Indonesia

Market overview

The Indonesian tax office has actively been involved in implementing the guidance in the BEPS action points, especially country-by-country reporting (CbCR) and the automatic exchange of information.

The government has announced it will implement automatic exchange of information in September 2017, earlier than the original plan of September 2018. The timeline for CbCR implementation is more uncertain, however the Directorate General of Tax (DGT) has already informally conveyed an intention to adapt its TP documentation requirement to reflect the BEPS recommendation.

Further changes to transfer pricing are also on the horizon in Indonesia. "We predict that the government is going to revise the arm's-length principle application regulations, specifically on the areas of intangibles, intra-group services, transaction on commodities, and the possibility of safe harbour," said Danny Septriadi, senior partner at DANNY DARUSSALAM Tax Centre.

Numerous transfer pricing practitioners have expressed concern over the greater focus on the TP issues by the DGT during recent years. "More and more taxpayers are realising that there is a need to prepare adequate transfer pricing documentation as a first line of defence against challenges from the Indonesian Tax Office (ITO)," said Iwan Hoo, head of transfer pricing at KPMG. "As the ITO is becoming more sophisticated, its challenges are now often supported by its own economic analyses, although the more common adjustments to service and royalty charges remain a common occurrence," he added.

Moreover, Ponti Partogi, head of tax and transfer pricing at Hadiputranto, Hadinoto & Partners has observed that the transfer pricing market will still be a hot topic in the coming years as the tax authorities are focusing more on transactions with affiliates. "I believe that this is only the beginning. There will be more and more attention given to affiliate transactions soon and therefore it is imperative that the taxpayers should be more careful and be prepared in dealing with affiliated transactions," he added. The emphasis is on the tax authorities' enhanced ability in handling transfer pricing cases, in terms of audit skills, knowledge and experiences.

As an alternative transfer pricing dispute resolution, the government introduced a mutual agreement procedure (MAP) process in late 2014 and revised the advance pricing agreement (APA) process in 2015.

"MAP is gaining popularity as an alternative solution to dispute resolution or in addition to the domestic objection and appeal process," said Hoo.

The latest APA regulation updated the 2010 procedure and implementation and included additional details required for the APA submission, the application forms that must be prepared by the taxpayer and completion deadlines of APA.

DGT has set up a new international tax department with one of its specific purposes being the managing of APA and MAP.

"In the coming years, the APA should be used as an alternative solution to avoid transfer pricing disputes in Indonesia," said Wahyu Nuryanto, head of transfer pricing at MUC Consulting. "We expect that Indonesia will be more in line with international rules and will be promoting better transfer pricing environment with more certainty for the taxpayers," he added.


Tax authorities

Directorate General of Taxes
Jalan Gatot Subroto, Kavling 40-42
Jakarta 12190, PO Box 124
Tel: +62 21 5250208; +62 21 5251509
Fax: +62 21 584792
Email: pengaduan@pajak.go.id
Website: www.pajak.go.id


Tax rates at a glance

(As of January 1 2016)

Corporate income tax rate 25% (a)
Capital gains tax rate n.a.
 
Withholding tax
Dividends 10/15/20% (b)
Interest 15/20% (b)
Royalties from patents, know-how, etc. 15/20% (b)
Rent
Land or buildings 10% (c)
Other payments for the use of assets 2% (d)
Fees for services
Payments to residents
Technical, management and consultant services 2% (d)
Construction contracting services 2/3/4% (e)
Construction planning and supervision 4/6% (e)
Other services 2% (d)
Payments to non-residents 20% (f)
Branch profits tax 20% (g)
 
Net operating losses (years)
Carryback 0
Carryforward 5 to 10 (h)

  1. This rate also applies to Indonesian permanent establishments of foreign companies.
  2. A final withholding tax at a rate of 20% is imposed on payments to non-residents. Tax treaties may reduce the tax rate. Certain dividends paid to residents are exempt from tax if prescribed conditions are satisfied. If the exemption does not apply, a 15% withholding tax applies on dividends paid to tax resident companies and a 10% final withholding tax applies to dividends paid to tax resident individuals. A 15% withholding tax is imposed on interest paid by non-financial institutions to residents. Interest paid by banks on bank deposits to residents is subject to a final withholding tax of 20%.
  3. This is a final withholding tax imposed on gross rent from land or buildings.
  4. This tax is considered a prepayment of income tax. It is imposed on the gross amount paid to residents. An increase of 100% of the normal withholding tax rate is imposed on taxpayers subject to this withholding tax that do not possess a Tax Identification Number.
  5. This tax is considered a final tax. The applicable tax rate depends on the type of service provided and the "qualification" of the construction companies. The "qualification" is issued by the authorities with respect to the business scale of a construction company (that is, small, medium or large).
  6. This is a final tax imposed on the gross amount paid to non-residents. The withholding tax rate on certain types of income may be reduced under double tax treaties.
  7. This is a final tax imposed on the net after-tax profits of a permanent establishment. The rate may be reduced under double tax treaties. The tax applies regardless of whether the income is remitted. An exemption may apply if the profits are reinvested in Indonesia.
  8. Losses incurred by taxpayers engaged in certain businesses or incurred in certain areas may be carried forward for up to 10 years.

Source: EY 2016 Worldwide Corporate Tax Guide


Firm contact details

MUC Consulting
SF Consulting