INTERNATIONAL TAX COMPLIANCE REGULATIONS IN (PART 11): Indonesia
By Jimmy Budhi, KAP Jimmy Budhi & Rekan
Indonesia entered into an international tax treaty taxation which required the country to participate in the implementation of the Automatic Exchange of Financial Account Information and established legal legislation concerning access to financial information for tax purposes prior to 30 June 2017.
On 08 May 2017, the Government issued a Regulation in Lieu of Law of the Republic of Indonesia regarding access of financial information for taxation purposes, which passed into Law (Law No. 9 Year 2017) on 23 August 2017.
Under Law No. 9 Year 2017, the Director General of Taxation shall be authorised to obtain access to financial information for tax purposes from financial services institutions carrying out activities in banking, capital markets, and the insurance sector, as well as other financial service institutions and/or other entities categorised as financial institutions in accordance with the financial information exchange standards based on international tax treaties (Financial Service Institutions/FSI).
The Director General of Taxation shall be authorised to request information and/or evidence or statements from the FSI. The financial information contained in the reports and the information and/ or evidence or statements shall be used as a tax database of the Directorate General of Taxation.
Foreign Tax and Financial Reporting Requirements for Indonesia
1. Main types of businesses and taxes in Indonesia
The main types of businesses in Indonesia and taxes for each entity are as follows:
a. Resident individuals who run their own businesses are subject to individual income tax. The progressive rates are charged to taxable annual income (see table).
Tax residents are those that live in Indonesia, stay in Indonesia for more than 183 days within a 12-month period, and intend to reside in Indonesia. Non-resident individuals are subject to a 20% withholding tax on Indonesia-sourced income.
b. Limited liability companies (Perseroan Terbatas or PT) and partnerships
Generally, a flat rate of 25% applies.
Small enterprises, i.e., corporate taxpayers with an annual turnover of not more than IDR 50 billion, are entitled to a 50% discount of the standard tax rate which is imposed proportionally on taxable income of the part of gross turnover up to IDR 4.8 billion. Certain enterprises with gross turnover of not more than IDR 4.8 billion are subject to final tax at 0.5% of turnover.
Public companies that satisfy a minimum listing requirement of 40% and other conditions are entitled to a tax cut of 5% off the standard rate, giving them an effective tax rate of 20%.
2. Types of trusts, foundations and tax rates for each structure
Indonesian law does not allow the creation of trusts in Indonesia.
Indonesian residents acting as trustees in international trusts will be subject to taxation in Indonesia. These will be applied to the personal income tax for the duration of their services for the trust.
There are three types of such foundations: (i) foreign foundations, (ii) Indonesian foundations founded by foreign nationals or by foreign nationals together with Indonesian citizens, and (iii) Indonesian foundations founded by a foreign legal entity.
Foundations are generally subject to income tax, with rates the same as corporate income tax rates. Donations, including religiously motivated donations and grants, are not taxed provided that there is no business or ownership relationship between the parties. In addition, the following types of income are taxexempt: (i) income that a foundation uses to provide scholarship funds, and (ii) income of a foundation working in the area of education or research and development that is re-invested in its work within the period permitted by the income tax law (Law No.36 of 2008 on Income Tax, Article 4 Section 3). Tax deductions for charitable contributions are available for natural disasters, research and development activities, development of social infrastructure, education facilities, and sport.
3. Tax compliance requirements for owners of foreign assets
Under Law No. 9 Year 2017, The Director General of Taxation shall be authorised to obtain access to financial information for tax purposes from financial services institutions carrying out activities in the banking, capital markets, insurance sector, as well as other financial services institutions and/or other entities categorised as financial institutions in accordance with the financial information exchange standards based on international tax treaties (Financial Service Institutions/FSI)
FSI must submit to the Director General of Taxation:
- A report containing financial information in accordance with the financial information exchange standards under international tax treaties for each financial account identified as a financial account that must be reported; and
- A report containing financial information for tax purposes.
The two reports shall be managed by FSI in one calendar year.
FSI shall apply the procedures for the identification of financial accounts in accordance with the financial information exchange standards based on international tax treaties. The procedures must at least include the activities of:
- Verification to determine the domicile country for tax purposes for financial account holders, either individuals or entities;
- Verification to determine that the account holders as above are account holders that must be reported;
- Verification to determine that the financial accounts held by the account holders as above are financial accounts that must be reported;
- Verification of entities holding financial accounts to determine that the controllers of the entities are individuals that must be reported; and documentation of activities conducted in the context of the procedures for identifying financial accounts, including storing the documents obtained or used.
4. Tax compliance requirements for estate and wealth-planning matters
There are no net wealth/worth, inheritance, estate, or gift taxes in Indonesia.
5. Tax compliance requirements on sale of real estate
Capital gains are considered ordinary income and are taxed at the standard of corporate income tax or individual income tax rates.
Collaboration with Other GGI Members
The firm will collaborate with other GGI members in other jurisdictions in providing tax-planning structures.
Future Developments, Outlook / Summary
We believe the Indonesian tax legislation has created a huge taxplanning opportunity.
Jimmy Surjanto BudhiGGI member firm
KAP Jimmy Budhi & Rekan, Registered Public Accountants
Auditing & Accounting, Tax, Advisory, Corporate Finance
T: +62 21 579 567 89
KAP Jimmy Budhi & Rekan is a registered accounting firm serving businesses and non-profit entities in Indonesia. Since its foundation in 2003 the firm has been trusted to serve small to large businesses in Indonesia. The firm’s team has served clients engaged in various industries, including financial, mining, hotel & hospitality, real estates, and many others.
Jimmy Surjanto Budhi is the Founder and Managing Partner of the firm. He has over thirty years experience as auditor, accountant and internal auditor. Jimmy Budhi was also an audit committee member and chairman of several companies. His extensive experience includes working for large corporations, Government Institutions, public companies, as well as various international aid organisations.
Published: Working Together to Optimise International Tax Compliance, No. 2, Spring 2020 l Photo: jakartatravel - stock.adobe.com