LMIR Trust warns of 'material impact' from new withholding tax rules

THE manager of Lippo Malls Indonesia Retail Trust (LMIR Trust) on Wednesday said the latest withholding tax laws in Indonesia may have a "material impact" on the trust.

It said the Indonesian government had earlier this year passed certain amendments to tax rules relating to land use and building leases in the country.

Under the new rules, all income earned from building leases in Indonesia will be hit by an income tax at 10 per cent of the total value of the building lease that now includes service charges and utilities recovery charges.

This tax treatment also applies to land.

Previously, property owners did not have to pay income tax on such charges.

LMIR Trust said that currently, certain maintenance services for its properties are outsourced to a third-party service provider. This provider would collect service charges and utilities recovery charges from the tenants.

With the latest rule, tenants must now withhold income tax on service charges and utilities recovery charges.

"The new requirement for tenants to withhold income tax on service charges and utilities recovery charges may have a material impact on LMIR Trust," noted LMIR Trust.

LMIR Trust has 30 properties in its portfolio of Indonesian shopping malls and retail assets, with Matahari Department Store the top tenant of its properties, its website showed.