(December 11, 2020) The Indonesian government recently passed Law No. 11 of 2020 on Job Creation.Omnibus law”). The stated goal of the Omnibus Act is to encourage investment and create jobs by streamlining regulations and simplifying the licensing process to simplify business in Indonesia.
Among other things, the Omnibus Act introduces and changes a number of provisions on tax issues in Indonesia. In particular, provisions are changed by:
- Law No. 7 of 1983 on income tax as amended several times, most recently by Law No. 36 of 2008 (the "Income Tax Act”);
- Law No. 8 of 1983 on VAT ("VAT”) For services and goods as well as sales tax for luxury goods, as amended several times, most recently by Law No. 42 of 2009 (the“Value Added Tax Act”); and
- Law No. 6 of 1983 on General Provisions and Directives on Taxation, amended several times, most recently by Law No. 16 of 2009 (the "SRC law”).
We highlight some of the key changes as follows:
Income Tax Act
- Determination of the individual tax subjects:
- Indonesian citizens outside Indonesia can become foreign taxpayers for more than 183 days
Under the Omnibus Act, Indonesian citizens who stay outside Indonesia for more than 183 days within a 12 month period and meet certain other requirements are classified as foreign taxpayers.
- Foreigners in Indonesia become resident taxpayers for more than 183 days
Foreign nationals who stay in Indonesia for more than 183 days within 12 months automatically become Indonesian taxpayers. In addition to this existing provision, the Omnibus Act also provides that foreigners who become Indonesian domestic taxpayers will only be taxed on the income they receive or receive in Indonesia. These provisions are aimed at foreigners with certain specialist knowledge. This treatment will apply for four years after you are classified as a resident taxpayer. However, this treatment does not apply to foreigners who make use of a double taxation agreement.
- Abolition of income tax on domestic and foreign dividends reinvested domestically:
- Dividends from domestic companies
According to the Omnibus Law, if dividends are to be reinvested in Indonesia, the tax rules on dividends will be changed as follows: (i) For individual taxpayers, the final income tax of 10% is 0%; (ii) for domestic corporation taxpayers, the final income tax of 15% is 0%; and (iii) for non-resident taxpayers, the final income tax remains 20% subject to the applicable tax treaty.
- Dividends from foreign companies
Similar to dividends from domestic companies, under the Omnibus Law, dividends from foreign companies to be reinvested in Indonesia that meet the set conditions and requirements are subject to 0% or no tax. If the dividend stays abroad, it is taxed in accordance with the applicable regulations.
- Adjustments to Article 26 Income Tax Rates on Interest for Income Tax Rates
According to the Omnibus Act, the introduction of a 20% tariff from the gross amount in accordance with Article 26 Paragraph 1 Letter b of the Income Tax Act on the payment of interest, including bonus, discount and fee in connection with a debt repayment guarantee, can be reduced by a government regulation.
Value Added Tax Act
- The transfer of taxable goods as part of a corporate merger, consolidation, expansion, division or acquisition or for the purpose of capital replacement for shares, provided that the parties making and receiving the transfer are taxable entrepreneurs, is not included in the definition of the supply of taxable goods .
- Under the Omnibus Act, mining products or drilling products directly from their source, excluding coal mining products, are included in the types of goods that are not subject to VAT.
- The Omnibus Act also contains several provisions on VAT credit, namely:
- Input tax that cannot be credited:
- Must be repaid to the Treasury by the taxable entrepreneur if the taxable entrepreneur: (i) has received a refund of the tax overpayment on this input tax; and / or (ii) has credited the input tax referred to as output tax payable in a tax period; and or
- In the event that the taxable entrepreneur is compensated for the tax surplus compensation, the taxable entrepreneur cannot be compensated in the next tax period, and an application for reimbursement cannot be made after the expiry of the three-year period or at the time of the termination of the business or the cancellation of the taxable entrepreneur.
- The credit requirements for input tax on taxable goods and / or services that are procured and / or received imported taxable goods, as well as for the use of intangible taxable goods and / or services from outside the customs area within the customs area; in accordance with the Omnibus Law are as follows:
- Before an entrepreneur is confirmed as a taxable entrepreneur, he can use the guidelines for crediting input tax at the rate of 80% of the output tax to be levied.
- Taxable goods and / or services that are not listed in the sales tax report and were reported and / or discovered at the time of the inspection can be credited by the taxable entrepreneur, provided that they meet the credit requirements according to the Omnibus Act. and
- The tax invoiced with the issuance of a tax assessment can be credited by the taxable entrepreneur in the amount of the main amount of VAT included in the tax assessment, provided that this tax assessment has been paid in full and no legal remedies have been lodged and the credit corresponds to provisions in accordance with this Act.
- The rate of administrative penalties for rectification or tax payment
The administrative penalty was set at an interest rate of 2%. The omnibus law now states that the amount will be further regulated by the finance minister ("MOF”).
The interest rate set by the MOF in the event that taxpayers correct the tax returns themselves, resulting in a higher tax liability, is calculated on the basis of the reference interest rate plus 5% and divided by 12, which is valid from the date the penalty begins . However, if the Director General for Taxes ("DGT”) Carries out a check on the condition that DGT has not issued a tax assessment, based on a separate report from the taxpayer about the incorrect completion of the tax return, which leads to a higher tax liability. The rate set by the MOF is based on their preferred rate added by 10% and divided by 12.
- Interest yield for excess yield Payment of taxes (overpayment)
The Omnibus Act provides that the interest rate is set by the MOF and is calculated on the preferential interest rate divided by 12, which applies at the time when the calculation of the interest adjustment starts.
- Cessation of the investigation of tax offenses
Under the Omnibus Act, the Attorney General's Office may, upon request of the MOF, stop investigating a tax offense within six months from the date of the application letter. A termination is only possible after the taxpayer has paid the tax liability. The Omnibus Act states that this will be further regulated by the MOF.
The above changes to Indonesian tax laws and regulations under the Omnibus Law have a particular focus on the rights and obligations of economic operators, both domestic and foreign taxpayers. They also increase Indonesia's attractiveness as an investment destination by lowering corporate taxes and creating incentives as explained above. Although technical regulations still have to be enacted to implement these changes, the changes proposed by the Omnibus Act would have a significant impact on Indonesian tax law, especially for economic operators.