TAX UPDATES MAY 2018 NEW PROVISIONS FOR PRELIMINARY TAX REFUNDS I N S I D E T H I S I S S U E

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1 MAY 2018 J A K A R T A O F F I C E M e n a r a I m p e r ium, 27 th F l o o r J l. H R R a s u n a S a id K a v. 1, P h F x c o n ta c t@ p b t a x a n d. c o m S U R A BAYA O F F I C E G r a h a B u ko p i n, 9 th F lo o r J l. Pan g li m a S u d irm a n , P h F x s u r a b a y p b t a x a n d. c o m I N S I D E T H I S I S S U E 1. New Provisions for s 2. Do You Know NEW PROVISIONS FOR PRELIMINARY TAX REFUNDS As part of boosting economic growth and Taxpayers liquidity, the Minister of Finance (MOF) issued /PMK.03/2018 ( ) regarding on April 12, This regulation combines all the previous regulations regarding the criteria and appointment procedure of taxpayers who are eligible for preliminary tax refund and also simplifies the procedure for preliminary tax refund. The new regulation combines three special criteria of taxpayers eligible for a preliminary tax refund, which were previously regulated under 3 separate MOF Regulations. These taxpayers are as follows: 1. Golden Taxpayers; 2. Taxpayers with Low Refund Value; 3. Low Risk PKPs (Low Risk VAT-able Entrepreneurs). The features of the new regulation for each eligible taxpayer are explained below. The new regulation combines three special criteria of taxpayers eligible for a preliminary tax refund... Features of for Golden Taxpayers The time limit for the DGT in issuing a decision on the appointment of the Golden Taxpayer status, which was previously no later than the 20 th of February, is now accelerated into one month after the application is received by the DGT, under the new regulation. Both regulations still state that the applicant must submit its application by the 10 th of January. The time period for Golden Taxpayers previously valid for two calendar years is extended to an indefinite amount of time, and is valid from the date of appointment until its revocation by the DGT.

2 May 2018 Page 2 New Provisions for s (continued from page 1) Features of for Taxpayer with Low Refund Value The new regulation stipulates the criteria for Taxpayers with Low Refund Value, by increasing the maximum amount of income tax refund for: o Individuals that have businesses or freelance activities that apply for income tax refunds in their Annual Income Tax Return ( AITR ) of a maximum of IDR100 million (previously IDR10 million); o Companies that apply for an income tax refund in their AITR of a maximum of IDR1 billion (previously IDR100 million); o VAT-able Entrepreneurs that apply for VAT refund in their VAT Return of a maximum of IDR1 billion (previously IDR100 million). Features of for Low Risk VAT-able Entrepreneur The new regulation stipulates an update on the criteria of Low Risk VAT-able Entrepreneurs, as explained below: Companies with shares traded on the stock exchange in Indonesia (previously, with a minimum of 40% of shares traded); Companies with Priority Partner of Customs Status; Companies with Authorised Economic Operator Status. The time period for Low Risk VAT-able Entrepreneurs previously valid for 24 tax periods is extended for an indefinite amount of time, and is valid from the date of appointment until its revocation by the DGT. Examination of Application Under the new regulation, DGT will conduct formal examinations before proceeding with a material examination for Golden Taxpayers and Low Risk PKPs (previously, DGT only conducts a material examination). The table below summarizes the examination procedures for preliminary tax refund applications. Formal Examination Examination of Applications Golden Taxpayer Taxpayer with Low Refund Value Low Risk PKP hold a valid appointment status X - X Not currently under the process of a tax audit on the preliminary evidences of a tax crime and/or tax investigation X - X No late submissions of one type of Monthly Tax Return (MTR) for two consecutive tax periods X - - No late submissions of one type of MTR for three tax periods within one calendar year X - - No late submissions of Annual Income Tax Return (AITR) X - - Never convicted of a tax crime for the last five years - - X

3 May 2018 Page 3 New Provisions for s (continued from page 2) The table below summarizes the examination procedures for preliminary tax refund applications (continue). Material Examination Examination of Applications Golden Taxpayer Taxpayer with Low Refund Value Accuracy of tax calculations X X X The validity of credited withholding tax slip X X - The credited input VAT has been reported by the seller and the payment of self-assessed input VAT has been validated X X - Verify that the taxpayer is engaged in the prescribed business activities - - X The input VAT credited by the Low Risk VAT-able Entrepreneur has been reported on the Monthly Tax Return of the VAT-able - - X Entrepreneur who issued the Tax Invoice Validate the payment of self-assessed input VAT using a State Revenue Transaction Number (NTPN) - - X Low Risk PKP Post-Tax Refund Consequences It should be noted that the DGT can still perform a tax audit on the tax year or period that has been granted a preliminary tax refund and issued a Tax Assessment Letter. If the tax audit results in a tax underpayment position, the administrative sanctions will be as follows: for Golden Taxpayers: 100% increase of the underpaid tax amount for Taxpayers with a Low Refund Value: 100% increase of the underpaid tax amount for Low Risk PKP: interest of 2%/month for a maximum 24 months Special Provisions 1. Provisions for low-risk PKP (including the sanction from tax audit result) will prevail if the taxpayer also fulfils the criteria as a Golden Taxpayer and/or has low refund value. 2. The DGT will process Overpaid Tax Returns without refund requests submitted by Golden Taxpayers, Taxpayers with Low Refund Value, and Low Risk VAT-able Entrepreneurs with tax audit based on Article 17(1) of the General Tax Provisions (KUP) Law. 3. The DGT will process Overpaid Tax Returns with a normal refund request (i.e. not under the preliminary tax refund scheme) with a tax audit based on Article 17B of the KUP Law. 4. If the application for preliminary tax refund is rejected, the refund request will be processed based on Article 17B of the KUP Law.

4 May 2018 Page 4 New Provisions for s (continued from page 3) Eligible taxpayers that have not been appointed as Golden Taxpayers may submit the application within three months following April 12, Transitional Provisions 1. Eligible taxpayers that have not been appointed as Golden Taxpayers may submit the application within three months following April 12, The DGT must issue a decision within one month upon the receipt of the completed application. 2. The DGT will reappoint existing taxpayers as valid Golden Taxpayers or low-risk PKPs within one month following April 12, Outstanding preliminary tax refund requests will be processed based on MOF Regulation-74, MOF Regulation-198, or MOF Regulation Existing implementing regulations based on MOF Regulation-71, MOF Regulation-74, and MOF Regulation- 198 will remain valid as long as they are not in contrary to the provisions in MOF Regulation-39. However, the respective MOF Regulations are null from April 12, 2018 onwards. Key differences between and the Golden Taxpayer vs. MOF Regulation No. 74 Eligible Taxpayers Criteria Appointment as Eligible Taxpayers Time Period for Golden Taxpayer Appointment MOF Regulation No. 74 (Golden Taxpayer) a. Submit tax returns in a timely manner; b. Have no tax arrears for all types of taxes, except tax arrears which have obtained a permit to pay tax in installments or that have been postponed; c. Financial Statement audited by a public accountant or the audit board of the Republic of Indonesia with an Unqualified Opinion for 3 consecutive years; and d. Never been convicted of a tax crime for the last 5 years. The appointment is through the submission of a formal request or ex officio. The applicant must submit its application by January 10, and the DGT must issue a decision no later than February 20. two (2) calendar years, since January 1st on the year of Golden Taxpayer appointment The appointment is through the submission of a formal request or ex officio. The applicant must submit its application by the 10 th of January and the DGT must issue a decision within one month after the application is received. valid from the date of the appointment until the revocation (if any)

5 May 2018 Page 5 New Provisions for s (continued from page 4) Golden Taxpayer vs. MOF Regulation No. 74 (continue) Revocation of Appointment Status Application of Preliminary Tax Refund Examination of the Application Time Limit for Decision Issuance Failure to follow the time limit for the Issuance of Decision (SKPPKP) MOF Regulation No. 74 (Golden Taxpayer) 1. in the process of tax audit on preliminary evidence of a tax crime or tax investigation; or 2. late submission of AITR; or 3. late submission of one type of Monthly Tax Return (MTR) for two consecutive tax periods; or 4. late submission of one type of MTR for three tax periods within one calendar year. Taxpayers can apply for a preliminary tax refund for two (2) fiscal periods/years in the year of appointment, including the Amendment of Tax Return submitted when the Golden Taxpayers status is valid Completeness of AITR and the appendices; Accuracy of tax calculation; Accuracy of Tax Credit or credited input VAT based on the confirmation of the DGT application system or letter confirmation; Accuracy of tax payment. 3 months for income tax 1 month for VAT Taxpayer's application shall be granted and the DGT will issue a decision after the time limit has passed Taxpayers can apply for preliminary tax refund since their appointment as Golden Taxpayers. Formal examination: Hold a valid appointment status; Not currently in the process of tax audit on preliminary evidence of a tax crime and/or tax investigation; No late submission of one type Monthly Tax Return (MTR) for two consecutive tax periods; No late submission of one type MTR for three tax periods within one calendar year; No late submission of Annual Income Tax Return (AITR). Accuracy of tax calculation and statement; The withholding/collection tax slip credited by the Taxpayer; The input VAT that has been credited and/or self-assessed by the Taxpayer.

6 May 2018 Page 6 New Provisions for s (continued from page 5) Taxpayer with Low Refund Value vs. MOF Regulation No. 198 Eligible Taxpayers Criteria Appointment as Eligible Taxpayers Time Period for Appointment Revocation of Appointment Status Application of Preliminary Tax Refund Examination of Taxpayer with Low Refund Value Time Limit for Decision Issuance Failure to follow the time limit for the Issuance of Decision (SKPPKP) Risk Analysis MOF Regulation No. 198 (Taxpayer with Low Refund Value) a. Individuals that do not have any business or freelance activity that apply for an income tax refund in their Annual Income Tax Return (AITR) b. Individuals that have business or freelance activities that apply for income tax refund in their AITR at a maximum of IDR10 million c. Companies that apply for an income tax refund in their AITR at a maximum of IDR100 million; or d. VAT-able Entrepreneurs that apply for VAT refund in their VAT Return at a maximum of IDR100 million. No Appointment None, valid as long as Taxpayer meets the criteria No revocation of status appointment Taxpayers may apply for a preliminary tax refund for the fiscal period/year as long as the amount of tax refund meets the criteria Completeness of AITR and the appendices; Accuracy of tax calculation; Accuracy of Tax Credit or credited input VAT based on the confirmation of the DGT application system or letter confirmation; Accuracy of tax payment. 15 working days for individual income tax 1 month for corporate income tax 1 month for VAT (for both individual and corporate) The Taxpayer's application shall be granted and the DGT will issue a decision no later than seven (7) working days after the time limit has passed Conduct risk analysis before granting the preliminary tax refund: a. Submit tax returns in a timely manner b. Have no tax arrears for all types of taxes c. Accuracy of the AITR and the appendices a. Individuals that do not have any business or freelance activity that apply for an income tax refund in their Annual Income Tax Return (AITR) b. Individuals that have businesses or freelance activities that apply for income tax refund in their AITR with a maximum of IDR100 million c. Companies that apply for an income tax refund in their AITR of a maximum of IDR1 billion; or d. VAT-able Entrepreneurs that apply for VAT refund in their VAT Return at a maximum of IDR1 billion. Accuracy of tax calculation and statement; The withholding/collection tax slip credited by the Taxpayer; The input VAT that has been credited and/or self-assessed by the Taxpayer. The Taxpayer's application shall be granted and the DGT will issue a decision after the time limit has passed DELETED

7 May 2018 Page 7 New Provisions for s (continued from page 6) Low Risk VAT-able Entrepreneur vs. MOF Regulation No. 71 Eligible Taxpayers Criteria Appointment as Eligible Taxpayers Time Period for Appointment MOF Regulation No. 71 (Low Risk VAT-able Entrepreneur) Companies that engage in the following business activities are considered as low-risk VAT-able Entrepreneur: a. export VAT-able tangible goods; b. deliver VAT-able goods and/or services to a VAT Collector; c. deliver VAT-able goods and/or services for which VAT is not collected; d. export VAT-able intangible goods; e. export VAT-able services. VAT-able Entrepreneurs (PKP) must fall under the following conditions: a. Companies with a minimum have 40% of shares traded in the stock exchange in Indonesia; b. Companies, for which the majority of their shareholders are the central and/or regional government; c. Manufacturers or producers other than the VAT-able Entrepreneur referred to in point a and b, who submitted VAT Returns for the last 12 months in a timely manner, sold VAT-able goods in the previous year at a minimum of 75% from self production, Financial Statement for two previous years audited by a public accountant with an Unqualified Opinion. The companies must also not be under an ongoing process of a tax audit on preliminary evidence and/or tax investigation; or based on the tax audit, it is known that the VAT-able Entrepreneur no longer meets the Low Risk VAT-able Entrepreneur criteria. The appointment is through the submission of a formal request. Twenty-four (24) tax periods, since the date of appointment Companies that engage in the following business activities are considered as low-risk VAT-able Entrepreneur: a. export VAT-able tangible goods; b. delivering VAT-able goods and/or services to a VAT Collector; c. delivering VAT-able goods and/or services for which VAT is not collected; d. export VAT-able intangible goods; e. export VAT-able services. VAT-able Entrepreneurs (PKP) must fall under the following conditions: a. Companies with shares are traded in the stock exchanges in Indonesia; b. Companies, for which the majority of their shareholders are the central and/or regional government; c. Companies with a Priority Partner of Customs status; d. Companies with Authorized Economic Operator status; e. Manufacturers or producers other than the VAT-able Entrepreneur referred to in point a-d above that have a place to conduct production activities and submit VAT returns for the last 12 (twelve) months in a timely manner; or f. Companies that apply for a VAT refund in their VAT Return at a maximum of IDR1 billion. The companies must also not be under an ongoing process of a tax audit on preliminary evidence of a tax crime and/or tax investigation and they must not have been convicted of a tax crime for the last five (5) years. The appointment is through the submission of a formal request or ex officio. valid from the date of the appointment until its revocation (if applicable)

8 May 2018 Page 8 New Provisions for s (continued from page 7) Low Risk VAT-able Entrepreneur vs. MOF Regulation No. 71 (continue) Revocation of Appointment Status MOF Regulation No. 71 (Low Risk VAT-able Entrepreneur) 1. in the process of a tax audit on preliminary evidence of a tax crime or tax investigation; or 2. based on tax audit result, taxpayer no longer meets the criteria of Low Risk VAT-able Entrepreneurs Accuracy of fulfilling Article 9(4B) of the VAT Law; Completeness of AITR; Accuracy of tax calculation; Accuracy of tax payment. 1. in the process of a tax audit on preliminary evidence of a tax crime or tax investigation; or 2. convicted of a tax crime; 3. no longer meets the criteria of Low Risk VATable Entrepreneurs. Formal examination: hold a valid appointment status; Not currently in the process of a tax audit on preliminary evidence of a tax crime and/or tax investigation; Never been convicted of tax crime for the last five years. Examination of the Low Risk VAT-able Entrepreneur Time Limit for Decision Issuance Failure to follow the time limit for the Issuance of Decision (SKPPKP) Accuracy of tax calculation and statement; The input VAT credited by the Low-Risk VATable Entrepreneur has been reported within the Periodic VAT Returns by the VAT-able Entrepreneur who issued the Tax Invoice. The self-assessed Input Tax by the VAT-able Entrepreneur has been validated through a State Revenue Transaction Number. Fulfillment of prescribed activities as referred to in the regulations. 1 month The Taxpayer's application shall be granted and the DGT will issue a decision after the time limit has passed

9 May 2018 Page 9 DO YOU KNOW? 1. Taxes receivable along with their accumulated allowances, which have expired/have no collection rights that do not meet the criteria of asset recognition as stipulated in the Government Accounting Standards, will be written off from the Financial Statement of the Ministry of Finance (Minister of Finance Regulation - 43/PMK.03/2018 dated May 3, 2018). 2. The automatic registration procedures for financial institutions and reporting of financial information as well as the acceptance of the submissions and rectification of financial information reports, can be automatically made through electronic procedures online through the Exchange of Information Portal (EoI Portal) or direct non-electronic procedures through an External Data Processing Office (KPDE) or through a Tax Office. (Circular Letter of the Director General of Taxes - SE- 07/PJ/2018 dated April 25, 2018). 3. The Government increased the number of Agencies/Institutions designated as recipients of mandatory alms or donations and may be deducted from their gross income, namely for the Catholic, Hindu and Buddhist religions. (Regulation of the Director General of Taxes - PER-11/PJ/2018 dated April 23, 2018). 4. The latest version of the E-invoice Desktop version is valid as of May 15, In light of this, all Taxable Entrepreneurs are required to immediately update their applications via -HEDfHgpkPCLUtfQ9r7Wm7RGqmo (Press Release No.23/2018 dated 9 Mei 2018). 5. The application documents for the facilities provided for VAT and Sales Tax on Luxury Goods Not Collected for the delivery of Taxable Goods from other places within the Customs Area to the Free Area in Sabang, must be submitted by the entrepreneur to the DGT within a period of 12 months starting from April 17, 2018 (Regulation of the Minister of Finance No. 41/PMK.03/2018 dated April 16, DISCLAIMER The information contained in this document is intended only to be a guide. It must not be relied on in, or applied to, specific situation without previously seeking proper professional advice. Even if all reasonable care has been taken in its preparation, PB Taxand do not accept any liability for any errors that it may contain or lack of update before being published, whether caused by negligence or otherwise, or for any losses, however caused, or sustained by any person. Description of, or reference or access to, other publication within publication do not imply endorsement of them.