INDONESIA Law and Practice Contributed by: Agus Ahadi Deradjat, Gustaaf Reerink and Adri Dharma, ABNR Counsellors at Law
A company is treated as a resident of Indonesia for tax purposes (and subject to tax on worldwide income) if it is incorporated or domiciled in Indonesia. Generally speaking, companies are obliged to pay corporate income tax (CIT) at a flat rate of 22%. CIT applies to corporate taxpayers, including limited liability com - panies, limited partnerships, firms, joint ventures, foundations and other entities that are established or domiciled in Indonesia. Other applicable taxes include final income tax for certain sectors (eg, micro, small and medium enter - prises, construction), land and building tax, stamp duty and excise tax on specific goods. A foreign company carrying out business activities through a permanent establishment (PE) in Indonesia will generally have to assume the same tax obligations as a resident taxpayer. PEs as non-resident taxpay - ers are taxed only on income sourced from Indonesia. Taxable objects of PE include: • income from business or activities of the PE and held or controlled property; • income of the head office from business or activi - ties, the sale of goods or provision of services in Indonesia that are similar to those conducted or carried out by the PE in Indonesia; and • income in the form of dividends, interest, royal - ties, rental, grant, debt forgiveness, etc, received or accrued by the head office, provided that there is an effective relationship between the PE and the property or activities giving rise to the aforemen - tioned income. Public companies that meet the minimum list - ing requirement of 40% and consist of at least 300 shareholders, each holding less than 5% of the paid- in shares, and where these conditions are met for at least 183 days in a tax year, are entitled to a tax cut of 3% off the standard rate, giving them an effective CIT rate of 19%. Small companies – ie, corporate taxpayers with annu - al gross turnover of no more than IDR50 billion, are entitled to a 50% discount off the standard tax rate, which is imposed proportionally on taxable income when the gross turnover is up to IDR4.8 billion. Those
with annual gross turnover of no more than IDR4.8 bil - lion are subject to a final tax of 0.5% of the turnover for a limited period. Domestically sourced dividends are not subject to tax if received or accrued by: • an individual taxpayer, provided the dividend is invested in Indonesia within a certain period, or • a corporate taxpayer. The following foreign-sourced income may be exempt from income tax if it is reinvested or used for business activities in Indonesia within a certain period: • income received by an Indonesian taxpayer from a PE abroad; • dividends paid by companies abroad; and • active business income received by an Indonesian taxpayer from abroad (not from a PE or foreign subsidiary). For after-tax income from a PE and dividends paid from a non-listed subsidiary, the minimum reinvest- ment is 30% of profit after tax. Otherwise, the differ - ence between the 30% threshold and the reinvested portion will be subject to income tax. Value Added Tax In Indonesia, value added tax ( pajak pertambahan nilai (PPN)) is levied on most goods and services. The standard PPN rate is currently set at 12%. However, for goods and services that are not classified as luxury items, the government has implemented an effective rate of 11% (by reducing the tax base). PPN is imposed at each stage of the production and distribution process on manufacturers, retailers and ultimately consumers. Certain goods and services, such as basic commodities, healthcare and educa - tion, are either exempt from PPN or subject to non- collection. 9.2 Withholding Taxes on Dividends, Interest, Etc Withholding tax (WHT) applies to a range of payments made to both resident and non-resident taxpayers. For payments to resident taxpayers, WHT is gen -
331 CHAMBERS.COM
Powered by FlippingBook