TAX UPDATE HOW NET ASSETS ARE TREATED AS INCOME. December 2017

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TAX UPDATE Inside this issue: How Net Assets are Treated as Income Did You Know 5 Contact Us Jakarta Office: 1-4 Menara Imperium 27 th, 29 th, 22 nd Fl. Jl. HR. Rasuna Said Kav. 1 Jakarta 12980 Ph.

1 TAX UPDATE Inside this issue: How Net Assets are Treated as Income Did You Know 5 Contact Us Jakarta Office: 1-4 Menara Imperium 27 th, 29 th, 22 nd Fl. Jl. HR. Rasuna Said Kav. 1 Jakarta Ph Fx contact@pbtaxand.com Surabaya Office: December 2017 Graha Bukopin, 9 th Floor Jl. Panglima Sudirman Surabaya Ph Fx surabaya@pbtaxand.com HOW NET ASSETS ARE TREATED AS INCOME To ensure legal certainty and to fulfill a sense of justice regarding the post- Tax Amnesty (TA) rights and obligations of Taxpayers, the government issued Government Regulation No. 36 of 2017 and its implementing regulations that specify the imposition of income tax on certain income in the form of net assets that are deemed as income. A summary of the regulations are as follows: Tax Subject Based on this provision, taxpayers are divided into 3 categories, namely taxpayers who have obtained a Clearance Letter for Tax Amnesty (SKET) but still own under declared or undeclared assets in the Statement of Asset (SPH); taxpayers participating in TA who have failed to conduct the repatriation/investment/holding within the territory of the Republic of Indonesia in 3 years since the implementation of the TA Law; and taxpayers who do not participate in the TA program but own assets obtained from January 1, 1985 to December 31, 2015 which have not been reported in the Annual Income Tax Return. Tax Object Net assets that are deemed as additional income for TA participants are the Net Assets that are undeclared/under declared in the SPH; additional Net Assets in the SKET that are not repatriated/invested/held within the territory of the Republic of Indonesia; the excess of net assets due to an incorrect statement in the previous Annual Income Tax Return filed after the implementation of the TA Law; and the excess of assets in the SKET and the assets in the Correction Letter of the SKET. While for non-ta participants, assets that are deemed as additional income are the net assets owned or obtained from January 1, 1985 up to December 31, 2015, which are still owned up to December 31, 2015, but have not yet been reported in the Annual Income Tax Return.

2 TAX UPDATE Page 2 If the DGT recognizes any data/information on the assets abovementioned, the assets will be deemed as additional income for the non-ta participants and will be subject to Final Income Tax on Certain Income when the assets are recognized and added by the administrative sanctions based on the prevailing provisions. Tax Imposition Basis The Tax Imposition Basis of the Final Income Tax on Certain Income is Net Assets. Based on Article 1 point 4 of Government Regulation Number 36 of 2017 jo. Article 44A paragraph (2) of PMK 165/ PMK.03/2017, the definition of net assets is the difference between the value of assets deducted by the value of debt. The value of assets in the form of cash and cash equivalents is determined based on the nominal value. For assets besides cash, they will be assessed pursuant to Director General of Taxes Circular Letter No. SE-24/PJ./2017, which stipulates that assets, such as land, buildings, vehicles, gold, bond stocks, and other assets, shall follow the government value reference or value reference published by the relevant institutions or agencies. For other assets with no references available, the DGT shall use the appraisal method as set in SE-54/PJ./2016 regarding Technical Guidance on Property Appraisal, Business Appraisal, and Intangible Assets Appraisal for Taxation Purposes. Asset appraisal is conducted based on the condition and situation of the Assets at the end of the last fiscal year, i.e., as of December 31, The value of debt that can be included as deduction of value of Assets is not limited to 75% (for Corporate Taxpayers) or 50% (for Individual Taxpayers) as regulated in Article 7 paragraph 2 of TA Law. The value of debt can be included entirely because the limitation of debt value based on Article 7 paragraph (2) of TA Law is only to calculate the amount of redemption fee that must be paid, not as a basis to calculate the Final Income Tax on Certain Income. Rate The Final Income Tax Rate on Certain Income is 25% for Corporate Taxpayers, 30% for Individual Taxpayers, and 12.5% for certain Taxpayers, which is calculated from the Tax Imposition Basis (net asset value) of the Taxpayers. Certain taxpayers under this provision are taxpayers whose gross income from their businesses/ freelance works is not in excess of IDR4.8 billion/annum or gross income received from sources besides businesses/freelance works is not in excess of IDR632 million/annum. Sanctions If the DGT recognizes any data/information on the assets that are have not yet been declared in the SPH or the TA participants fail to fulfill their repatriation/declaration/holding commitment within 3 years in Indonesia, they will not only be subject to Final Income Tax on Certain Income, but also sanction of 200% of the unpaid/underpaid Income Tax.

3 TAX UPDATE Page 3 Meanwhile for non-ta participants, if the DGT recognizes any data/information on assets that have not been reported in the Annual Income Tax Return, the assets will be deemed as additional income when it is recognized, be subject to Final Income Tax on Certain Income, and be subject to interest sanction of 2% per month and maximum 48% of the assets that unreported/under reported in the Annual Income Tax Return. The sanction imposition is calculated starting from the last fiscal year, i.e., December 31, Time of Debt The Final Income Tax on Certain Income as referred to above becomes payable at the time of recognition of any data/information on the assets that have not yet been reported. For TA participants who fail to fulfill the repatriation/investment/holding within 3 years, such income tax will be payable at the end of For TA participants who amends their SKET, the income tax will be payable upon the issuance of the correction letter of SKET. Furthermore, upon the Net Assets that are undeclared in the SPH, the assets that unreported in the Annual Income Tax Return, and the incorrect net assets in the last Income Tax Return, the Final Income Tax on Certain Income will be payable when the Tax Audit Order is issued by the DGT. Statute of Limitations For non-ta participants, the process of recognition of data/information by the DGT on the assets owned since January 1, 1985 up to December 31, 2015, which have not been reported in the Annual Income Tax Return, is limited to 3 years since the implementation of the TA Law, i.e., June 30, 2019 (Confirm Article 18 paragraph (2) letter b of the TA Law). If up to the end of the stipulated period, the DGT cannot recognize the said assets, then Article 18 of TA law is no longer effective and the statute of limitations for the said assets will be treated in accordance with the General Taxation Provisions and Procedures Law. Based on Article 6 letter b of Government Regulation No. 36 of 2017 and SE-20/PJ/2017, the Final Income Tax on Certain Income for non-ta participants becomes payable upon the issuance of the Tax Audit Order (SP2) before July 1, However, this is not in line with Article 18 paragraph (2) letter b of the TA Law, considering that the issuance of SP2 is not the same as definition of "recognizing data and/or information." Therefore, if the DGT recognizes any assets that have not been reported in SPH or Annual Tax Return, then the DGT issues SP2 on June 30, 2019, the Final Income Tax on certain income cannot be imposed because it has passed the statute of limitations. If the SP2 is issued after the stipulated period or issued starting July 1, 2019, the DGT is still entitled to impose tax in accordance with the applicable general provisions by considering the statute of limitations (5 years) based on Article 13 of General Taxation Provisions and Procedures Law. Meanwhile, for TA participants, there is no statute of limitations. This means, that at any time the asset is recognized, it may be subject to Article 18 of the TA Law.

4 TAX UPDATE Page 4 Asset Declaration Taxpayers can voluntarily disclose their own assets that are undeclared/under declared in Asset Declaration for Tax Amnesty (SPH) or Annual Income Tax Return, so that they can avoid the sanction of 200% for TA participants or maximum sanction of 48% for non-ta participants. The asset declaration can only be conducted before the DGT recognizes the said assets. Such process is indicated by the issuance of request for clarification or information to the Taxpayers on the assets recognized by the DGT. Taxpayers can declare their assets voluntarily by calculating the value assets based on its condition as of December 31, 2015, paying Final Income Tax on Certain Income based on the above rates, and submitting Periodic Final Income Tax Return, which is attached with the income tax slip payment on such assets as regulated in PMK 165/PJ./2017 and PER-32/PJ./2017. Summary For TA participants who realize that they still have assets that have not been declared in the Asset Declaration for Tax Amnesty (SPH), they may consider to declare their assets as there is no statute of limitations for imposing the Final Income Tax on Certain Income and such voluntarily declaration may avoid the TA Participants from 200% sanction. Meanwhile, for non-ta participants who realize that they still have assets that have not been reported in their Annual Income Tax Return, it is better if they amend their Income Tax Return before the DGT recognizes the said assets and impose Final Income Tax on Certain Income plus the sanction. Amendment to Annual Income Tax Return can only be done before the relevant taxpayer is audited. If up to the end of the statute of limitations for stipulation of Final Income Tax on Certain Income, i.e., June 30, 2019, the DGT does not recognize any assets that have not been reported by the non-ta participants in the Annual Income Tax Return, the non-ta participants may still be subject to Income Tax and sanction based on the general provisions with the statute of limitations of 5 years. Legal Basis: Government Regulation No. 36 of 2017 dated September 6, 2017 Minister of Finance Regulation No. 165/PMK.03/2017 dated November 17, 2017 Press Release No.33 of 2017 dated September 20, 2017 PER-32/PJ./2017 dated November 17, 2017 SE-20/PJ/2017 dated August 24, 2017 (end) Find updated tax regulations on our website

5 TAX UPDATE Page 5 1. In order to maintain the data confidentiality, the summoning of taxpayers participating in TA program may only be conducted by the Head of DGT Regional Office (Instruction of the Director General of Taxes No. INS-05/PJ./2017 dated October 5, 2017). 2. The DGT Regional Tax Office and Tax Offices have now been granted wider access rights to Taxpayers' data nationally, not only to data of Taxpayers registered in their working regions. This widened scope of data access rights is limited to the data of taxpayers that have the following relations: share ownership, transaction, management, or head quarter-branch. (Authorization Letter S-330/PJ/2017 dated October 3, 2017). 3. PT. Antam will collect Income Tax Article 22 on the purchase of Gold Bars, starting October The rate of tax withholding of Income Tax Article 22 is at 0.9%. Buyers who have Tax Identification Number are subject to a lower tax rate of 0.45%. Gold bars purchased by Bank Indonesia are not subject to Income Tax Article 22. (Minister of Finance Regulation No. 34/ PMK.04/2017 dated March 1, 2017). 4. The payment method for L&B Taxes of Oil & Gas and Geothermal for Taxpayers whose contracts are signed before December 20, 2010, in addition to overbooking, can now also be conducted by other non-cash processes through the reclassification of non-tax state revenue accounts into tax revenue accounts. (Minister of Finance Regulation No. 131/PMK.03/2017 dated October 3, 2017). 5. Taxpayers participating in TA who would like to change the land ownership from under the name of a nominee to the Taxpayer's name, shall register the transition to the Regional Head of the National Land Agency, with a Notarial Statement Letter attached which states that the land belongs to the relevant taxpayer and the registration fee is paid based on Government Regulation No. 128 of 2015, with the Land Value in accordance with the applicable provisions. (Circular Letter of the Minister of Agrarian Affairs and Spatial Planning No. 9/SE/X/2017 dated October 10, 2017). 6. In the latest version of the e-invoice application (version 2.00), the Seller who issues a Standard Tax Invoice has the "option" to input either a Single Identity Number or passport number, in case the buyer does not own a TIN. However, retail merchants or retail companies, such as supermarkets, are still allowed to issue Simple Tax Invoices. (Press Release of the Directorate General of Taxes No. 34 of 2017 dated September 30, 2017). 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.

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