boarding house business tax

Tax Exemption for Boarding House Business

InCorp Editorial Team

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Indonesia has introduced a new tax exemption policy for boarding house businesses, a popular business model in the country, especially in big cities like Jakarta, Surabaya, Bali, and others. This move is expected to boost the housing sector and contribute positively to the nation’s economy.

Boarding house businesses can be a new alternative for experienced property investors in Indonesia. The tax exemption initiative aims to stimulate growth in affordable accommodation options in urban areas, particularly for students and young professionals.

Let’s delve into the details of this incentive and explore its potential impact on the housing market and its residents.

Old Provisions for Boarding House Businesses

Law No. 28/2009, which concerns Local Taxes and Regional Levies (UU 28/2009), provides regulations for the local tax obligations of boarding houses (rumah kos-kosan). According to this law, boarding houses with more than ten rooms are classified as hotels. 

This classification includes facilities that provide accommodation and resting services and other related services in exchange for a fee. Therefore, boarding houses with more than ten rooms are subject to hotel taxes.

The taxable object for hotels includes services provided by hotels with payment, including supporting services as hotel complements that offer convenience and comfort (Article 32 paragraph (1) of Law 28/2009). 

Meanwhile, the taxpayer for hotel taxes is an individual or entity making payments to the individual or entity managing the hotel (Article 33 paragraph (1) of Law 28/2009).

Furthermore, the hotel tax rate is set at a maximum of 10%, determined by regional regulations as outlined in Article 35, paragraphs (1) and (2) of Law 28/2009.

Current Tax Landscape for Boarding House Businesses

Boarding houses will not be subject to the hotel tax imposed by local governments. 

This exemption is implemented by Law No. 1/2022, which deals with financial relationships between the central government and regional governments (UU HKPD). There are some interesting facts related to the tax exemption for boarding houses:

1. Exempted from Hotel Tax up to 10%

Under Law 28/2009 on Regional Taxes and Levies (PDRD), boarding house owners were subject to hotel tax, with a maximum rate of 10%. Regional regulations determine the specific percentage of this hotel tax.

However, under the new UU HKPD rules, boarding houses are no longer considered particular objects for regional taxes and will not be subject to local taxes.

2. Effective from January 5, 2024

The UU HKPD takes effect two years from its promulgation, precisely on January 5, 2024. The DPR and the government have agreed upon this law since 2022.

3. Decline in Regional Tax Revenues

Ajib Hamdani, Chairman of the Economic Policy Analysis Committee of the Indonesian Entrepreneurs Association (APINDO), believes that changing boarding houses’ status to non-taxable objects will negatively impact regional tax revenues. 

Regional governments will lose up to 10% of their tax revenue.

4. Regional Governments Need to Optimize Revenues in Other Sectors

Moreover, Ajib suggests that regional governments need to optimize their revenues from other sectors to offset the loss from boarding house rentals. For instance, increasing taxes on restaurants and cafes could help secure revenues.

boarding house business tax

Boarding House Business Opportunities

The boarding house industry provides a plethora of promising prospects for individuals interested in starting a business. Some of these opportunities include:

1. High Demand from Devotees

Boarding houses located strategically near office areas, schools, and industries with convenient access stand a significant chance of attracting numerous tenants.  Many individuals migrating from outside the area choose such locations for a better livelihood.

2. Lucrative Returns

The profitability of your boarding house is directly proportional to its strategic location. However, it is essential to note that properties in these areas are generally priced higher than those in other locations. Additionally, based on the existing financial conditions or inflation rate, an annual capital rate increase ranging from 5% to 15% is possible.

3. Additional Income Source/Passive Income

Financial experts often recommend diversifying income sources to minimize the impact of losing one’s primary livelihood. The boarding house business is a suitable alternative for generating additional or passive income.

4. Manageable and Low Maintenance Costs

Compared to rented houses or apartments, boarding houses are generally easier to manage. Regular maintenance schedules ensure that existing facilities are properly cared for.

5. Low-Risk Property Investment

Starting a boarding house business eliminates concerns about a lack of interest in your venture, as shelter is one of humanity’s basic needs.

6. Ease of Resale

The boarding house business falls under commercial property, which is often preferred and, therefore, sells quickly, mainly if the boarding house is strategically located and easily accessible.

How to Start a Boarding House Business

Starting a boarding house is a versatile option that can cater to the housing needs of various groups such as vacationers, international students, and those seeking permanent housing. Here are some key considerations to keep in mind:

1. Location

  • Tailor the boarding house to its location.
  • Vacationers prefer attractions nearby, students need proximity to schools, and central locations suit those relying on bus transportation.

2. Budget

  • Costs vary based on location, property ownership, and construction choices.
  • Plan for upgrades to ensure guest comfort.

3. Target Population

  • Customize amenities based on the needs of your guests, whether adults, families, wealthy travelers, students, or the homeless.
  • Other than the above, consider licensing and inspection aspects by following the below steps:
  • Check zoning regulations for compliance.
  • Be aware of restrictions on short-term stays and booking limits.
  • Obtain necessary licenses, undergo inspections, and secure permits. Consider lodging taxes applicable at the city, county, or state level.

Start your Property Investment with InCorp

Recent regulatory changes in the boarding house business present a more promising opportunity for growth. InCorp Indonesia is committed to streamlining the establishment of your boarding house business in Indonesia. 

Here’s why InCorp is your key to success:

  • Fast-track your journey: Our expert team handles the entire setup process, from licenses and permits to land and property ownership, saving you precious time and stress.
  • Unmatched expertise: We easily navigate the ever-changing regulations, ensuring your business complies with all legal requirements, giving you peace of mind and confidence.
  • Cost-effective solutions: We offer competitive pricing and transparent fees, maximizing your return on investment and fueling your business growth.
  • Personalized support: We provide dedicated consultants who understand your unique needs and offer personalized guidance.

Contact InCorp Indonesia today for a free consultation and unlock the doors to your thriving boarding house business.

Daris Salam

COO Indonesia at InCorp Indonesia

With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.

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