Tax Services Indonesian Pocket Tax Book 2020

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Tax ServicesIndonesianPocket Tax Book2020

ContentsCorporate Income TaxTax rates; Tax residence; Tax payments; Business profits; Controlledforeign companies; Capital allowances; Disallowed deductions; Debtto Equity Ratio; Losses; Profit distributions; Deemed profit margins;Special industries and activities; Transfer Pricing1Individual Income TaxNormal tax rates; Concessional tax rates; Main Personal Relief; Taxresidence; Registration and filing; Tax payments; Benefits-in-kind (BIKs);Social security system18Withholding TaxesGeneral; Articles 21, 22, 4(2), 23 and 26 income taxes25International Tax AgreementsDouble Taxation Agreements; Tax Information Exchange Agreements;Mutual Administrative Assistance in Tax Matters; Multilateral Instrument;US FATCA34Value Added TaxGeneral; VAT exemption facilities; VAT not-collected facilities46Luxury-goods Sales Tax59Customs and ExciseImport Duty; Export Duty; Excise61Tax ConcessionsIncome tax concessions; LST concession; Concessions on special projectsand special zones66Land and BuildingLand and Building Tax; Tax on land and building transfer;Duty on the acquisition of land and building rights79Stamp Duty83Tax Payments and Tax Return FilingMonthly tax obligations, Annual tax obligations, Early tax refunds85Accounting for Tax91Tax Audits and Tax Assessments93Tax Collection Using Distress Warrant99Tax Dispute and ResolutionObjections; Appeals; Other avenues for tax dispute resolution;Judicial Review Requests to the Supreme Court101Contacts105

Corporate Income TaxCorporate Income TaxTax ratesGenerally, a flat rate of 25% applies. Public companies thatsatisfy a minimum listing requirement of 40% and otherconditions are entitled to a tax cut of 5% off the standardrate, giving them an effective tax rate of 20% (refer to page68). Small enterprises, i.e. corporate taxpayers with anannual turnover of not more than Rp 50 billion, are entitledto a 50% discount of the standard tax rate which is imposedproportionally on taxable income of the part of grossturnover up to Rp 4.8 billion. Certain enterprises with grossturnover of not more than Rp 4.8 billion are subject to FinalTax at 0.5% of turnover.Tax residenceA company is treated as a resident of Indonesia fortax purposes by virtue of having its incorporation or itsdomicile is in Indonesia. A foreign company carrying outbusiness activities through a permanent establishment (PE)in Indonesia will generally have to assume the same taxobligations as a resident taxpayer.Tax paymentsResident taxpayers and Indonesian PEs of foreigncompanies have to settle their tax liabilities either by directPwC IndonesiaIndonesian Pocket Tax Book 20201

Corporate Income Taxpayments, third party withholdings, or a combination ofboth. Foreign companies without a PE in Indonesia have tosettle their tax liabilities for their Indonesian-sourced incomethrough withholding of the tax by the Indonesian party payingthe income.Monthly tax instalments (Article 25 income tax) constitute thefirst part of tax payments to be made by resident taxpayersand Indonesian PEs as a prepayment of their current yearCorporate Income Tax (CIT) liability. A monthly tax instalmentis generally calculated using the most recent CorporateIncome Tax Return (CITR). Special instalment calculationsapply for new taxpayers, finance lease companies, banks,state-owned companies, listed companies and othertaxpayers with periodical reporting requirements.The tax withheld by third parties on certain income (Article 23income tax) or tax to be paid in advance on certain transactions(e.g., Article 22 income tax on imports) also constituteprepayments for the current year CIT liability of the incomerecipient or the party conducting the import (refer to pages 3132 for income items subject to Article 23 income tax and pages25-30 for transactions subject to Article 22 income tax).If the total amount of tax paid in advance through the year(Articles 22, 23, and 25 income taxes) and the tax paid abroad(Article 24 income tax) is less than the total CIT due, thetaxpayer has to settle the shortfall before filing its CITR. Sucha payment is referred to as Article 29 income tax.2Indonesian Pocket Tax Book 2020PwC Indonesia

Corporate Income TaxCertain types of income earned by resident taxpayersor Indonesian PEs are subject to final income tax. In thisrespect, the tax withheld by third parties (referred to asArticle 4(2) income tax) constitutes the final settlement of theincome tax for that particular income (refer to pages 30-31for income items subject to final income tax under Article4(2) income tax).For foreign companies without a PE in Indonesia, thetax withheld from their Indonesia-sourced income by theIndonesian party paying the income (Article 26 incometax) constitutes a final settlement of their income tax due(refer to pages 32-33 for income items subject to Article 26income tax).Business profitsTaxable business profits are calculated on the basis ofnormal accounting principles as modified by certaintax adjustments. Generally, a deduction is allowed forall expenditure incurred to obtain, collect and maintaintaxable business profits. A timing difference may arise if anexpenditure recorded as an expense for accounting cannotbe immediately claimed as a deduction for tax.Controlled foreign companiesCertain income of a Controlled Foreign Companies (CFCs)are subject to deemed dividend rules in Indonesia. Thisincome includes dividends, interest, rentals, royalties,and gains from sales or transfer of assets, with certainPwC IndonesiaIndonesian Pocket Tax Book 20203

Corporate Income Taxlimitations. A CFC is a foreign entity that is at least50% owned by an Indonesian taxpayer or at least 50%collectively owned by Indonesian taxpayers. The scopeof CFC income also covers income from indirectly ownedCFC with a minimum of 50% ownership by another CFC, orcollective ownership by an Indonesian taxpayer’s CFCs, orcollective ownership by a number of CFCs (including underthe same or different Indonesian taxpayers).The ownership threshold that is used to determine theCFC status is the ownership percentage at the end of theIndonesian taxpayer’s fiscal year, which is based on eitherthe percentage of paid-up capital or the percentage paidup capital with voting rights. The only situation in which therules do not apply is when the CFC’s shares are listed on astock exchange.Capital allowancesDepreciationExpenditure incurred in relation to assets with a beneficial lifeof more than one year are categorized and depreciated fromthe month of acquisition by the consistent use of either thestraight-line or the declining-balance method, as follows:1. Category 1 – 50% (declining-balance) or 25% (straightline) on assets with a beneficial life of four years.Examples of assets in this category are computers,printers, scanners, furniture and equipment constructed4Indonesian Pocket Tax Book 2020PwC Indonesia

Corporate Income Taxof wood/rattan, office equipment, motorcycles, specialtools for specific industries/services, kitchen equipment,manual equipment for agriculture, farming, forestry andfishery industries, light machinery for the food and drinkindustries, motor vehicles for public transportation,equipment for the semi-conductor industry, toolsand accessories for deep water anchor equipmentrentals, and base station controller for the cellulartelecommunication services.2. Category 2 – 25% (declining-balance) or 12.5%(straight-line) on assets with a beneficial life of eightyears. Examples of assets in this category are furnitureand equipment constructed of metal, air conditioners,cars, buses, trucks, speed-boats, containers and thelike. The category also covers machinery for agriculture,plantations, forestry activity, fisheries, for food anddrink, light machinery, logging equipment, equipmentfor construction, heavy vehicles for transportation,warehousing, and communication, telecommunicationsequipment, equipment for the semi-conductor industry,tools for deep water anchor equipment rentals, and toolsfor cellular telecommunication services.3. Category 3 – 12.5% (declining-balance) or 6.25%(straight-line) on assets with a beneficial life of 16 years.Examples of assets in this category are machines forgeneral mining other than in the oil and gas sector,machines for the textile, timber, chemical and machineryPwC IndonesiaIndonesian Pocket Tax Book 20205

Corporate Income Taxindustries, heavy equipment, docks and vessels fortransportation and communication, and other assets notincluded in the other categories.4. Category 4 – 10% (declining-balance) or 5% (straightline) on assets with a beneficial life of twenty years.Examples of assets in this category are heavyconstruction machinery, locomotives, railway coaches,heavy vessels, and docks.5. Building category – 5% (straight-line) on assets inthe permanent building category with a useful life of20 years; or 10% (straight-line) on assets in the nonpermanent building category with a useful life of tenyears. Included in the cost of the buildings is the Dutyon the Acquisition of Land and Building Rights (BeaPengalihan Hak atas Tanah dan Bangunan/BPHTB).More comprehensive lists of the assets included in eachcategory are set out in certain Minister of Finance (MoF)regulations. Separate lists of assets and depreciation ratesfor the oil and gas sector are also specified in an MoFregulation. Special rules apply to assets used for certainindustries (i.e., forestry, plantation and cattle breeding).AmortisationIntangible property or costs, including the cost of extendingbuilding use rights, rights for business use, rights for useand goodwill with a useful life of more than one year, should6Indonesian Pocket Tax Book 2020PwC Indonesia

Corporate Income Taxbe amortised on the following bases, as appropriate:a. By using the straight-line or the declining-balancemethod at the rates specified in categories 1, 2, 3, and4 under Depreciation (above), based on the useful life ofthe property:Category 1: 4 yearsCategory 2: 8 yearsCategory 3: 16 yearsCategory 4: 20 yearsClassification into the appropriate category isdetermined on the basis of the nearest useful life (e.g.,an intangible asset with a useful life of six years mayfall under Category 1 or Category 2, while an intangibleasset with a useful life of five years is under Category 1).b. The costs of incorporation and expansion of the capitalof an enterprise are claimed in full in the year in whichthe expenditure is incurred or are amortised using eitherthe declining-balance or straight-line method at thefollowing rates:Category 1: 50% declining-balance; 25% straight-lineCategory 2: 25% declining-balance; 12.5% straight-lineCategory 3: 12.5% declining-balance; 6.25% straightlineCategory 4: 10% declining-balance; 5% straight-linePwC IndonesiaIndonesian Pocket Tax Book 20207

Corporate Income Taxc. Costs incurred for acquiring the right to oil and naturalgas concessions with a beneficial life of longer than oneyear are amortised using the production-unit method.d. Costs incurred in the acquisition of mining rights,forest concessions, and other rights to exploit naturalresources and natural products with a beneficial life oflonger than one year are amortised using the productionunit method but may not exceed 20% per annum.e. Costs incurred before the commencement of commercialoperations with a useful life of longer than one year arecapitalised and amortised according to the rates set outin point b (above).Assets arising from Tax Amnesty programIndonesia has rolled out Tax Amnesty program from 1 July2016 to 31 March 2017 and any newly declared assetsunder this program cannot be depreciated or amortisedfor tax purposes. The acquisition costs of these assets arebased on the value declared in the Tax Amnesty DeclarationLetter.Asset transfersSales of a company’s assets (other than land and building)may result in capital gains or losses, calculated as thedifference between the sales proceeds and the tax writtendown value of the assets concerned. Capital gains areassessable whilst a capital loss is tax-deductible only if the8Indonesian Pocket Tax Book 2020PwC Indonesia

Corporate Income Taxasset concerned is used in the running of the business, i.e.,for obtaining, collecting, and securing assessable income.Revaluation of fixed assetsSubject to the Director General of Tax (DGT) approval,corporate taxpayers and PEs who maintain rupiahaccounting may undertake a revaluation of their noncurrent tangible assets for tax purposes. This may becarried out once every five years. Each revaluation mustinclude all business-related assets which are owned by thecompany and located in Indonesia, except for land (thismay be omitted). Before requesting the DGT’s approval, thecompany concerned must determine that it has settled all ofits outstanding tax liabilities.The revaluation must be conducted on a market or fairvalue basis. The market values must be determined bya government-approved appraiser. These are subject toDGT adjustments if the values, in the DGT’s view, do notrepresent the fair or market values of the assets.Once approved, the depreciation applied to depreciableassets must be based on the new tax book values(approved values) on the basis of a full useful life (in otherwords, as if the assets were new).The excess of the fair market value over the old tax bookvalue of the revalued assets is subject to final income taxat a rate of 10%. Subject to the DGT approval, taxpayersPwC IndonesiaIndonesian Pocket Tax Book 20209

Corporate Income Taxfacing financial difficulties may pay this tax in instalmentsover 12 months.Fixed assets falling under categories 1 and 2 must beretained at least to the end of their useful life. Land,buildings, and assets falling under categories 3 and 4 mustbe retained for at least 10 years after the revaluation date.Additional final income tax at a rate of 10% is imposed onthe original revaluation gains if the revalued assets are soldor transferred before the end of this minimum retentionperiod. This does not apply to:a. Transfer of assets because of force majeur or based on aGovernment decision/policy or a court decision;b. Transferred in the course of a tax-neutral businessmerger, consolidation, or business split;c. Withdrawal of fixed assets of a company because ofirreparable damage.Disallowed deductionsThese include:a. Benefits-in-kind (BIKs) (e.g., free housing, 50% of theacquisition and maintenance costs of certain companyprovided cars), except food and drink provided toall employees, employee benefits required for jobperformance such as protective clothing and uniforms,transportation costs to and from the place of work,accommodation for ship crew and the likes, the costof providing BIKs in remote areas, and 50% of theacquisition and maintenance costs of cellular phones;10Indonesian Pocket Tax Book 2020PwC Indonesia

Corporate Income Taxb. Private expenses;c. Non-business gifts and aid, except certain religiouscontributions/alms and certain donations;d. Provisions, except for: provision for doubtful accountsfor banking and certain financial institutions, provisionfor insurance companies, deposit security provision forthe Deposit Insurance Corporation (Lembaga PenjaminSimpanan/LPS), reclamation provision for miningcompanies, forestation provision for forestry companies,and area closure and maintenance provision forindustrial waste processing businesses;e. Income tax payments;f. Tax penalties;g. Profit distributions;h. Employer contributions for life, health and accidentinsurance and contributions to unapproved pensionfunds, unless the contributions are treated as part of thetaxable income of employees;i. Expenses relating to income which is taxed at a finalrate, e.g., interest on loans relating to time deposits;j. Expenses relating to income which is exempt fromtax, e.g., interest on loans used to buy shares wheredividends to be received are not subject to income tax;k. Salaries or compensation received by partnership orfirmas members where their participation is not dividedinto shares.PwC IndonesiaIndonesian Pocket Tax Book 202011

Corporate Income TaxDebt to Equity RatioA single ratio of 4:1 is generally applicable, which means theamount of debt allowable in order to obtain full deductibilityof the financing cost is limited to four times the equityamount. Exemption applies to certain taxpayers.LossesLosses may be carried forward for a maximum of five years.However, for a limited category of businesses in certainregions or businesses subject to certain concessions, theperiod can be extended for up to 10 years. The carrying backof losses is not allowed. Tax consolidation and group relief isnot available.Profit distributionsTax is liable to be withheld from dividends as follows:a. Resident recipientsDividends received from an Indonesian company bya limited liability company incorporated in Indonesia(Perseroan Terbatas/PT), a cooperative, or a state ownedcompany, are exempt from income tax if the followingconditions are met: the dividends are paid out of retained earnings; and for PTs and state owned companies, the companyearning the dividends holds at least 25% of the paidin capital in the company distributing the dividends.If these conditions are not met, the dividends areassessable to the company earning the dividends atthe ordinary tax rate together with the company’s other12Indonesian Pocket Tax Book 2020PwC Indonesia

Corporate Income Taxincome. Upon declaration, dividends are subject toArticle 23 income tax withholding at 15%. The amountwithheld constitutes a prepayment of the CIT liability forthe company earning the dividends. Dividends receivedby resident individual taxpayers are subject to finalincome tax at a maximum rate of 10%.b. Non-resident recipients:20% (lower for treaty countries) final withholding tax isdue on dividends paid to a non-resident recipient.Deemed profit marginsThe following businesses have deemed profit margins fortax purposes:DeemedProfit inGrossRevenueEffectiveIncomeTax RateDomestic shipping operations4%1.20% 1Domestic airline operations6%1.80% 1Foreign shipping and airlineoperations6%2.64% 1Foreign oil and gas drillingoperations15%3.75% 21% of exportvalue0.25% 2Certain Ministry of Traderepresentative officesPwC IndonesiaIndonesian Pocket Tax Book 202013

Corporate Income TaxNotes:1 The effective income tax rate (eitr) is calculated using the old tax rate of 30% because theMoF has not revised the decrees which regulate the deemed profit margins.2 The eitr is calculated using the current tax rate of 25%, excluding Branch Profit Tax (BPT)portion. BPT rate varies according to availability of a reduced rate based on tax treaties.Special industries and activitiesCertain contractually based concessions are available inIndonesia. These include Production Sharing Contracts(PSCs), Contract of Works (CoWs) and Mining BusinessLicenses (Izin Usaha Pertambangan/IUP).Companies engaged in upstream oil and gas typically have tocalculate CIT in accordance with their PSCs. The PSCs canbe “conventional” with CIT effectively based on cost recoveryprinciples or “gross split” which more closely follow thegeneral CIT rules.Certain companies engaged in metal, mineral and coal miningare governed by CoWs for the CIT calculation. Differentprovisions may apply including in respect of CIT rates,deductible expenses and how taxable income is calculated.CoW arrangements are however no longer available underthe 2009 Mining Law and recent mining will generally followan IUP concession. The Mining Law stipulates that generalprevailing tax laws/regulations apply to these mining projects.Specific tax regulations however also exist for non-coalmining IUPs.14Indonesian Pocket Tax Book 2020PwC Indonesia

Corporate Income TaxTransfer PricingThe Income Tax Law defines related parties as:a. Taxpayer has capital participation directly or indirectly atleast 25% upon another Taxpayers; the relationship betweenTaxpaye

Value Added Tax 46 General; VAT exemption facilities; VAT not-collected facilities . through withholding of the tax by the Indonesian party paying the income. Monthly tax instalments (Article 25 income tax) constitute the . tax adjustments. Generally, a deduction is allowed for all

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