| 1. Into South-East Asia - David Toh | |
Taxes in the region are levied mostly at the rate of 30% or lower. Tax losses are deductible and group relief is not available. Tax credits are available but limited to the relevant income. There is a network of treaties, but many have non-OECD provisions. The Mauritius treaties with Singapore and Indonesia offer opportunities in relation to income and royalties. Withholding taxes are mostly of the order of 15-20%. Transfer pricing is not very actively policed. Some countries have rules governing debt/equity ratio. Except for Indonesia and Malaysia all ASEAN countries permit enterprises to be 100% foreign owned. Apart from Malaysia and Singapore, ASEAN countries impose tax on disposals of shares; this problem may be alleviated by treaties or circumvented by disposal of shares in a holding company established elsewhere. A range of investment incentives is available, except in Myanmar. The ASEAN Free Trade Area (AFTA) is a response to similar areas elsewhere. It is implemented by a scheme of common tariffs and common rules, the end of which will be establishment of free trade within the Area. At least 40% ASEAN content is required for a product to benefit under the scheme. The ASEAN is becoming a "Common Market". The ASEAN Industrial Co-operative Schemes offer accelerated benefits. | |
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| 2. Into Europe - Pieter de Ridder | |
Corporate tax rates in Europe are generally higher than in the ASEAN region, though the trend is lower. VAT rates range from 16-25%. The Netherlands and Belgium have offered advance rulings for many years. Some countries (e.g. the Netherlands) offer favourable rates for foreign employees. Exporters to Europe need to investigate customs storage and bonded warehouses. Overall tax planning strategy involves push-down of expenditure to investee company. A Dutch holding company, geared-up, may be used to acquire Dutch target companies: "fiscal unity" may be obtained. Holland, France, Italy and Germany levy tax on disposals of local investments. Withholding taxes on royalties, interest and dividends need to be addressed - e.g. through a holding company. UK investors have traditionally utilised Dutch "mixer" companies. The Dutch holding company is well-known. The "participation privilege" provides for dividend income and capital gains to be free of cost. There is a 1% capital tax on shareholders’ equity. An acquisition may be made with up to 85% debt. The Belgian holding company pays tax on 5% of its dividend income, but interests costs are deductible. The Luxembourg SOPARFI needs to have a 10% interest in the foreign company (25% for capital gains). Interest is deductible against non-exempt income. Liquidation proceeds are not taxed. Germany imposes no capital tax and allows interest costs. The new Spanish holding company offers a tax-exempt pass-through, provided the shareholder is not in a "black" jurisdiction. The UK holding company offers credit against underlying tax but charges tax on capital gains. The Dutch tax on outgoing dividends may be reduced by borrowing or by interposing an Antilles company (resulting in a 7-10.5% overall tax charge) or a Malaysian company (resulting in a 0% tax rate, but any dividend from a capital gain will be taxed at 28%). The route out of Luxembourg is by way of a further Luxembourg holding company, which is liquidated. EU Harmonisation Directives provide a single VAT zone and abolish inter-country dividends. The merger and interest & royalty directives are awaited. | |
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| 3. Into China and India - Sanjeev Ghurburrun | |
The Mauritius route for investment into India is well known. The tax treaty offers freedom from Indian tax on capital gains. A similar benefit is offered by the treaties with Cyprus, Malta and the United Arab Emirates. It seems that Cyprus and Malta will give credit for the new Indian dividend tax; credit is available (though little needed) in Mauritus; the UAE levies no tax. The NatWest ruling suggested that the Mauritius-India treaty could no longer be used. But the AIG ruling showed that a bona fide use of Mauritius as an investment base was consistent with use of the treaty. The DLT ruling was to similar effect. Power projects and infrastructure, offshore debt funds and investment in real estate are the principal investments in India made out of Mauritius. Outbound investment from India is being liberalised and will offer new opportunities for the use of Mauritius - notably for investment in European countries. Investment flowing into China is huge. The Mauritius-China treaty is generous, offering a 5% withholding tax on dividends, 10% on interest and royalties, liberal rules on building sites and permanent establishments and some freedom from tax on capital gains. There is also an Investment Protection and Promotion Agreement. This is most helpful to investors, but a good deal of knowledge, skill and experience is needed to make effective direct investment in China and to take advantage of the various tax incentives available. Portfolio investment, on the other hand, may find a good base in Mauritius. It may also find a base in Luxembourg - the treaty with China not excluding the 1929 holding company. | |
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| 4. Into the United States - Milton Grundy | |
A UK company is the right vehicle for a direct investment in the United States. This is because the tax treaty between the United States and the United Kingdom reduces the American withholding tax on dividends from 30% to 5, and there is no UK tax charge when they are received by the UK company. Nor is there any UK tax charge when the UK company itself declares dividends to its shareholders out of its American income - and those shareholders do not have to be in a treaty country or a country in the European Union. So the UK company could for example be owned by a BVI IBC or other zero-tax company: in that case, the use of a UK company will get dividends out of the United States and into an offshore vehicle with only 5% US withholding tax. | |
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| Use of Singapore in International Tax Planning - Michael Velten | |
Singapore’s tax system is territorial. The corporate tax rate is 26%. Dividends out of tax-paid profits (including those which have benefited from tax credit) cost no further tax. Royalties carry a 15% withholding tax, management services 26% (with some exceptions). Pioneer status affords a manufacturer a tax holiday for 5-10 years; dividends paid out of pioneer profits are tax free. Other tax incentives are also available. Profits from sales made in Singapore have a Singapore source; sales may be arranged so that the seller trades "with" rather than "in" Singapore. Singapore is used as a base for holding companies e.g. Thai companies investing elsewhere in the region, Taiwanese companies investing in the PRC. Singapore gives unilateral as well as treaty tax credit - including credit for underlying credit where the holding is at least 25%. Capital gains are not taxed, but a tax charge (of 26%) arises on distributions of a capital gain. A Singapore holding company will not generally be tax-effective for interest or royalties. A non-resident Singapore company can operate as a zero-tax company in respect of foreign-source income; an exempt private company does not need to file accounts (though it must prepare them and be audited). | |
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| New Opportunities in Labuan in International Tax Planning - Frederik van Tuyll | |
The Financial Park structure has now been completed, telecommunications improved, two first-class hotels established. There are now over 60 fully-staffed banks, 18 trust companies, 12 insurance companies and numerous legal and accounting firms. The Offshore Limited Partnership Act is the most recent of several enactments, including the Offshore Banking Act, the Insurance Act, the Trust Companies Act, the Offshore Trust Act, the Offshore Companies Act , the Offshore Companies (Amendment) Act and the Offshore Business Tax Act. The capital of an offshore company must not be in Malaysian currency; an approved local secretary is required but no local director is needed. Information filed with the Companies Registry is not open to public inspection. Tax is 3% or 20,000 ringgit a year. Non-trading income is not included in the tax base. An Offshore Securities Industry Act is on its way - providing for a stock exchange and mutual funds. Netherlands and Sweden have excluded Labuan from the treaty. Switzerland has followed suit. Asian companies have accepted the application of treaties to Labuan. Changes are proposed in amendments to the Labuan Offshore Business Activity Act, introducing a higher rate of tax for companies taking advantage of treaties. The interposition of a Labuan company by a Cayman Fund investing in Korea offers a significant advantage. A Labuan company selling in China may take advantage of the treaty between Malaysia and the PLC so as to avoid the representative office in the PLC being regarded as a PE. A Labuan company may be used for leasing into Malaysia. | |
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| Trusts for Succession and Estate Planning for Asean Investors - Graeme Briggs | |
The use of trusts has increased but is by no means extensive. Patriarchs of Chinese and Indian families have traditionally controlled their wealth personally throughout their lifetimes. Estate tax is imposed by Singapore. The rate is 5-10%. There are some exceptions for residential property and community funds. Philippines has US-style estate tax. Individuals domiciled in Brunei are subject to estate duty. Some form of forced heirship is found in Singapore, Malaysia, Thailand, Philippines, Indonesia and Brunei. In Malaysia, testamentary dispositions up to one third of the estate are permitted; the rest must pass to heirs, and non-Muslims may not inherit. Income tax issues affect offshore trusts: there are anti-avoidance provisions in Malaysia and Singapore; Indonesia does not recognise the trust so that its offshore status is obscure - generally treated as an entity if it is independent of the settlor and transparent if not; there is a gift tax in Philippines. There are still some forms of exchange control in Thailand, Philippines and Brunei. Various restrictions on foreign ownership are imposed by all six countries. Islamic law permits some succession planning: where lifetime gifts are not clawed back, a Muslim settlor may be able to use an offshore trust to overcome forced heirship problems. In practice this should be limited to assets situated elsewhere, and the trust should be supported by the law of the jurisdiction in which it is established. Many ASEAN investors are unaware of their exposure to estate taxes - e.g. in Hong Kong or the United States, and unaware of forced heirship problems in other countries - e.g. in France. The offshore trust may be effective succession planning - for foreign assets at least - but the obstacles need careful consideration | |
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| Australia and New Zealand : Inward and Outward Investment - Panel of Members (Gordon Stewart, Terry Dwyer, Michael Dunkel, John Stephens, Dennis Lear, Kelvin Boyd) | |
In the absence of Richard Edmonds the Chairman assembled a panel of members from Australia and New Zealand. The panel confined itself to inward investment, Terry Dwyer giving an overview of the general liability to tax on capital gains arising from the disposal of Australian assets (with the notable exception of portfolio investments). Michael Dunkel drew attention to the various exemptions from tax on capital gains provided by Australia’s tax treaties - with Belgium, Philippines, Sweden, Denmark, Switzerland, Ireland and Norway. John Stephens gave an account of the withholding taxes to which dividends, interest and royalties were subject to in Australia, and Gordon Stewart gave a similar account of withholding taxes in New Zealand. Dennis Lear described the anti-tax avoidance provisions of Part IVA of the Australian Act, and Gordon Stewart explained the corresponding provisions in New Zealand. |
Tuesday, September 30, 2008
Tax Efficient Investment:
Monday, September 29, 2008
Indonesian Tax Treatment For Foreign Drilling Companies (FDC) : A Brief Guidance For Tax Compliance
Due to the high capital costs and technical expertise required, most drilling rigs, particularly offshore rigs, are owned by foreign entities. Up to 1985 these rigs were contracted directly with production sharing contractors to provide drilling services. However, following an amendment to Indonesian foreign investment regulations, production-sharing contractors were required to enter contracts with companies established in Indonesia – either wholly Indonesian owned or those with an approved foreign shareholding (PMA companies). In turn those companies holding the contracts would enter into rig charter, technical assistance and other agreements with the foreign companies to provide the necessary facilities and expertise.
Taxation regime for drilling industries
Indonesian tax regime distinguishes the drilling companies into: (i) National drilling companies (NDC), with local investment (PMDN) legal status or foreign investment (PMA) companies; and (ii) Foreign drilling companies (FDC). NDCs are considered as Indonesian tax resident, whilst FDCs are treated as permanent establishment thus non-resident taxpayer.
Special taxation considerations, which apply to FDC, include among others:
Corporate income tax and branch profit tax
According to the prevailing Income Tax Law, FDC are taxed based on a special calculation norm (so called “deemed profit”). The current percentage of deemed profit is 15% of gross income derived from drilling contracts of the FDC. Exception should be given to reimbursable costs and handling charges if they are not exceeding 10% of the drilling fees.
- Tax rates
A progressive tax rate of the following schedule will be applied to such deemed taxable profit:
Taxable income bracket (Rp)
Rate
On the first 50,000,000 10% On the next 50,000,000 15% Over 100,000,000 30% Other income, if any, is subject to progressive tax rate.
Example calculation of the corporate and branch profit taxes are as follows:
Corporate Income Tax Amount Notation Revenue from drilling services 100 A Deemed taxable profit (15%) 15 B=15%*A Other income 10 C Taxable income 25 D=B+C Corporate Income Tax
(progressive rate of 10%, 15%, and 30%)Effective Corporate Income Tax
(Using the highest rate = 30%)7.5 E=30%*D Branch Profit Tax Branch Profit Tax Base 17.5 F=D-E Branch Profit Tax
(in general 20%)
(Could be reduced pursuant to the tax treaty provision)1.575 G=20%*F - Monthly Installment Art. 25
Monthly installment Article 25 for FDC is one-twelfth of the income tax computed on the annualized monthly deemed profit.
- Due dates of Payment & filling the Tax Return
Payment Date
Reporting Date
Monthly corporate tax 15th of the following month.
Penalty for late payment :
interest penalty at 2% per month (for a maximum 24 months period) of tax due20th of the following month
Penalty for late reporting :
Rp 50,000 per return (become Rp 100,000 starting from year 2008)Annual corporate tax
25th of the third month following year end.
Penalty for late payment :
interest penalty at 2% per month (for a maximum 24 months period) of tax dueEnd of the third month following year end.
Penalty for late reporting :
Rp 100,000 per return (become Rp 1,000,000 starting from year 2008)The following are other Indonesian tax issues that we consider applicable to the FDC:
Employee Income Tax
The FDC is responsible to withhold Article 21/26 income tax on the monthly salary/ remuneration payable/paid to the employees. Objects of the withholding tax are basically all payment of cash remuneration in whatever forms to individuals, including payments of insurance premium by the employer. Starting from year 2001, any benefits in kind provided to the employees are also subject to employee income tax withholding.
Whilst for local employees basis of the withholding tax is the gross amount of remuneration paid to the employees, for expatriates there was a decree issued by the Minister of Finance (MoF) in 1994 (Decree of MoF ref. No. 433/KMK.04/1994 dated August 26, 1994) which stipulated the deem salaries as basis for calculating Article 21 income tax of the expatriates working in the oil and gas drilling business in Indonesia.
The deemed salaries are categorized in accordance to the position of the employees and have covered all of the income components, including benefits in kind accounts. Further there is no deductions allowed to offset the deem income in calculating the income tax.
The deemed salaries are as follows (on monthly basis):
| General Managers | US$ | 11,275 |
| Managers | US$ | 9,350 |
| Rig Supervisors/Rig Superintendent/Tool Pushers | US$ | 5,830 |
| Assistant Rig Supervisors/Assistant Rig Superintendents/Assistant Tool Pushers | US$ | 4,510 |
| Other crews | US$ | 3,245 |
There is no further explanation of what the categories are, however in practice, the business practice or industry understanding is applied.
The deemed salary rates will apply irrespective of the tax status of the individual (i.e. a resident or non resident).
- Tax Rates
Tax rates applicable depend on tax residency status of the employees. The Indonesian tax laws define an Indonesian tax resident as:
- an individual residing in Indonesia or present in Indonesia for more than 183 days within any 12 months period, or
- an individual present in Indonesia in a tax year and intending to reside in Indonesia
As such, an expatriate may be considered as an Indonesian tax resident, provided the above conditions are met.
The income tax rates for Indonesian-residents are as follows:
Taxable income
Tax Rates
Up to Rp 25,000,000 5% Rp 25,000,001 up to Rp.50,000,000 10% Rp 50,000,001 up to Rp 100,000,000 15% Rp 100,000,001 up to Rp 200,000,000 25% above Rp. 200,000,000 35% The rate for non-resident individuals is a flat rate of 20%, subject to tax treaty relief.
Further, provided the expatriate is qualified as an Indonesian tax resident, he/she will be required to register for tax with the Indonesian tax authorities and comply with all Indonesian tax regulations, including reporting of his/her own individual tax returns in Indonesia on his/her worldwide income.
- Period of withholding tax
The FDC is required to calculate and withhold the Article 21/26 income tax on a monthly and annual basis. It is likely starting from year 2008, no longer annual employee income tax return required to be submitted. Withholding tax should be made and reported on the month the salaries/remuneration are paid or accrued. These constitute tax prepayments, which will deduct the final Article 21/26 withholding tax dues, which will be computed at the end of the fiscal year.
- Due dates of Payment & filling the Tax Return
Payment Date
Reporting Date
Monthly Employee income tax 10th of the following month.
Penalty for late payment :
interest penalty at 2% per month (for a maximum 24 months period) of tax due20th of the following month
Penalty for late reporting :
Rp 50,000 per return (become Rp 100,000 starting from year 2008)Annual Employee income tax
25th of the third month following year end.
Penalty for late payment :
interest penalty at 2% per month (for a maximum 24 months period) of tax dueEnd of the third month following year end.
Penalty for late reporting :
Rp 100,000 per return (no longer annual return to be filed pursuant to the Law No. 28 Year 2007)
Withholding income taxes
Payment/accruals of dividends, interests, royalties, technical & management fees for services performed in Indonesia to Indonesian and non-Indonesian residents are subject to withholding tax.
- Tax Rates/Effective Tax Rates
The withholding tax [Article 4(2)/15/22/23/26] rates may vary, depending on whether it is paid to a resident or non-resident as follows:
- Rates applied on payments to Indonesian residents or permanent establishment vary from 1.5% to 15% depending on the nature of the payment or service rendered. The withholding tax may be final in nature (e.g. in the case of rental payment for the lease of real property) or non-final (e.g. payment for management, administration or technical services).
- Rate applied on payment to non-Indonesian residents is 20 %, subject to tax treaty relief.
- Period of withholding tax
The taxes should be withheld at the payment date of the fees or at the date the fee become payable, whichever comes first.
- Due dates of Payment & filling the Tax Return
The FDC must remit the withholding income tax to the Kas Negara (State Treasury) by the 10th of the month following the tax withholding and submit the tax return to the tax office by 20th of the following month. Interest penalty for late payment is 2% per month for a maximum 24 months of tax due whilst penalty for late reporting is Rp 50,000 per return (become Rp 100,000 starting from year 2008).
Value Added Tax and Sales Tax on Luxury Goods
Basically, Value Added Tax (VAT) is applied to:
- Delivery of taxable goods and services inside the Indonesian customs area
- Import of taxable goods into the Indonesian customs area.
- Services performed by a non-resident for an Indonesian resident (self-payment basis by the service recipient)
VAT and sales tax on luxury goods becomes payable at the time of the delivery of the goods/services, or at the receipt of payment if the payment is made in advance. The seller must issue tax invoice at the end of the month following deliveries, at the latest, or at the receipt of payment if the payment is made in advance.
Output VAT
As the drilling fee provided by the FDC is subject to VAT, it is required by law to register as a VATable company and assess VAT on each delivery. This will become FDC’s output VAT due.
Input VAT
The FDC’s suppliers will collect input VAT on purchases of goods/services that are subject to VAT. If the seller is not an Indonesian tax resident, then the FDC, as the purchaser, has the obligation to pay the VAT on self-assess basis. Examples of such VAT objects are importation of goods and utilization of services provided by overseas company that does not have permanent establishment in Indonesia.
- Tax Rates
Tax rate applicable for deliveries within Indonesia customs area is 10%, whilst export of goods is subject to VAT at 0%.
In addition, there is also sales tax on luxury goods ranging from 10% to 75%.
- Due dates of Payment & filling the Tax Return
Any excess of output VAT over input VAT must be paid to Kas Negara (State Treasury) at the latest on the 15th of the following month and VAT return must be reported to the tax office within the 20th of the following month.
In practice, most of the FDC’s customers are VAT collector companies, which will settle payment of the FDC’s output VAT due directly to the State Treasury. As such, the FDC’s input VAT amount will most likely exceed its output VAT amount. This excess may be carried over to the following month or requested for refund. Such VAT refund might be claimed on either annual or monthly basis.
Manual For Expatriate
| I. | Introduction | ||||||||||||||||||||||||||||||||||||||||||||||
| | There have been technological achievements, especially in the fields of information and transportation, and improvements are continually developing. As a result, communication and interaction are made easier, expediting business agreements and decisions. Increased enthusiasm for globalization as well as escalating interdependence between persons and nations provide a strong basis for growth and development of international transaction involving trade, service and investment. Consequently, each nation and country are susceptible to influencing and being influenced by interaction and communication. From the economic perspective, all forms of protection for the benefit of a country are eliminated until goods, services, and capital flow in and out a country without obstacles (borderless economy). Efficient global production processes with maximum output will occur because global production resources are allocated efficiently to locations or countries which have comparative advantage. Global wealth can be attained as goods and services are purchased at relatively low prices. Indonesian manpower will continue to be highly mobile across national boundaries, especially in regions where there is cross border employment. For example, many Singaporeans in Batam but live in Singapore. Further, there are many Indonesians who work overseas due to posting or to provide domestic services. Increased international transactions in the service sector provide many benefits to Indonesia including growth in tax revenue. Foreigners in Indonesia can be categorized as residents or non-residents depending on the length of time they stay in Indonesia and their activities. As soon as an individual becomes a resident in Indonesia for tax purposes, he/she is obligated to register at the appropriate tax office. In practice, many expatriates are reluctant to register, giving the reason that they have one employer and that the tax on their employment income has been withheld in accordance with paragraph 6 of article 21 of 1983 Income Tax Law, once an individual becomes a resident taxpayer, he/she is subject to tax on worldwide income, that is, income from sources within and outside Indonesia. The issuance of amended income tax provisions in the year 2000, that is, Law Number 17 year 2000, is meant to make it clear that any individual who has become a resident should register at the appropriate local tax office. After a taxpayer is registered and has a Tax ID Number (NPWP), he/she has obligations and rights as regulated by the prevailing tax provisions, for example, the obligation to pay and report monthly returns (SPT Masa) where applicable and annual returns (SPT Tahunan). The purpose of this manual is to provide a brief overview of tax laws and regulations that an expatriate taxpayer residing in Indonesia should know so that he/she is aware of his/her tax rights and obligations. This manual is categorized into six sections - introduction, Tax Administration, Income Tax, Frequently Asked Questions, General Information Regarding Visa Requirements for Working in Indonesia, and Relevant Forms in Bahasa Indonesia and Their translation in English. | ||||||||||||||||||||||||||||||||||||||||||||||
| II. | Tax Administration | ||||||||||||||||||||||||||||||||||||||||||||||
| | A. | Category of an Individual Taxpayer. | |||||||||||||||||||||||||||||||||||||||||||||
| | | 1. | Resident A resident tax subject shall be:
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| | | 2. | A non-resident tax subject shall be: An individual not residing in Indonesia or who is present in Indonesia for not more than 183 days in any 12 month period.
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| | | | A taxpayer is an individual or a body which, pursuant to the provisions in the tax law, is required to fulfill tax obligations, including tax collection or tax withholding of certain taxes. (Article 1 paragraph (1) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | B. | Tax Identification Number (Nomor Pokok Wajib Pajak-NPWP) | |||||||||||||||||||||||||||||||||||||||||||||
| | | 1. | What is a Tax Identification Number? The Tax Identification Number (NPWP) is a number issued to taxpayers by the tax office to identify taxpayers and to assist them in fulfilling their tax obligations. (Article 1 - paragraph (1) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 2. | How to get an NPWP Taxpayer shall be obligated to register at the tax office in the district in which the taxpayer reside (Article 2-paragraph (1) Law No. 16 Year 2000) by submitting the following documents: | ||||||||||||||||||||||||||||||||||||||||||||
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| | | | An individual taxpayer who is an entrepreneur as mentioned in the Circular Letter of Director General of Taxation No.: SE-40/PJ.41/2000 is an individual who has several places of business activities. He/she is obligated to register in his/her place of business activities as follows: | ||||||||||||||||||||||||||||||||||||||||||||
| | | | a. | A taxpayer who has several places of business activities in one operational area of the tax office must register each place of business in each related tax office. | |||||||||||||||||||||||||||||||||||||||||||
| | | | b. | A taxpayer who has several places of business activities located in the districts of several tax offices must register each place of business in each related tax office. | |||||||||||||||||||||||||||||||||||||||||||
| | | 3. | What if taxpayer does not want to register?
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| | | 4. | What if there is a change in taxpayer’s data? A taxpayer may inform the tax office of any change in his data (such as change of address, change of employer, etc.) by filling the registration and change of data form at the tax office where the taxpayer is registered. | ||||||||||||||||||||||||||||||||||||||||||||
| | | 5. | What if the taxpayer is leaving Indonesia permanently or has applied for an Exit Permit Only to the Immigration Office? A taxpayer should state in writing that an Exit Permit Only (EPO) will be forwarded to the tax office where he is registered, so that the tax office will not issue a tax collection letter due to non filling or non payment of the monthly Article 25 income tax. | ||||||||||||||||||||||||||||||||||||||||||||
| | | The following are to be attached when submitting the deregistration form (now known as registration and change of data form):
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| | | Before forwarding the EPO, the taxpayer should fulfill other tax obligation such as:
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| | C. | Monthly and Annual Income Tax Return | |||||||||||||||||||||||||||||||||||||||||||||
| | | After registering and obtaining the NPWP, a taxpayer has to file the following tax returns:
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| | | What the taxpayer should know before completing the tax return: | |||||||||||||||||||||||||||||||||||||||||||||
| | | a. | Every taxpayer has to complete the tax return in Bahasa Indonesia using Latin Letters, Arabic numerals, and Rupiah currency, then sign and file it at the tax office where the taxpayer is registered. (Article 3-paragraph (1) and (1) a Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | b. | A taxpayer has to complete and file a tax return correctly, thoroughly and clearly. The tax return has to be signed. (Article 4-paragraph (1) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | c. | Where a tax return is completed and signed by a person other than the taxpayer, a power of attorney must be attached. (Article 4-paragraph (3) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | d. | Completion of annual income tax return by taxpayers who have to maintain bookkeeping records must be accompanied by financial statements in the form of balance sheet and income statement as well as other information required to calculate the amount of taxable income. (Article 4-paragraph (4) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | e. | For filing of 2001 annual income tax return, a taxpayer has to attach a statement of assets and liabilities (MOF Decree No. 534/KMK.04/2000 dated December 22, 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | f. | The filing of a tax return may be done by registered mail through the Post Office or by such other means as regulated by the decree of the Director General of Taxation. (Article 6-paragraph (2) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | D. | Tax Payment | |||||||||||||||||||||||||||||||||||||||||||||
| | | The taxpayer has to pay the tax due to the state treasury via Post Office and/or a State Owned Bank or Local Government Owned Bank or any other place of payment stipulated by the Minister of Finance. (Article 10-paragraph (1) Law No. 16 Year 2000). | |||||||||||||||||||||||||||||||||||||||||||||
| | | 1. | Payment of Monthly Installment Article 25 Income Tax | ||||||||||||||||||||||||||||||||||||||||||||
| | | | For Monthly Article 25 Income Tax Return, the monthly tax installment payment is due no later then 15 days from the end of the month. If the 15th is a public holiday, Saturday or Sunday, the due date is the following day (Article 9-paragraph (1) Law No. 16 Year 2000). The amount of monthly installment which should be paid by taxpayer shall be equal to the tax due according to the annual income tax return for the preceding year, deducted by income tax under Article 21, 22, 23, and 24; then divided by 12 (twelve) or the number of months for part of the tax year. For the months before the due date of the annual income tax return (January-February), the amount of monthly Article 25 income tax shall be equal to such amount paid in the last month (December) of the preceding tax year. For an individual taxpayer who is conducting a business or is an independent professional an has several places of business, the monthly Article 25 income tax payable in the current tax year shall be 1 % (one percent) of the monthly gross turnover from each place of business (Section 3 of Circular Letter No.: SE-40/PJ.41/2000 dated 29 December 2000). For a new taxpayer who is conducting a business or is an independent professional, the monthly Article 25 income tax shall be equal to the income tax liability calculated using the normal tax rate on annualized net income, divided by 12 (twelve). The amount of that net income is previously deducted by the non-taxable income threshold amount (Article 2 of Minister of Finance Decree No.: 522/KMK.04/2000 dated 14 December 2000). However, for a new taxpayer other than the above mentioned, the monthly Article 25 income tax shall be equal to the income tax liability calculated at 10% of annualized net income, divided by 12 (twelve). The amount of that net income is previously deducted by the non-taxable income threshold amount (Circular Letter Number SE-31/PJ.4/1995 dated June 21, 1995). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 2. | Payment of Annual Individual Tax Return Article 29 Income Tax The tax underpayment based on the annual tax return should be paid by the 25th of the third month after the end of a tax year or part of a tax year, before the annual tax return is filed (Article 9-paragraph (2) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 3. | Payment of Tax Assessment Additional payments required as a result of a Tax Collection Letter (STP), Tax Underpayment Assessment (SKPKB), Additional Tax Underpayment Assessment (SKPKBT), or Tax Correction Notice, Decision Letter on Objection or Appeal should be paid at the latest one month from the date of issuance (Article 9-paragraph (3) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 4. | Payment of Exit Tax An individual taxpayer who travels abroad has to pay exit tax at a counter located at each point of departure from Indonesia through land, sea, and air. The tax is paid at the counter by using an Exit Tax Form or paid at the post office or a bank authorized to receive tax payments on behalf of the Director General of Taxation by using tax payment slip (SSP). (Article 25-paragraph (8) Law No. 17 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | E. | Bookkeeping/Recordkeeping | |||||||||||||||||||||||||||||||||||||||||||||
| | | An individual taxpayer who is conducting a business or is an independent professional shall be obliged to maintain bookkeeping. However, an individual taxpayer who according to the provisions of the tax laws is permitted to calculate net income by using the Net Income Calculation Norm is not obliged to maintain bookkeeping. (Article 28-paragraph (1) Law No. 16 Year 2000). A taxpayer who is allowed to calculate net income by using the Net Income Calculation Norm is an individual taxpayer with annual gross turnover less than Rp. 600,000,000.00 (six hundred million rupiah). (Article 14-paragraph (2) Law No. 17 Year 2000). An individual taxpayer who is conducting business or is an independent professional with annual gross turnover of RP. 600,000,000.00 or more is obliged to maintain bookkeeping and if his/her annual gross turnover is less than Rp. 600,000,000.00 is obliged to maintain records, except if that taxpayer chooses to maintain bookkeeping. A taxpayer who has annual gross turnover less than Rp. 600,000,000.00 and does not choose to maintain bookkeeping, calculates his/her net income with Net Income Calculation Norm if he/she has informed the Director General of Taxation within the first 3 (three) months of relevant tax year. (Article 1 of Decision Letter Director General of Taxation No. Kep-536/PJ./2000). | |||||||||||||||||||||||||||||||||||||||||||||
| | | Recordkeeping must be done by: | |||||||||||||||||||||||||||||||||||||||||||||
| | | a. | An Individual taxpayer who is conducting business or is an independent professional, who is permitted to calculate his/her Net Income Calculation Norm; and | ||||||||||||||||||||||||||||||||||||||||||||
| | | b. | An individual taxpayer who is not conducting business or is not an independent professional. (Article 1 of Decision Letter of Director General of Taxation No. Kep-520/PJ./2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | F. | Tax Auditing | |||||||||||||||||||||||||||||||||||||||||||||
| | | The definition of auditing is a series of activities to search, collect and process data and/or other information within the scope of: | |||||||||||||||||||||||||||||||||||||||||||||
| | | a. | Supervising tax compliance in the following circumstances:
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| | | b. | Meeting other objectives in the implementation of the provisions of the tax laws in the following circumstances:
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| | G. | Other Rights of the Taxpayer | |||||||||||||||||||||||||||||||||||||||||||||
| | | 1. | Extension of time to file the Annual Tax Return The Director General of Taxation may, at the request of a taxpayer, extend the period for filing an annual tax return for a maximum period of 6 months. The request shall be in writing and accompanied by a statement estimating the amount of tax due for 1 (one) tax year and proof of settlement of the tax due. (Article 3-paragraph (4) and (5) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 2. | Amendment of a Tax Return | ||||||||||||||||||||||||||||||||||||||||||||
| | | | a. | A taxpayer may on his own initiative amend a tax return that has been filed by submitting a written statement within two years from end of a tax period, part of a tax year, or a tax year, provided the Director General of Taxation has not started an audit. | |||||||||||||||||||||||||||||||||||||||||||
| | | | b. | Where the taxpayer amends the tax return himself resulting in an increase in the amount month of tax due, the taxpayer will be subject to a penalty of 2% (two percent) interest per month on the amount of tax underpaid, calculated from the filing due date of the tax return up to the date of payment resulting from amendment of the tax return. | |||||||||||||||||||||||||||||||||||||||||||
| | | | c. | If an audit has been done, but an investigation has not been conducted into wrong doing committed by a taxpayer, there shall be no investigation of the wrong doing of the taxpayer if the taxpayer on his own initiative discloses the errors and pays any tax underpaid along with a fine equal to twice the amount of tax underpaid. | |||||||||||||||||||||||||||||||||||||||||||
| | | | d. | If the period for amending a tax return as prescribed in paragraph (1) has lapsed, provided the Director General of Taxation has not issued a tax assessment, a taxpayer may on his own initiative disclose in a separate report nay inaccuracy in the completion of a tax return already filed, which causes:
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| | | | e. | Any tax underpayment arising from the disclosure of inaccuracies in completing a tax return as prescribed in article 8 paragraph (4) along with penalty of 50% of the amount of tax underpaid, shall be paid by a taxpayer before submission of the above report. | |||||||||||||||||||||||||||||||||||||||||||
| | | | f. | Although the period allowed for amending a tax return as referred to in paragraph (1) has lapsed and as long as the Director General of Taxation has not initiated an audit, a taxpayer may amend the annual income tax return already filed in either of these situations: | |||||||||||||||||||||||||||||||||||||||||||
| | | | | i. | The taxpayer receives a Decisions Letter on an objection to a tax assessment of a previous year’s tax return and the amount of fiscal loss stated on the Decision Letter is different from the tax assessment; or | ||||||||||||||||||||||||||||||||||||||||||
| | | | | ii. | The taxpayer receives a Decision Letter on an appeal to an objection to a tax assessment of a previous year’s tax return and the amount of fiscal loss stated on the Decision Letter is different from the amount stated on the Decision Letter on the objection. | ||||||||||||||||||||||||||||||||||||||||||
| | | | | This amendment should be done within 3 months after the Decision Letter on the objection or appeal is received. (Article 8 Law No. 16 Year 2000) | |||||||||||||||||||||||||||||||||||||||||||
| | | 3. | Installment or Postponement of Tax Payment The Director General of Taxation, at the request of a taxpayer, may give his approval to the installment or postponement of tax payment, including underpaid taxes as prescribed in paragraph 2, for maximum period of 12 months. The implementation shall be confirmed by decree of the Director General of Taxation. (Article 9-paragraph (6) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 4. | Tax Overpayment | ||||||||||||||||||||||||||||||||||||||||||||
| | | | a. | In the implementation of tax obligations the following may happen:
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| | | | b. | There are 2 ways to request a refund for the above:
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| | | | c. | After carrying out an examination or audit the Director General of Taxation will issue a Tax Overpayment Assessment (SKPLB) within twelve months after receiving the request for refund from taxpayer. If the issuance of Tax Overpayment (SKPLB) exceeds the time period specified, the request for a refund from the taxpayer shall be considered granted. (Article 17-paragraph (1) Law No. 6 Year 1983) | |||||||||||||||||||||||||||||||||||||||||||
| | | | d. | The tax overpayment based on the Tax Overpayment Assessment (SKPLB) shall be refunded, but where it appears that the taxpayer still has tax payable, the overpayment shall be directly used to settle the arrears first.(Article 11-paragraph (1) Law No. 16 Year 2000). | |||||||||||||||||||||||||||||||||||||||||||
| | | | e. | Upon issuance of the Tax Overpayment Assessment (SKPLB). The taxpayer has to provide information to the tax office to transfer the overpayment to him. The tax overpayment shall be paid within a maximum period of one month from the receipt of the abovementioned information. (Article II-paragraph (2) Law No. 16 Year 2000). | |||||||||||||||||||||||||||||||||||||||||||
| | | | f. | If a refund of tax overpayment is delayed beyond one month, the Government shall pay interest of 2% per month on the late refund, calculated from the end of the time limit provided for in Article 11 paragraph (2) Law No. 16 Year 2000 up to of the date the refund is made. (Article 11-paragraph (3) Law No. 16 Year 2000). | |||||||||||||||||||||||||||||||||||||||||||
| | | 5. | Amendment of Tax Assessment Letter (SKP)
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| | | 6. | Petition by a Taxpayer or a Tax Responsible Party A petition by a taxpayer/tax responsible party against:
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| | | | may only be submitted to a tax court. (Article 23-paragraph (2) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 7. | Objection | ||||||||||||||||||||||||||||||||||||||||||||
| | | | a. | A taxpayer may file an objection with the Director General of Taxation only on account of:
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| | | | b. | An objection shall be submitted in writing in the Indonesian language, stating the amount of tax due or tax withheld or collected, or the amount of loss as calculated by the taxpayer, supported by clear reasons. | |||||||||||||||||||||||||||||||||||||||||||
| | | | c. | An objection shall be filed within 3 (three) months from the date of issuance of an assessment, or the date of withholding or collection as referred to in paragraph (1), except where the taxpayer can demonstrate that such a time limit cannot be fulfilled due to circumstances beyond his control. | |||||||||||||||||||||||||||||||||||||||||||
| | | | d. | An objection that does not meet the requirement prescribed in paragraph (a), (b), and (c) shall not constitute a valid objection, and as such will not be taken under consideration. | |||||||||||||||||||||||||||||||||||||||||||
| | | | e. | The receipt for an objection letter given by designated official of the Director General of Taxation or the receipt given for an objection sent by registered mail shall constitute proof of receipt of the objection in the interest of the taxpayer. | |||||||||||||||||||||||||||||||||||||||||||
| | | | f. | If requested by a taxpayer for the purpose of submitting an objection, the Director General of Taxation shall be obliged to provide written information on matters which constitute the basis for imposition of tax, loss calculation, withholding or collecting of tax. | |||||||||||||||||||||||||||||||||||||||||||
| | | | g. | The filing of an objection shall not defer the obligation to pay tax and the implementation of tax collection. (Article 25 Law No. 16 Year 2000). | |||||||||||||||||||||||||||||||||||||||||||
| | | | h. | Additional information relating to objection:
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| | | 8. | Appeal | ||||||||||||||||||||||||||||||||||||||||||||
| | | | a. |
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| | | | b. | Where an objection or appeal that leads to an increase in tax payment, is accepted in part or in full, provided that the tax due as prescribed in the Tax Underpayment Assessment and/or Additional Tax Underpayment Assessment has been paid, any tax overpayment shall be given compensation of 2% interest per month for a maximum of 24 months calculated from the date of payment that results in the tax overpayment until the issuance of the Decision Letter on objection or appeal. (Article 27A-paragraph (1) Law No. 16 Year 2000). | |||||||||||||||||||||||||||||||||||||||||||
| | | | c. | Interest of 2% as prescribed in paragraph (b) is also given upon overpayment of a fine as provided for under Article 19 paragraph (1) based on the Decision Letter on reduction/cancellation of the administrative penalties, as a result of the issuance of the Decision Letter on objection /appeal that accepts in part or in full the taxpayer’s request. (Article 27A-paragraph (2) Law No. 16 Year 2000). | |||||||||||||||||||||||||||||||||||||||||||
| | | 9. | Reduction/Cancellation of Administrative Sanction and Reduction/Revocation of Incorrect Tax Assessment The Director General of Taxation may:
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| | H. | Tax Administrative Sanction | |||||||||||||||||||||||||||||||||||||||||||||
| | | 1. | If a tax return is not filed within the time limit or within the extended filing time limit, a fine of Rp. 50,000 shall be imposed for Monthly Tax Return and Rp. 100,000 for an Annual Tax Return. (Article 7-paragraph (1) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 2. | If payment of tax is undertaken after the due date for payment, the taxpayer shall be subject to a penalty of 2% interest monthly, calculated from the due date of payment up to the date of payment. Part of a month is treated as a full month. (Article 9-paragraph (2a) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 3. | If the Director General of Taxation finds evidence that the amount of tax due according to the tax return is incorrect, it shall decide on the correct amount of tax due. (Article 12-paragraph (3) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 4. | The Director General of Taxation may issue a Tax Collection Letter if:
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| | | 5. | When the tax payable, based on Tax Underpayment Assessment, or Additional Tax Underpayment Assessment, and the increased amount of tax payable based on a Tax Correction Notice, Decision Letter on objection/appeal, is underpaid or unpaid on the due date, there shall be a penalty of 2% per month for the period, from the due date of payment through the date of actual payment of the amount stated in the Tax Collection Letter. Part of a month is deemed as a full month. (Article 19-paragraph (1) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 6. | Where a taxpayer is allowed an installment or postponement, interest of 2% per month is applied. Part of a month is deemed as a full month. (article 19-paragraph (2) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 7. | Where a taxpayer is allowed to extend the filing of the tax return and the estimated tax calculation turns out to be less than the actual tax due, interest of 2% per month is applied to the underpayment, calculated from the initial filing deadline of the tax return up to the date. (Article 19-paragraph (3) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 8. | The amount of tax payable based on Tax Collection Letter (STP), Tax Underpayment Assessment (SKPKB), Additional Tax Underpayment Assessment (SKPKBT), Correction Notice, Objection Notice, or Appeal Decision, which increases the total amount af tax payable and which is unpaid by the taxpayer within one month from the date of issuance of the abovementioned letters, assessments and notices shall be collected by an Enforcement Order. (Article 20-paragraph (1) Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | I. | Tax Crime Sanction | |||||||||||||||||||||||||||||||||||||||||||||
| | | 1. | Whosoever because of negligence:
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| | | 2. | Whosoever intentionally:
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| | | | thus causing losses to the state revenues, shall be punished by imprisonment for a period not exceeding 6 year and shall be fined an amount not exceeding 4 times the amount of unpaid or underpaid tax. | ||||||||||||||||||||||||||||||||||||||||||||
| | | 3. | The criminal penalties prescribed in paragraph (1) shall be multiplied by 2 if an individual repast a criminal tax offence within 1 year of completion of the previous prison sentence. | ||||||||||||||||||||||||||||||||||||||||||||
| | | 4. | Whosoever, in the course of claiming a tax refund or a tax loss carried forward, attempts to commit a criminal tax offence by misusing or using without authority a Tax Identification Number or a Taxable Firm Registration Number, or files a tax return and/or information which is false or incomplete as referred to in paragraph (1) letter c, shall be fined an amount not exceeding 4 times the amount of the refund and/or the loss carried forward claimed by the taxpayer. (Article 39 Law No. 16 Year 2000) | ||||||||||||||||||||||||||||||||||||||||||||
| | | 5. | Whosoever is obliged to provide information or evidence as requested, but deliberately fails to do so, or provide information or evidence that is false, shall be punished by imprisonment for a period not exceeding 1 year and shall be fined an amount not exceeding Rp. 10,000,000 (ten million rupiah). (Article 41A Law No. 16 Year 2000). | ||||||||||||||||||||||||||||||||||||||||||||
| | | 6. | Whosoever deliberately obstructs or complicates a criminal investigation in the field of taxation shall be punished by imprisonment for a period not exceeding 3 years and shall be fined an amount not exceeding Rp. 10,000,000 (ten million rupiah). (Article 41B Law No. 16 Year 2000) | ||||||||||||||||||||||||||||||||||||||||||||
| | | | a. | The stipulation as mentioned in Article 38 and Article 39 shall also apply to a representative, authorized person or officer from the taxpayer, who initiates, joins, suggests or helps a crime in taxation. | |||||||||||||||||||||||||||||||||||||||||||
| | | | b. | The stipulation as mentioned in Article 41A and 41B shall apply to anybody who initiates, suggests or helps a crime in taxation. (Article 43 Law No. 16 Year 2000). | |||||||||||||||||||||||||||||||||||||||||||
| III. | Income Tax | ||||||||||||||||||||||||||||||||||||||||||||||
| | A. | Accretion Principle The Tax Object shall be the income, namely any increase in economic benefit derived by a taxpayer, which may be used for consumption or increase the wealth of the taxpayer concerned, under any name and form whatsoever, including:
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| | B. | Worldwide Income As mentioned previously, a tax subject is divided into two categories:
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| | | A resident tax subject becomes a taxpayer if he/she derives income from Indonesia and/or from abroad, but a non-resident tax subject becomes a taxpayer if he/she derives income from Indonesia. One important difference between a resident taxpayer and a non-resident taxpayer is that a resident taxpayer is taxed on his/her income originating from Indonesia and/or from abroad, however a non-resident taxpayer is taxed on his/her income derived only from Indonesia. Therefore, any individual residing in Indonesia or any individual staying in Indonesia for more than 183 days within a period of 12 months, or any individual who, within a fiscal year, stays in Indonesia and intend to reside in Indonesia, is taxed on his/her worldwide income under any name and form whatsoever. The tax object also includes any income derived by a taxpayer’s wife and/or his children who are considered to be the taxpayer’s dependents. | |||||||||||||||||||||||||||||||||||||||||||||
| | C. | Self-Assessment Since The Income Tax Law of 1983 was enacted, there are some basic principles which were followed under taxation law in Indonesia. One of the basic principles is self-assessment, which means that the taxpayer is given the trust and responsibility to compute, pay, and report their tax obligation. In relation to the implementation of self-assessment, the tax officials should establish and supervise the accomplishment of that principle. | |||||||||||||||||||||||||||||||||||||||||||||
| | D. | Withholding Concept The basic principle in fulfilling tax obligation is that a taxpayer should calculate, pay and report the tax due by himself/herself. However, in certain conditions, the fulfillment of tax obligation is regulated through withholding and collection concept by third parties. This concept is implemented in accordance with fulfilling the tax obligation as regulated in Article 4 paragraph 2, Article 21, Article 22, Article 23, and Article 26 of The Income Tax Law. This concept states that the amount of tax due must be withheld or collected, paid and reported by the party that provides the income. | |||||||||||||||||||||||||||||||||||||||||||||
| | E. | Category of Income In reporting the tax obligation, any income derived by an individual taxpayer can be categorized into: | |||||||||||||||||||||||||||||||||||||||||||||
| | | 1. | Income from business or an independent profession. Any form of income connected with conducting a business or exercising an independent profession consists of income from trading, manufacturing, professional services (such as doctor and consultant) and other forms. | ||||||||||||||||||||||||||||||||||||||||||||
| | | 2. | Employment income consists of salary, wages, pension payment, allowance, honoraria, insurance premiums, benefits in kind, bonuses, and other remuneration in relation to employment. In principle, benefit in kind is taxed in the hands of employer; however the tax maybe shifted to employees, when such benefit in kind is distributed in the form of money. Additionally the latter treatment is also applicable when the benefit in kind is provided by:
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| | | 3. | Other income. Generally, other income consists of passive income, such as:
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| | F. | Tax Rates The following table shows the income tax rates applicable to individuals who are residents of Indonesia. Tax Rates for 2000
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| | | Tax Rates for 2001 Onwards
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| | G. | Tax Deductions & Non-Taxable Income Threshold Amounts | |||||||||||||||||||||||||||||||||||||||||||||
| | | 1. | The following are deductions allowed against employment income:
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| | | 2. | The non-taxable income threshold amounts are as follows:
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| | H. | Tax Credit In calculating the income tax due at the end of a year, a taxpayer can claim all taxes paid by him/her and/or taxes withheld/collected by third parties. Types of tax credit which can be claimed: | |||||||||||||||||||||||||||||||||||||||||||||
| | | 1. | Article 21 Income Tax Article 21 Income Tax is income tax withheld on income paid by the employer, the government treasurer, pension fund, or other entities that pay pension, entities that pay honoraria and compensation related to any service and any activity. | ||||||||||||||||||||||||||||||||||||||||||||
| | | 2. | Article 22 Income Tax Article 22 Income Tax is tax collected by the government treasurer related to the payment for any delivery of goods and tax collected by certain bodies/entities related to the activities in the import sector or any other activities. The provision for the basis of collection and the nature and amount of collection shall be stipulated by the Minister of Finance. | ||||||||||||||||||||||||||||||||||||||||||||
| | | 3. | Article 23 Income Tax Article 23 Income Tax is income tax withheld by any government agency, body/entity, resident tax subject, sponsor, permanent establishment and any other foreign representative office related to payment of dividends, interests, royalties, prizes and awards, deposit interest paid by a cooperative, rental income and compensation related to services. | ||||||||||||||||||||||||||||||||||||||||||||
| | | 4. | Article 24 Income Tax Article 24 Income Tax is income tax paid or indebted abroad on income derived from abroad. Article 24 tax credit amount is the lower of the following amounts:
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| | | 5. | Article 25 Income Tax Article 25 Income Tax is the income tax installment that shall be paid by the taxpayer himself for each month. The amount of Article 25 Income Tax for the current fiscal year shall be equal to the indebted income tax amount according to the Annual Income Tax Return of the previous fiscal year, deducted by the income tax withheld/collected by the third parties, divided by 12 (twelve). Article 25 Income Tax also includes the exit tax paid by a taxpayer, his wife or his dependents when they travel abroad. | ||||||||||||||||||||||||||||||||||||||||||||
| | I. | Calculation of Article 21 Income Tax Briefly, the calculation of Article 21 Income Tax is as follows:
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| | | * Taxable Income should be annualized if a taxpayer is working for only a part of the year. | |||||||||||||||||||||||||||||||||||||||||||||
| | J. | Calculation of Article 24 Income Tax As mentioned above, the foreign tax credit amount is the actual tax paid abroad, the proportionate calculation of Indonesian income tax payable abroad, or Indonesian tax payable on taxable income, whichever is lowest. Below are some examples of foreign tax credit calculations: Example 1:
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| | |
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| | | Therefore, the foreign tax credit allowed is Rp 23,750,000.00. | |||||||||||||||||||||||||||||||||||||||||||||
| | | Example 2:
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| | |
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| | | Therefore, the foreign tax credit allowed is Rp 20,000,000.00. | |||||||||||||||||||||||||||||||||||||||||||||
| | | Example 3:
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| | |
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| | | Therefore, the foreign tax credit allowed is Rp 3,750,000.00. | |||||||||||||||||||||||||||||||||||||||||||||
| | K. | Calculation of Article 25 Monthly Installment Income Taxes Example 1 (Transition Calculation):
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| | | Example 2 (Normal Calculation):
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| | | Example 3 (New Taxpayer):
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| IV. | Frequently Asked Questions | ||||||||||||||||||||||||||||||||||||||||||||||
| | 1. | Do I have to file an individual tax return? If you are a resident of Indonesia and you earn income that is more than the non-taxable income threshold (PTKP), you have to register and file an individual income tax return. | |||||||||||||||||||||||||||||||||||||||||||||
| | 2. | Who is a resident? A resident of Indonesia is one who meets the following conditions:
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| | 3. | If I spend less than 183 days in Indonesia, am I still obligated to register? No, unless you have already established your residency in Indonesia through your intention. Intent is demonstrated among other things by the length of your assignment, appointment letter, etc. | |||||||||||||||||||||||||||||||||||||||||||||
| | 4. | Is this a new law? No, the requirement to register and file has been existence since 1984. | |||||||||||||||||||||||||||||||||||||||||||||
| | 5. | How and when do I register? You need to submit the completed and signed registration form together with the following attachments:
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| | | You should register within one month after you earn income above the nontaxable threshold amount. If you are a self-employed, you should register within one month after the start of your business activity. | |||||||||||||||||||||||||||||||||||||||||||||
| | 6. | Where do I register? You should register at the local tax office situated in the area where you live or are domiciled. If you live in Jakarta, you should register at the BADORA tax office. | |||||||||||||||||||||||||||||||||||||||||||||
| | 7. | If I live in DKI Jakarta and work in Tangerang, should I register at BADORA or Tangerang? You should register at BADORA. | |||||||||||||||||||||||||||||||||||||||||||||
| | 8. | If I live in DKI Jakarta and travel to Surabaya each week to work and return home to Jakarta on weekends, where do I need to register? You should register at BADORA. | |||||||||||||||||||||||||||||||||||||||||||||
| | 9. | If the address on my KTP is different from where I live, should I register at the tax office based on the address on my KTP or my actual residential address? You should register at the tax office based on your actual residential address. | |||||||||||||||||||||||||||||||||||||||||||||
| | 10. | What documents do I need to register? See answer to Question 5 above. | |||||||||||||||||||||||||||||||||||||||||||||
| | 11. | I have been here since June 15, 2000 and did not register in 2000. In 2001, I will stay in Indonesia for less than 183 days (or my work permit is valid for less than 183 days). Should I still register for a tax ID number? Yes, because you have met the time test; you have lived in Indonesia for more than 183 days within a 12 months period. | |||||||||||||||||||||||||||||||||||||||||||||
| | 12. | What income do I include in my return? You should include your income from all sources (i.e. employment and nonemployment) earned outside and in Indonesia. | |||||||||||||||||||||||||||||||||||||||||||||
| | 13. | What deductions can I claim? You can claim the following items as deduction:
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| | 14. | Will I be subject to double taxation, in both Indonesia and in my home country? You can claim foreign tax you pay as a credit on your Indonesian tax return provided it does not exceed the Indonesian tax payable on the income that has been taxed twice. | |||||||||||||||||||||||||||||||||||||||||||||
| | 15. | What are the consequences of not registering or filing? The tax office has the authority to issue an NPWP officially. Further, if this action was conducted intentionally and caused losses to the state, you may be charged with criminal sanctions. | |||||||||||||||||||||||||||||||||||||||||||||
| | 16. | My wife and I are both working as employees and we are planning to file separately. The guide book indicated that to determine our tax liability, we need to combine our income, calculate tax on the combined income and then allocate the tax based on our separate income over total income. This means that we are losing the benefit of the lower tax rates since our tax is calculated based on combined income. Please confirm if this is the correct way of calculating the tax. Yes. | |||||||||||||||||||||||||||||||||||||||||||||
| | 17. | My home country’s tax year runs from July 1 through June 30 of the following year. If I wish to claim credit for my home country tax paid, it means that my Indonesian tax return will always be filed after the due date of March 31, or even later until the final extended due date of September 30 (if approved). What are the consequences of filing late? Is there any relief for late filing due to delays beyond my control, as in the situation mentioned above? Filing an annual tax return after the approved extended due date will result in the following:
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| | 18. | I own a house in my home country which I am renting out. How will my rental income be taxed in Indonesia? Can I deduct expenses incurred in connection with renting out the property? For example, can I deduct interest on the mortgage for the house, property taxes, property and fire insurance, agency fees, maintenance, and repair expenses? Your rental income will be taxed based on tax rates set forth under Article 17 of Law No. 17/2000. You can generally deduct expenses incurred in connection with renting out the property as long as you can prove that the expenses are directly connected to the income received. For that purpose, you need to attach supporting documents. | |||||||||||||||||||||||||||||||||||||||||||||
| | 19. | Do I need to attach a statement of assets and liabilities to my tax return? The statement of assets and liabilities should be attached to your 2001 and future year tax return. | |||||||||||||||||||||||||||||||||||||||||||||
| | 20. | My wife is an Indonesian and I am not an Indonesian citizen. We plan to return to my home country after my assignment in Indonesia. If my wife decides to work when she is in my home country, does she have to file an Indonesian income tax return? *As she is Indonesian citizen and therefore a resident for tax purposes, she needs to register and file an Indonesian tax return. She can claim foreign tax paid on her Indonesian tax return. | |||||||||||||||||||||||||||||||||||||||||||||
| | 21. | I am an employee and I have just registered and received a tax ID number (NPWP) this month. How should I calculate my monthly tax liability on my personal income for this month? Your tax liability this month should be calculated based on your estimated personal income for the year multiplied by 10% and then divided by 12. | |||||||||||||||||||||||||||||||||||||||||||||
| | 22. | My assignment ends next month. What should I do to deregister? Submit the following to the tax office one month before your date of departure:
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| | | The EPO may be submitted later. | |||||||||||||||||||||||||||||||||||||||||||||
| | 23. | How long will deregistration take? Within 12 months from the date complete documents are submitted to the tax office. The tax office will endeavor to finalize deregistration process as soon as possible. | |||||||||||||||||||||||||||||||||||||||||||||
| | 24. | Do I need to present any document or tax clearance letter to the immigration counter when I leave Indonesia or when my goods are shipped to my home country? At this moment it is not necessary. | |||||||||||||||||||||||||||||||||||||||||||||
| | 25. | If I underpay my monthly taxes will I be charged interest? Yes, interest will be charged at 2% per month on the amount underpaid / unpaid. | |||||||||||||||||||||||||||||||||||||||||||||
| | 26. | I earned income from one employer and this income has been subjected to Article 21 tax. I also have investment income overseas. Am I still required to file monthly taxes? No, as long as the overseas income is passive income. However, you are still required to pay monthly tax. | |||||||||||||||||||||||||||||||||||||||||||||
| | 27. | If I have losses from my home country, can I deduct those losses? What about the prior year losses, are they deductible? No, you cannot deduct losses from your home country against income from Indonesia or other countries. Your overseas prior year losses are not deductible. | |||||||||||||||||||||||||||||||||||||||||||||
| | 28. | I am a dual resident of both Indonesia and my home country. Indonesia has an income tax treaty with my home country. Am I still required to file an Indonesian tax return? As you are a resident of Indonesia you need to file Indonesian tax return until such time when the competent tax authorities have determined your residency. | |||||||||||||||||||||||||||||||||||||||||||||
| V. | General Information Regarding Visa Requirements for Working in Indonesia | |||||||||||||||||||||||||||||||||||||||||||||
| | Foreigners must obtain valid entry visas to enter Indonesia. There are different type of visas, for example:
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| | Documents required to be attached are as follows:
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| VI. | English Translation of Relevant Forms
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