Indonesia

Market overview

Indonesian President Joko Widodo has repeatedly demonstrated his focus on increasing tax revenues to boost the country's much-needed infrastructure spending. In the summer of 2016, he granted a nine-month tax amnesty in hopes of repatriating offshore wealth and enhancing tax compliance. Hailed by media as a success, the campaign resulted in the tax administration collecting some $330 billion from at least 745,000 taxpayers by the end of March 2017, making it one of the world's most successful tax amnesties ever.

The Indonesian government's drive for improved tax collection includes increasing the amount of TP audits. In June 2017, the Indonesian government announced that it had settled a lengthy tax dispute with Google for 2016. While the settlement sum has not been disclosed, it is perceived as setting a new tone in the interpretation of permanent establishment status for tech companies.

The Indonesian Ministry of Finance in December 2016 also issued regulation number 213/PMK.03/2016 (PMK-213) requiring the preparation of the master file, the local file and country-by-country reporting (CbCR).

However, different from other countries that have implemented the three-tiered TP documentation, Indonesia's regime does not state different thresholds for taxpayers preparing the master file and the local file. Taxpayers have to prepare the master file and the local file if their transactions or related party transactions reach the relevant thresholds.

While CbCR requirements align with the OECD's standard of €750 million ($884 million) the thresholds for preparing TP documentation in Indonesia are now lower than before the regulatory changes. This allows the Indonesian government to cast its tax net wider: more taxpayers who were previously exempt from TP documentation now have to prepare reports for 2016. This may mean these taxpayers are vulnerable to compliance costs which may affect their profits and investments.

Even if companies do not exceed the thresholds of PMK-213, they will still be bound to comply with the previous TP regime, which was not repealed by the new regulation. Taxpayers will have to ensure that they comply with PMK-213 and the older TP rules. PMK-213 now requires taxpayers to include their domestic related party transactions in the TP documentation.

Where the taxpayers exceed the TP documentation thresholds, they will have to include all their related party transactions. This is a step away from the previous TP regime that required taxpayers who exceeded thresholds to include only specific party related transactions. PMK-213 also requires that a taxpayers may need to prepare a CbCR even if the taxpayer is deemed not to be the ultimate parent entity of an MNE.

PMK-213 states that taxpayers need to file the master file and the local file within four months after the taxpayers' fiscal year-end. Taking into consideration the lower thresholds and the new requirements to include all party related transactions, this submission deadline is tight.


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 August 2017)

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%/25% (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 2017 Worldwide Corporate Tax Guide


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