TAX PRACTICE GROUP Multi-Jurisdictional Survey TAX DESK BOOK

Transcription

1 INDONESIA Introduction TAX PRACTICE GROUP Multi-Jurisdictional Survey TAX DESK BOOK CONTACT INFORMATION F. Karyadi - EG Tehuteru ABNR Jakarta Graha Niaga, 24th Floor, Jl. Jend. Sudirman Kav. 58, Jakarta Indonesia etehuteru@abnrlaw.com 1. Please give a brief overview of the types of taxes imposed in your jurisdiction (i.e., direct and indirect taxes and their components.) There are 2 (two) basic categories of taxes in Indonesia. Those are: (a) National taxes (covering value added tax, luxury goods sales tax, land and building tax and Income tax); (b) Regional Taxes (covering developments tax, motor vehicle tax, and other minor taxes); and INCOME TAXES AS APPLIED TO BUSINESS ENTITIES AND INDIVIDUALS Calculation of Income/ Profit Taxes

2 2. How is the taxable base determined? In general, taxpayers may deduct from gross income all expenses to the extent they are incurred in obtaining, collecting and securing taxable income. In other words, the resident taxpayers and permanent establishment are taxed on a net basis. (as elaborated more on question No. 14). However, there are certain incomes that are subject to final tax which is imposed to the gross basis. They include the following: deposit interest or other saving, interest from bond or state bond, interest on deposit which is paid by cooperative to its members; lottery; income from share transaction and other security, derivative transaction traded in stock exchange and selling transaction of shares or transfer of capital participation; transfer of assets in the form of land and/or building, construction service, real estate, rental of land/or building; other specified income. 3. What revenues are included? Based on Law No. 7 of 1983 which lastly amended by Law No. 36 of 2008 concerning Income Tax ( Income Tax Law ), an income tax object shall be income, namely any increase in economic capability received or accrued by a Taxpayer, in whatsoever name or form and originating from within or outside Indonesia, which can be used for consumption or to increase the wealth of the taxpayer concerned and includes the following: consideration or other remuneration received or accrued in connection with work or services including salary, wage, allowance, honorarium, commission, bonus, gratuity, pension or compensation in other forms, except where stipulated otherwise; lottery prizes of gifts from work or other activities, and awards; profit from business; gains from the sale or transfer of property, including gains from the transfer of property to a corporation, partnership and other body in exchange for shares or capital participation; gains accrued by a corporation, partnership or other body through the transfer of property to shareholders, partners or members; gains from liquidation, merger, consolidation, expansion, separation or take over of a business; gains from the transfer of property in the form of gift, aid or donation, except when given to blood relatives within one degree of direct lineage, or to religious, educational or other social bodies or to small business including

3 cooperatives as determined by the Minister of Finance, provided there is no business, work ownership or control relationship between the parties concerned; refunds of tax payments already deducted as expense; interest, including premiums, discounts and compensation form loan repayment guarantees; dividends, in whatsoever name and form, including dividends paid by an insurance company to policyholder and the distribution of surplus by a cooperative; royalties; rent and other income related to the utilization of property; annuities received or accrued; gains from the debt haircut, except up to certain amount as determined by Government Regulation; gains from revaluation of property; insurance premiums; contribution received or accrued by an association from its members who consist of Taxpayers engaged in business or independent work; an increase in net wealth from income which has not been taxed. However, not every increase in economic capability generated by a taxpayer is taxable pursuant to Article 4.3 of Income Tax Law. 4. What deductions are allowed? The allowable deductions, which are stated in article 6 of Income Tax Law, for tax purpose are as follows: costs to purchase materials, costs connected with work or services, including wages, salaries, honoraria, bonuses, gratuities and allowances given in the form of money, interest, rent, or royalties, travel costs, waste processing costs, insurance premiums, administrative costs and taxes other than income tax; depreciation and amortization expenses to expenditure on the acquisition, erection, improvement, or alteration of respectively building, equipment or other tangible assets and intangible assets used in carrying on a business that have a useful life for more than one year; contributions to a pension fund which has been approved by the Minister of Finance; loss arising from disposal of assets used to earn taxable income; loss arising from fluctuations in foreign exchanges rates; costs related to research and development of a company conducted in Indonesia; costs of scholarships, apprenticeships and training; a credit which is obviously can not be collected (bad debt); certain types of donations and social infrastructures expenses; non taxable income threshold for individual taxpayers;

4 The amount of such non-taxable income threshold (personal allowances) that is stipulated in article 7 of Income Tax Law, is as follows: IDR million for the taxpayer himself; IDR 1.32 million additional allowance for a married taxpayer; IDR 1.32 million additional allowance for each dependent limited to a maximum of three dependents; IDR million additional allowance for married taxpayer whose wife s income is combined and joined with her husband s income 5. What are the major expenses that are not deductible? Benefits-in-kind (BIKs) (e.g., free housing, 50% of the a. acquisition and maintenance costs of certain company provided cars), except food and drink provided to employees in the workplace, employee benefits required for job performance, such as protective clothing and uniforms, transportation costs to and from the place of work, accommodation for ship crews and the like, the cost of providing BIKs in remote areas, and 50% of the acquisition and maintenance costs of cellular phones; Private expenses; Non-business gifts and aid, except zakat (Islamic alms); Reserves: However, certain types of reserve are claimable as deductible expenses: provision for doubtful accounts for banking and financing companies, insurance claims provision for insurance companies, deposit security provision for the Deposit Security Blanket Institution (LPS), reclamation provision for mining companies, forestation provision for forestry companies, and area closure and maintenance provision for industrial waste processing businesses; Income tax payments Tax penalties; Profit distributions; Employer contributions for life, health and accident insurance and contributions to unapproved pension funds, unless the contributions are treated as part of the taxable income of employees; Expenses relating to income which is taxed at a final rate, e.g., interest on loans relating to time deposits; Expenses relating to income which is exempt from tax, e.g., interest on loans used to buy shares where dividends to be received are not subject to income tax; Salaries or compensation received by partnership or firmas members where their participation is not divided into shares.

5 6. What are the applicable federal rates? Individuals who are resident are taxed on their worldwide income at the following national rates: Taxable Income Band (in Rupiah) Tax rate 1,000,000 50,000,000 million 5% (five percent) 50,000, ,000,000 million 15% (fifteen percent) 250,000, ,000,000 million 25% (twenty five percent) 500,000,001 million above 30% (thirty percent) Further, the national rate for a corporate tax payer is 28% (twenty eight percent) for 2009 fiscal year and 25% for 2010 fiscal year and thereafter. A public company that satisfies a minimum listing requirement of 40% and other conditions shall be entitled to a tax discount of 5% of the standard rate. 7. What are the applicable state and/ or other local rates? There are no provincial and/or other local rates for income tax 8. What are the applicable capital gains rates and base, if different and concessional tax treatment in case of business re-organization such as amalgamation, slump sale, demerger, etc? A. Capital Gain Sales of a company s assets (other than land and building) may result in capital gains or losses, calculated as the difference between the sales proceeds and the tax writtendown value of the assets concerned. Capital gains are assessable whilst a capital loss is tax-deductible only if the asset concerned is used in the running of the business, i.e., for obtaining, collecting, and securing assessable income. Generally, capital gains are imposed with the general tax rate mentioned above. However, there are some special tax treatments as described below. i. Transfer of Shares of Indonesian Company by non-resident: the rate 5% of the transaction value ii. Land and/or Building: 5% of the taxable value of the land and/building. iii. Revaluations of fixed assets and its penalty: the highest corporate income tax rate minus 10 percent iv. Listed Shares: 0.1% of the gross transaction value. Founder shareowners have the option of paying final income tax at 0.5% of the company share value within a month after trading has begun in the shares on an Indonesian stock exchange.

6 v. Luxurious Goods: 5% of the transaction value vi. Shares of SPV abroad having shares in Indonesian company: 5% of transaction value 9. How are operating losses handled? Under article 6.2 of Income Tax Law, tax losses may be credited against income for five years beginning with the first year after such loss occurs. 10. How are capital losses handled? Losses due to a sale or disposition of property which, according to its initial purpose, was not intended to be sold or disposed and which was owned and used for a business or held for earning, collecting and securing income, may be deducted from gross in Territorial Rules 11. What are the residence rules? A resident individual taxpayer is any individual residing in Indonesia or present in Indonesia for more than 183 days within any twelve months period or any individual, who during a taxable year presents in Indonesia and intends to reside in Indonesia. A corporate taxpayer may be regarded as resident if it is incorporated or seat (domicile) in Indonesia. However, Income Tax Law does not explicitly specify criteria determining the place of seat or domicile. 12. Is worldwide income taxed? Resident taxpayers are taxed at the normal rate on taxable income (excluding nontaxable income and final tax income), being world wide gross income less allowable deductions. The foreign tax credit and its elucidations as set forth above in the Individual Taxpayers section is also applicable for any resident corporate taxpayers. Generally, non-resident taxpayer is not taxed for its worldwide income unless it has a permanent establishment in Indonesian and such income is effectively connected to such permanent establishment. A permanent establishment ( PE ) is an establishment that used by an individual not residing in Indonesia or present in Indonesia for not more than 183 days in any 12 months period, or by a body which is not established or domiciled in Indonesia, to conduct business or engage activities in Indonesia in the form of, inter alia:

7 A place of management; A branch office; A representative office; An office building; A factory; A workshop; A place of mining and extraction of natural resources, and drilling in territory used for mining exploration; A fishery, place of animal husbandry, farm, plantation or forest; A construction, installation or assembly project; The rendering services in whatsoever form by employees or other people, if conducted for more than 60 days in any 12 months; An individual or a body acting as an agent other than an agent of independent status; An agent or employee of an insurance company that is not established or domiciled in Indonesia and that receives insurance premiums or covers risks in Indonesia. 13. Tax credits - Are there tax credits relating to legal dispositions other than provisions in Double Taxation Treaties, on the possibility of deducting taxes paid abroad, or any others? A foreign tax credit is allowed for tax paid or due overseas on income accruing to an Indonesian resident taxpayer. Ordinary Foreign Tax Credit with limitation per country and proportional calculation principle is applicable for any resident taxpayer. Excessive foreign tax credit may not be carried back or forward. As such Indonesia has concluded some double tax treaties, this method of eliminating international double taxation may be modified by a treaty provision. Withholding Taxes 14. What are the rates on dividends for withholding taxes? 15% (fifteen percent) of the gross amount if the dividends are paid to resident taxpayer other than an individual resident taxpayer; 10% (ten percent) of the gross amount if the dividends are paid to individual resident taxpayer; 20% (ten percent) of the gross amount if the dividends are paid to a non-resident taxpayer unless any applicable tax treaty requires a lower rate;

8 15. What are the rates on royalties for withholding taxes? 15% (fifteen percent) of the gross amount if the royalties are paid to a resident taxpayer 20% (ten percent) of the gross amount if the royalties are paid to a non-resident taxpayer unless any applicable tax treaty requires lower rate; 16. What are the rates on interest for withholding taxes? 15% (fifteen percent) of the gross amount if the interests are paid to a resident taxpayer 0% (nil) of the gross amount if the interests are paid to a resident taxpayer running banking and/or other financial services business. 20% (ten percent) of the gross amount if the interests are paid to a non-resident taxpayer unless any applicable tax treaty requires lower rate; 17. What are the rates of withholding tax on profits realized by a foreign corporation? The Foreign Company which is categorized as PE (as stated in item 12 above) is subject to Income Tax rates as stated in item 6 above (namely subject to 28% (twenty eight percent) for 2009 fiscal year and 25% for 2010 fiscal year and onward) The 20 percent branch profit tax (or a lower treaty rate) will be imposed on a PE s after-tax earnings unless those profits are reinvested in Indonesia via a founding or cofounding shareholder in a newly established Indonesian company no later than the following fiscal year for a period of at least two years after the company starts its commercial production. If reinvested, a notification, along with the corporate tax return of the respective year of income, must be filed with the tax office. If those conditions are not fulfilled, the branch profit tax will be payable from the year it is incurred. Under the decree, the final tax income earned by a PE in Indonesia is excluded from the taxation of the after-tax earnings. If the foreign corporation does not have a permanent establishment in Indonesia, generally, 20% withholding tax may be imposed in accordance with article 26 of Income Tax Law. The detail of withholding tax on the payment for non-resident is described in section no. 18.

9 18. Please list any other rates on withholding taxes that we should be aware of. Most of Indonesian income tax is collected through a system of withholding taxes. Where a particular income item is subject to withholding tax, the payer is generally held responsible for withholding or collecting the tax. These withholding taxes are commonly referred to using the relevant article of the Income Tax (PPh) Law. See separate sheet. Tax Returns and Compliance 19. What is the taxable reporting period? There are periodic and annual reporting requirements. 20. What are the due dates for the filing of tax returns? Periodic tax return obligations Type of tax Payment deadline Return filing deadline Article 21/26 Income Tax The 10th of the following month The 20th of the following month Article 23/26 Income Tax The 10th of the following month The 20th of the following month Article 25 Income Tax The 15th of the following month The 20th of the following month Article 22 Income Tax The 10th of the following month The 20th of the following month Article 4(2) Income Tax. The 10th of the following month The 20th of the following month VAT and LST Taxable Enterprise The 15th of the following month The 20th of the following month VAT and LST VAT Collector The 15th of the following month The 20th of the following month

10 Annual tax return obligations Type of tax Tax payment deadline Tax return filing deadline Corporate Income Tax The end of the forth month after the book year end before filing the tax return Individual Income Tax The end of the third month after the book year end before filing the tax return Land and Building (L&B) Tax Six months after the receipt of a Tax Due Notification Letter (SPPT) from the DGT Office N/A Duties on the Acquisition of L&B RightsOn the acquisition date N/A 21. What are the key compliance requirements? The major tax obligations of a permanent establishment in Indonesia or resident taxpayer are as follows: to register itself/himself as a taxpayer with the tax office; to keep any documents relating to taxes for a certain number of years; submitting reports on business activities to the tax office, and registering itself as a taxpayer with the tax office having jurisdiction over the domicile of taxpayer; paying its periodical and annual tax payment obligations (comprising both its corporate income tax and the withholding tax payments it is withholding) to the state treasury; submitting its periodic and annual tax returns (in respect of its annual corporate income tax and the income tax of its employees) to the tax office. Various supporting documents shall be attached to the tax returns including the tax payment slips, financial statements, withholding tax slips, etc; withholding the income tax amounts for its certain expenditures. 22. Are there any other requirements that we should be aware of regarding tax returns and compliance? The following are the other major requirements that you should be aware of regarding tax return. Late filing of a tax return or complete failure to file a tax return is subject to an administrative fine at the following amounts: Type of tax return Rupiah VAT return. 500,000 Other periodic tax returns. 100,000 Individual income tax return. 100,000

11 Type of tax return Rupiah Corporate income tax return. 1,000,000 Failure to file a tax return by the relevant deadline may lead the DGT to issue a warning letter to the taxpayer in question. The warning letter will typically require the taxpayer to file the tax return within 30 days of the warning letter date. Ignoring such a letter can prompt the DGT to issue an official tax assessment along with an administrative penalty of 50% of the assessed tax. A taxpayer may amend or correct a tax return within two years after the end of the relevant fiscal year if the tax authorities have not audited the tax return. A tax return may be amended after such two years only if the amendment would result in an increase in tax liability or would decrease tax losses. A penalty 2% interest per month will be imposed on such increase in tax liability, calculated from the filing due date of the tax return up to the date of payment resulting from amendment/correction of the tax return. Whosoever because of negligence fails to file a tax return or files an incorrect or incomplete tax return or attaches incorrect information which may cause losses to the state revenue, shall be punished by imprisonment for no less than three months but a maximum year and a maximum fine equal to two times the amount of the unpaid or underpaid tax. Deliberate violation of the tax obligations may be subject to imprisontment and fines. Individual Taxpayers conducting business activities or independent personal services, and entity Taxpayers in Indonesia shall be obliged to maintain bookkeeping. The bookkeeping or recording shall be conducted in good intention and shall reflect the real conditions or business activities. The bookkeeping or recording shall be conducted in Indonesia by using Latin alphabet, Arabic numeral, and Rupiah currency, and shall be written in Indonesian Language or in any foreign language approved by the Minister of Finance. The bookkeeping shall be maintained consistently in either accrual or cash basis. Any change in the method of bookkeeping and or book year shall secure approval from the Director General of Taxes. The bookkeeping shall at least consist of records of assets, liabilities, equity, income, and expenses as well as sales and purchases, so that the amounts of tax payable can be calculated. Taxpayers may perform their bookkeeping in foreign languages and currencies after securing approval from the Minister of Finance. Books, records, and documents upon which the bookkeeping or recording is based and other documents shall be kept for 10 (ten) years in Indonesia, at the place of business activities or residences.

12 INDIRECT TAXES 23. Are there any indirect taxes in your jurisdiction? Yes 24. How does it operate? Is it a VAT or a sales tax? The 10% Value Added Tax ( VAT ) for delivery of certain goods and/or services which do not fall under the list setting forth non-value added taxable goods and/or services in Indonesia shall be payable. Any export of goods is subject to 10% VAT. The Sales Tax on Luxury Goods ( PPnBM ) on import and or delivery of such taxable luxury goods are at a rate from 10% up to 75% (depending on the type of goods). 25. How is the taxable base determined? VAT for a particular taxable event is calculated by applying the VAT rate to the relevant tax base. In most cases, the tax base is the transaction value agreed between the parties concerned. For certain events or situations, other criteria must be used as the tax base, including: Market value for transactions between related parties, a. remaining inventories of taxable goods at a company s dissolution, and sales of (non-inventory) assets originally not for sale; Cost of sales for own-use or free gifts and internal deliveries of taxable goods (e.g., between branches, or from the head office to branches); Auction price for deliveries of taxable goods to the intermediary trader of an auction officer; 10% of the selling price for used cars;. 5% of the total service charges, provisions, and discounts for factoring services; Average selling price for video and audio recording products; 4% of total costs incurred or paid, exclusive of the acquisition price of land, for the self-construction of a building; Retail selling prices for deliveries or imports of tobacco products; 10% of the actual billing for package shipment services

13 26. What are the applicable rates? VAT is 10% (ten percent) VAT of export of taxable goods is 0% (zero percent) Based on Government regulation, the VAT 10% shall be amended to be minimum 5% (five percent) and maximum 15% (fifteen percent) PPn-BM is from 10% up to 75% 27. Are there any exemptions? Yes, there are certain goods and/or services which are exempted from VAT which is stipulated by Government Regulation. 28. Are there any other taxes such as debit or financial transactions taxes enforced in you jurisdiction? No. PARAFISCAL CONTRIBUTIONS 29. Are there any parafiscal contributions (i.e. social security, science and/ or technology)? We are not sure whether we understand correctly the parafiscal contribution. To the best of our knowledge, there is a worker s social security program (Jamsostek) which provides compensation in the event of working accidents, deaths, and old age (55 years) as well as sickness or hospitalization. 30. How do they operate? The contribution is collected and paid by the employer. Part of the contribution is borne by the employee and the other part is borne by the employer. 31. How is the taxable base determined? The contribution amount is based on the amount of salary earned by the employees. 32. What are the applicable rates? Calls for premium contributions for the following:

14 Areas covered as a percentage of regular salaries/wages ~ Borne by employers ~ Borne by employee Working accident protection % - Death insurance 0.3% - Old age saving 3.7% 2% Health care* 3% - * Maximum Rp 60,000/month for a married employee and Rp 30,000 for a single employee 33. Are there any exemptions? If the employer has less than 10 employees and pays salary less than IDR 1 million per month, the employer is not required to have its employees registered as participating in the program. INHERITANCE AND GIFT TAXES 34. Are there inheritance taxes, gift taxes or any other taxes like Wealth Tax, etc.? No 35. If you answered yes to the question above, please describe what triggers the requirement for the tax, what the rate of tax is, and what is included in the taxable base. There is no specific regulations on such kind of taxes, however gifts may be subject to Income tax law at the normal rate set forth above. Under certain circumstances, the gifts may be exempted from income tax. With respect to the gifts, the triggeringevent is business, work, ownership or control relationship between the grantor and recipient. The income tax rate is based on the normal rate as stated in item 6 above. The taxable base is the market value of the gift. OTHER MATTERS 36. Are there any tax incentives granted for various matters such as research and development, investment in certain industries/ areas, etc.? Yes

15 37. If so, please indicate if there are any of the following: anti-deferral regimes; transfer pricing provisions; tax avoidance measures like legislated General Anti- Avoidance Rules, etc.; controlled foreign companies regulations; thin capitalization rules Import Duty Incentive for Capital Goods and Income Tax incentives are available Capital Investment meeting certain requirements. Indonesia has no general anti avoidance rules however there are some specific anti avoidance rules including transfer pricing, controlled foreign corporation companies, and thin capitalization rules. 38. List the countries in which there are tax treaties. This could impact the withholding taxes on various distributions and to the extent possible, please itemize them below. Please include the impact upon withholding on compensation, interest, dividends or other distributions for each country listed. There are 59 countries having entered into tax treaties with Indonesia. General impact of the treaties on Indonesia is that Indonesia may surrender some or entire its rights to tax income earned by non-resident taxpayers in Indonesia.