, material, and design difficulty. The rough cost of building a villa in Bali is USD 250 to USD 800 per square meter.
The price will increase if you build more than one floor and a swimming pool. However, these property perks could increase the cost of renting out your villa.
The rental fee of a villa in Bali depends on the location, bedrooms, and facilities. Hence, the more bedrooms and facilities a villa has in a good area, the higher the price could go.
The rough price of a long-term villa rental in Bali is around USD 500 to USD 2000 per month. However, you can gain more income if you rent out your villa for a shorter term.
Below is the average nightly price of a villa with one bedroom on Airbnb for comparison.
|Area in Bali||The average rental price of a villa per night|
Building permit for a villa in Bali
Many buildings in Bali do not have a building permit, and villa owners believe that this is okay. When in fact, it is actually not.
As a result, you will run into trouble if you do not have a building permit for your villa in Bali. The main trouble is not being allowed to build the villa in the first place.
Afterward, if you still have no building permit, you will be unable to:
- Register a business in the building
- Legally rent it out
- Pay building tax that must be paid, causing the tax to be applied retroactively
Moreover, having the wrong building permit will also cause you trouble.
For example, a building permit for a house (rumah tinggal) cannot be rented out for daily accommodation or villa in Bali. A house building permit only allows the building to be used for residential purposes.
Not having a building permit or having the wrong building permit will lead to legal consequences and fines. Such as, an official warning letter from the government and a failure to follow the warning will result in a building dismantling order.
The building’s usage functions for the building’s lifetime, but it also continues through the building’s life. Hence, it is the landowner’s responsibility to have a proper building permit.
The common mistakes when applying for a building permit
Mistakes can happen when applying for a building permit in Bali. It is common, especially if you are applying it without the help of a professional. Some of the common mistakes are:
Failure to check the available zoning for a villa in Bali
There are zonings in Bali that prohibit you from building. It includes conservation, protected area, heritage/sacred, etc. For instance, you cannot build a villa in a green zone. Green zoning preserves land for agriculture.
The available zonings for your villa can be checked with Emerhub’s due diligence.
Failure to comply with local village requirements and technical requirements
Different building permits (IMB) require different room sizes and land sizes. For instance, to get a villa IMB, the land must be at least 10 acres. In order to get a homestay IMB, the building cannot have more than five rooms.
The drawing plan does not comply with the technical requirements
If the drawing plan does not comply, you cannot register the building for the permit you want. For instance, if the drawing plan has six rooms and more than two floors, your application for a homestay permit will be rejected.
Using drawing that is not the same as the actual building
Some building permit processing agents use only one drawing that has worked for other people. Since it is not based on the actual building, it will definitely cause issues in the future.
Different tax rates for building a villa in Bali
It is important to pay attention to the taxes and who has to pay them when building a villa in Bali. Since it will cause you to end up with a tax bill if you don’t.
There are different taxes applicable for various services such as renovation and construction. The tax rates are different depending on who is the service provider.
The following are the types of services and their applicable tax.
Tax rates for construction services
If done by an Indonesian individual without having a company, the applicable income tax is 4% on construction payment and an added 2% VAT on self-construction.
If done by an Indonesian individual with a company, the applicable income tax is 2% to 4% on construction payment which depends on the construction licenses of the company.
There is also an added 10% VAT, where in most cases, the licensed contractor is registered as a VAT collector.
Note that if you engage in construction services with your company, it is your company’s obligation to withhold the taxes from the service fee payment and pay it to the tax office.
Tax rates for renovation services
If done by an Indonesian individual without having a company, the applicable income tax is income tax article 21 (non-employee, non-regular). That is 2.5% if the individual has a tax card (NPWP) and 3% if the individual does not have a tax card.
If done by an Indonesian company, the applicable income tax is income tax article 23, which is 2%. The service provider (company) must have a tax card (NPWP). With no tax card, the tax rate becomes 4%.
Similarly to construction, it is not your obligation to withhold taxes if the contract is in your name as an individual.
The common mistakes with taxes when building a villa in Bali
Besides building permits, mistakes with taxes can happen when using construction or renovation services to build a villa in Bali. Some of the most common mistakes with the taxes are:
Signing a construction or renovation agreement and building without paying the taxes.
Doing this will cause you to get a tax audit letter or a tax bill from the tax office a few years later. This also means penalties related to retroactive tax reporting and payment.
Not determining in the agreement who pays the taxes
The agreement should state who is responsible for paying the tax. Whether it will be your responsibility as an individual, your company’s, or the service provider.
The tax office can eventually come to request the tax for construction or renovation services. It will not be easy to find documentation and data they need on construction if it has not been properly organized.
Not checking what licenses the service provider has and whether he is considered as a construction company or not
If the construction services provider is not registered as a construction company, then the construction will be considered self-construction. It will impact the tax rates.
This means that you have to pay the taxes for construction or renovation yourself from the building value. In such a case, it is essential to initially have all documentation related to the materials and the expenses to the employees.
Making a construction or renovation agreement in the name of a non-Indonesian company
Companies incorporated outside of Indonesia are not allowed to enter into lease agreements nor construct in Indonesia.
In addition, an agreement made on the name of a foreign company will cause further problems with taxes. Namely, transfer pricing issues.
If possible, we suggest making an agreement specifically on the name of your Indonesian company.
Make a plan before you start building a villa in Bali. Fill in the form below or email us at [email protected], and our consultants will assist you in providing the most efficient way to go.
You will finally not need to worry about crazy bureaucracies and wrongdoings. We can apply for a building permit and handle taxes for your construction or renovation.
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