Tax
Renting out a villa in Lombok: how your income is taxed in Indonesia, Australia and the UK
In short: rental income from a Lombok villa is taxed first in Indonesia, where the property is. How much depends on who you are and how the villa is let: a final 10% on rent for Indonesian tax residents, a 20% withholding tax that many advisers apply to non-resident owners, or corporate tax at 22% if a PT PMA runs the villa as a business. If you live in Australia or the UK, you must also declare the income at home, but the tax treaty lets you deduct the Indonesian income tax already paid. The 10% regional tax charged to guests is a separate matter and is not creditable.
This guide explains the three layers in order: Indonesian income tax, the local tourist tax and your home country's tax. It is general information, written for owners from Australia and the UK; take advice on your own situation in both countries.
Layer 1: Indonesian income tax
The rate depends on two things: your tax status in Indonesia, and whether you are letting a property or running an accommodation business.
If you simply lease out the property
Indonesian tax residents (broadly, people who live in Indonesia for more than 183 days in 12 months) pay a final 10% on the gross rent from land and buildings, under Government Regulation 34/2017. "Final" means no deductions: maintenance, land tax and other costs cannot be subtracted, and the gross amount includes service and facility charges billed to the tenant (DDTC News, August 2026).
Non-resident owners are where guides disagree. Some quote the same 10%. A June 2026 analysis by Indonesian tax practitioners argues that rent paid to a foreign owner without a permanent establishment in Indonesia falls under Article 26 of the Income Tax Law instead: a 20% withholding tax on the gross amount (Ortax). Tax treaties do not cap this rate, because income from property may be taxed in full where the property is. Ask your Indonesian tax adviser which rate applies to you before you sign a rental arrangement, and budget for 20% until they confirm otherwise.
If the villa is let night by night, with services
A villa let to holidaymakers with cleaning, breakfast or concierge services is treated as accommodation, not as a simple lease. Hotels and similar lodging are excluded from the 10% final rent tax and taxed as business income instead (DDTC News).
In practice, foreign owners who let nightly do it through a PT PMA, their own Indonesian company. The company holds the business licence, pays corporate income tax of 22% on its net profit, and can deduct its costs: staff, management fees, maintenance, depreciation. Profits paid out to overseas shareholders as dividends are subject to withholding tax, which the relevant tax treaty may reduce. Our guide to the three ownership routes explains when a PT PMA makes sense.
| Your situation | Indonesian income tax | Costs deductible? |
|---|---|---|
| Indonesian tax resident, leasing the property | 10% final on gross rent | No |
| Non-resident, leasing the property | 20% withholding on gross rent (practitioner view); confirm with an adviser | No |
| PT PMA running a rental business | 22% corporate tax on net profit, plus withholding tax on dividends | Yes |
Layer 2: the local tourist tax
Whatever the structure, nightly stays in Central Lombok, which includes Kuta, Selong Belanak and Torok, are subject to the regional tax on goods and services (PBJT) at 10% of the room price (Central Lombok Regulation 1/2024, BPK legal database). It is charged to the guest and paid over to the regency, much like a hotel tax. Your manager should register and pay it; booking platforms generally do not do it for you in Indonesia. Either way, you remain responsible for it being paid.
PBJT is a regional consumption tax, not an income tax, so it does not count towards your home-country tax credit.
Layer 3: tax at home
Australian residents
Australian tax residents are taxed on their worldwide income, so Lombok rental income goes on your Australian return (Bali Villa Realty, May 2026). The main points:
- Declare the gross amount, including the Indonesian tax withheld, converted to Australian dollars, then deduct the expenses Australian rules allow.
- Claim a Foreign Income Tax Offset (FITO) for the Indonesian income tax actually paid on that income. The tax must have been paid, not just payable, and penalties or interest do not count (ATO). Regional taxes such as PBJT are generally not eligible.
- The offset cannot exceed the Australian tax on the same income. If your marginal rate is higher than the Indonesian rate, you pay the difference in Australia; if it is lower, the excess credit is lost.
- If you own through a PT PMA, you receive dividends rather than rent. The company's tax and the dividend withholding are treated differently; this needs specialist advice.
UK residents
UK residents are also taxed on worldwide income. Since April 2025, the old remittance basis has been replaced by a four-year exemption for foreign income and gains that applies only to people newly arrived in the UK; check with your adviser if that applies to you.
- Overseas property income is reported as a separate "overseas property business", apart from any UK lettings.
- Foreign tax credit relief. Under Article 21 of the UK–Indonesia tax convention, signed in 1993, Indonesian tax on Indonesian-source income is credited against UK tax on the same income (GOV.UK). As in Australia, the credit is capped at the UK tax due on that income.
- Furnished holiday lettings. The special regime was abolished from 6 April 2025 (Saffery). It covered UK and EEA properties only, so Indonesian villas were never eligible. Nothing changes for you.
- Finance costs. If you borrowed in the UK to buy, interest on a residential property loan gets relief only at the basic rate, not as a full deduction.
A worked example
An Australian resident, not resident in Indonesia, leases a villa to a local operator for US$30,000 a year. The figures are illustrative, in US dollars for simplicity, and ignore currency conversion.
| Amount (US$) | |
|---|---|
| Gross rent | 30,000 |
| Indonesian withholding at 20% | 6,000 |
| Deductible costs under Australian rules (repairs, insurance, depreciation, management) | 6,000 |
| Net rental income declared in Australia | 24,000 |
| Australian tax at a 37% marginal rate | 8,880 |
| Less foreign income tax offset | 6,000 |
| Extra tax payable in Australia | 2,880 |
| Total tax on the rent, both countries | 8,880 |
The total equals what you would have paid in Australia alone. The treaty prevents double taxation; it does not lower your overall rate. If the Indonesian tax were 10%, you would pay US$3,000 in Indonesia and US$5,880 in Australia: the same total, split differently.
Common mistakes
- Assuming the 10% rate applies to everyone. For non-residents, it may be 20%.
- Forgetting the PBJT. Unpaid tourist tax can catch up with the owner, not just the manager.
- Not keeping Indonesian tax receipts. Without proof of payment, you cannot claim the credit at home.
- Letting nightly without a business structure. Accommodation businesses need licences; a personal lease is not designed for it.
- Declaring only the net amount. At home, declare the gross income and claim the credit separately.
Questions about structuring a rental before you buy? Talk to us on WhatsApp and we will introduce you to tax advisers who work with foreign owners.
FAQ
Do I pay Indonesian tax if the villa makes a loss?
On a simple lease, yes: final and withholding taxes are on gross rent, not profit. A PT PMA pays corporate tax only on profit.
Does Indonesia have a tax treaty with my country?
Indonesia has treaties with Australia, the UK, the US, Canada, Singapore and Hong Kong, among many others. Each allows Indonesia to tax income from property located there.
Who withholds the 20% tax?
The payer, if it is an Indonesian company or other withholding agent, such as an operator leasing your villa. Otherwise, ask your adviser how to settle it.
Can my manager handle all of this?
A good manager will collect the PBJT and keep records. Your income tax, in Indonesia and at home, remains your responsibility. See choosing a villa manager.
This article is general information, not tax advice. Rules change; confirm your position with a qualified adviser in Indonesia and in your country of residence. See our investment disclaimer.