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Principal Tax Contact
Bambang Suprijanto
+62 (21) 5289-5000
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+62 (21) 5289-5060
+62 (31) 532-5577
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International Tax and Transaction Services – International Corporate Tax Advisory
Peter Ng
Peter Mitchell
Anita Priyanti
+62 (21) 5289-5228
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Email: peter.ng@id.ey.com
+62 (21) 5289-5232
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Email: peter.mitchell@id.ey.com
Mobile: +62 (81) 189-8142
Email: anita.priyanti@id.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Ben Koesmoeljana
Triadi Mukti
Prasetya H. Lam
Ihsan Muttaqien
Melyana Trisanty
Roy M. Sibuea
+62 (21) 5289-5030
Mobile: +62 (81) 9056-98899
Email: ben.koesmoeljana@id.ey.com
+62 (21) 5289-5090
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+62 (21) 5289-5022
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+62 (21) 5289-5097
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+62 (21) 5289-5242
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+62 (21) 5289-5636
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International Tax and Transaction Services – Tax Desk Abroad
Ibnu Baskoro
+1 (312) 892-3063 (resident in Chicago)
Mobile: +1 (312) 721-9991
Email: ibnu.a.baskoro1@ey.com
International Tax and Transaction Services – Transfer Pricing
Jonathon McCarthy
+62 (21) 5289-5599
Mobile: +62 (81) 5190-90233
Email: jonathon.mccarthy@id.ey.com
Micky M. Soeradiredja
Ryosuke Seto
Anna T. Pratiwi
Business Tax Advisory
Bambang Suprijanto
Santoso Goentoro
Yudie Paimanta
Dodi Suryadarma,
Financial Services
Nitya C Ayu,
Financial Services
David Setiyawan
Sri Rahayu
Rasono
Global Compliance and Reporting
Nathanael Albert
Sharala Panjanadan
People Advisory Services
Kartina Indriyani
Henry Tambingon
Indirect Tax
Iman Santoso
Elly Djoenaidi
Law
Fahrul S. Yusuf
+62 (21) 5289-5245
Mobile: +62 (81) 2800-7510
Email: micky.mintarsyah@id.ey.com
+62 (21) 5289-5320
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+62 (21) 5289-5685
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+62 (21) 5289-5060
+62 (31) 532-5577
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+62 (21) 5289-5584
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+62 (21) 5289-5585
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+62 (21) 5289-5236
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+62 (21) 5289-5542
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+62 (21) 5289-5026
Mobile: +62 (81) 3300-05025
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+62 (21) 5289-5485
Mobile: +62 (81) 688-3281
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+62 (21) 5289-5000
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+62 (21) 5289-5265
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+62 (21) 5289-5355
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+62 (21) 5289-5240
Mobile: +62 (81) 186-8336
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+62 (21) 5289-5033
Mobile: +62 (81) 695-2569
Email: henry.tambingon@id.ey.com
+62 (21) 5289-5250
Mobile: +62 (81) 188-4267
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+62 (21) 5289-5590
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taxed only on those profits derived from activities carried on in Indonesia. However, income accruing from Indonesia to a foreign company having a permanent establishment in Indonesia is taxed as income of the permanent establishment if the business generating the income is of a similar nature to the business of the permanent establishment. This is known as the “force of attraction” principle.
Deemed permanent establishment or Electronic Transaction Tax. Laws have been passed but not yet implemented to the effect that an offshore seller, offshore service provider or offshore e-commerce organizer meeting the significant economic presence criteria can be treated as a permanent establishment and subject to income tax.
Significant economic presence will be defined in further regulations with reference to the following:
• Consolidated business group turnover of a certain amount
• Sales in Indonesia of a certain amount
• Active users of digital media in Indonesia of a certain number
If income tax cannot be imposed as a result of the application of a tax treaty, the offshore seller, offshore service provider or offshore e-commerce organizer meeting the significant economic presence criteria will be subject to the Electronic Transaction Tax. This tax will be imposed on the sale of goods or services from outside Indonesia through e-commerce to the buyer or the user in Indonesia if the sale is conducted by an offshore taxpayer, whether directly or via an offshore e-commerce organizer. These laws await implementing regulations before they can enter into effect. Indonesia may pursue an approach consistent with Base Erosion and Profit Shifting (BEPS) 2.0 rather than implementing these laws.
Rates of corporate tax. Corporate tax is imposed at a flat rate of 22%. This rate applies to Indonesian companies and foreign companies operating in Indonesia through a permanent establishment. The tax rate is reduced by three percentage points for listed companies meeting certain requirements, such as having at least 40% of their paid-up capital traded on the stock exchange. Smalland medium-scale domestic companies (that is, companies having gross turnover of up to IDR50 billion) are entitled to a 50% reduction of the tax rate. The reduced rate applies to taxable income corresponding to gross turnover of up to IDR4.8 billion.
A previously announced reduction of the corporate tax rate to 20% has been canceled.
Branch profit tax. The net after-tax profits of a permanent establishment are subject to branch profit tax at a rate of 20%. This rate may be reduced under a double tax treaty. Branch profit tax applies regardless of whether the income is remitted to the head office. An exemption may apply if the profits are reinvested in Indonesia.
Tax incentives
Tax Allowance Incentive. Tax incentives under the Tax Allowance Incentive are granted to certain qualifying resident companies investing in certain types of businesses or regions. The Tax Allowance Incentive consists of the following:
• Accelerated depreciation and amortization.
• Extended period of 10 years for the carryforward of a tax loss (normally five years), subject to certain conditions.
• Reduced tax rate of 10% (or lower rate under a double tax treaty) for dividends paid to nonresidents.
• Investment allowance in the form of reduction of net income by 30% of the amount invested in land and buildings, and plant and equipment. This allowance is claimed at a rate of 5% each year over a six-year period.
To qualify for the above tax incentives, the investment must be a new investment or an investment for the purpose of expanding a current business. Under a government regulation, 166 categories of business sectors and 17 other categories of industries in certain areas may qualify for the tax incentives. The designated areas and provinces are generally outside Jakarta. They are primarily the provinces located in Kalimantan and Sumatera.
Certain restrictions apply to the use and transfer of fixed assets that benefit from the incentives. These restrictions apply for the first six years of commercial production or for the prescribed useful life of the assets for tax purposes. The incentives are revoked with a penalty if these rules are violated. Implementation of the government regulation is evaluated within two years from the date on which the approval is granted. A monitoring team is established for this purpose.
Tax Holiday Incentive. Certain taxpayers engaged in a “pioneer industry” may seek a tax incentive commonly known as the Tax Holiday Incentive, which was introduced in 2011 and lastly renewed in September 2020. The Tax Holiday Incentive offers corporate tax exemptions of 50% if the new capital investment is at least IDR100 billion but less than IDR500 billion and 100% if the new capital investment is at least IDR500 billion, for five to 20 years depending on the amount of new capital investment. An additional period of corporate income tax reduction for two fiscal years is also offered after the expiration of the tax holiday in the following cases:
• 25% reduction of the corporate income tax payable if the new capital investment is at least IDR100 billion but less than IDR500 billion
• 50% reduction of the corporate income tax payable if the new capital investment is at least IDR500 billion
To qualify for the Tax Holiday Incentive, taxpayers must fulfill the following criteria:
• They must be Indonesian legal entities.
• They must be engaged in a “pioneer industry.”
• The capital investment must be new and not yet issued with an approval or rejection on an application to reduce the corporate income tax of the company.
• They must have a new capital investment plan with a minimum value of IDR100 billion.
• They must satisfy the thin-capitalization ratio required by the Minister of Finance for income tax purposes.
• They must commit to start realizing their capital investment plan within a year after the approval to obtain the Tax Holiday Incentive is issued.
taxpayer’s application is in process. The decision to grant the Tax Holiday Incentive to the company is issued by the Chairman of the Investment Coordinating Board on behalf of the Minister of Finance within five business days after it receives the complete proposal. The Tax Holiday Incentive can be given by the Minister of Finance with respect to a proposal that is submitted within four years after 8 October 2020.
Super deduction incentives. Super deduction incentives are discussed below.
A super deduction for labor-intensive industry is available. This income tax incentive is available for a domestic corporate taxpayer that conducts new capital investment or business expansion in a business sector that is a labor-intensive industry sector and is not eligible for a tax allowance or the Tax Holiday Incentive. The income tax facility provided to the qualified taxpayer is an investment allowance of 60% (on top of normal tax depreciation) of the amount invested in tangible fixed assets, including land, which are used in the main business activity. This allowance may be claimed at the rate of 10% each year over a six-year period beginning with the fiscal year of the starting of commercial production.
A super deduction for apprentice, internship and teaching activities is available. For a domestic corporate taxpayer that carries out work practice, internship or teaching to coach and develop human resources with “certain competencies” may be eligible for a reduction of gross revenue of a maximum of 200% of the total expenses incurred for work practice, internship or teaching activities. “Certain competencies” is defined as competency to increase human resources quality through work practice, internship or strategic teaching to achieve human resources effectiveness and efficiency as part of a human resources investment, and to meet the structure of labor requirements that are needed by the business or industry sectors.
A super deduction for research and development (R&D) activities is available. A domestic corporate taxpayer that carries out certain R&D activities in Indonesia may be eligible for a reduction in gross revenue of a maximum of 300% of the total expenses incurred for “certain R&D activities” in Indonesia. Certain R&D activities are defined as R&D activities conducted in Indonesia to produce invention, innovation, mastery of new technology or transfer of technology for industrial development to increase the competitiveness of national industry.
Tax incentives for investment in Nusantara Capital City. Investment in Nusantara Capital City (IKN) can be provided with the following tax incentives:
• Tax holiday: Under this tax incentive, a 100% corporate income tax payable reduction can be given to a resident corporate taxpayer that makes a capital investment in IKN and Partner Area with a minimum value of IDR10 billion between 2023 and 2045. The tax holiday periods range between 10 and 30 fiscal years.
• Income tax reduction for financial sectors in the Financial Center: A tax holiday can be given to financial institutions which invest in or finance the construction, development and
economic activities in IKN and Partner Area. Under this tax incentive, an 85% or 100% corporate income tax payable reduction can be given to financial institutions that invest in or finance the construction, development and economic activities in IKN and Partner Area, if the investment is made between 2023 and 2045. The tax holiday period ranges from 20 to 25 fiscal years.
• Reduction of corporate income tax on the establishment and/ or relocation of head office and/ or regional office: A tax holiday can be given to nonresident and resident businesses that establish and/or relocate their head office and/or regional offices to IKN area. Under this tax incentive, a 100% corporate income tax payable reduction can be given for 10 fiscal years and a 50% corporate income tax payable reduction can be given for the following 10 fiscal years up to 2045.
• Apprenticeship, internship and teaching activities tax concession: A taxpayer can be given a maximum of 250% reduction on the gross revenue for the costs incurred to conduct apprenticeship, internship and/or teaching activities for certain competencies carried out in IKN. This tax incentive can be given up to 2035.
• R&D super deduction: A super deduction via reduction of gross revenue up to a maximum of 350% of expenses disbursed for certain R&D activities can be given to resident corporate taxpayers that are domiciled and/or has business activities in IKN and that conduct certain R&D activities in IKN. Certain R&D activities that are eligible for this tax incentive are R&D activities that are carried out in IKN to produce inventions, develop innovation, new technology mastery, and/or transfer of technology for industrial development to increase national industrial competitiveness. This tax incentive can be given to up to 2035.
• Super deduction for donation and/or funding to construct public, social and other non-profit facilities: A reduction of gross revenue in the form of super deduction up to a maximum of 200% of total donation or expenses disbursed to construct public, social or other non-profit facilities can be given to resident taxpayers that provide donations and/or pay expenses to construct public, social and/or other non-profit facilities in IKN. This tax incentive can be given up to 2035.
• Final Article 21 income tax borne by the government: Article 21 income tax on income received by employees who receive income from certain employers, who are domiciled in IKN, and who obtain a Tax ID Number that is registered in the tax office for which the working area covers the IKN area, can be borne by the government and be final in nature. This tax incentive can be given up to 2035.
• Final income tax at 0% on income received by micro-, smalland medium-scale businesses with low gross turnover: Final income tax at 0% on income from gross revenue up to a maximum of IDR50 billion per fiscal year can be given to a resident taxpayer, not including a permanent establishment, that makes a capital investment of less than IDR 10 billion in IKN and meets certain conditions. This tax incentive can be given up to 2035.
• Income tax reduction on the transfer of land and/or buildings: Under this tax incentive, a 100% income tax payable reduction on the transfer of land and/or buildings can be given to a
taxpayer that transfers land and/or buildings in the IKN. This tax incentive can be given up to 2035.
• Value-added tax (VAT) incentives: VAT is not collected on the import and/or delivery of certain strategic taxable goods and services in IKN and Partner Area and an exception for luxury sales tax for luxury residentials is given to individuals and corporations that reside, work or carry out businesses in IKN. This tax incentive can be given up to 2035.
• Customs incentives: An exemption on import duty and import taxes can be given for the importation of goods and material for construction and development of industries in IKN and Partner Area. This customs incentive can be given up to 2045.
Special tax rates. Special tax rates granted to certain companies are described below.
Oil and gas. Tax rates applicable to oil and gas companies are those applicable when their contracts were signed and approved by the government of Indonesia. In addition, foreign oil and gas companies are subject to a branch profit tax of 20% on their net profits after tax.
Mining. Income tax applicable to general mining companies may depend on generation of the contract of work and concession granted (that is, when the concession is granted). Holders of earlier concessions are taxed at the rates ranging from 30% to 45% (the tax rates are the rates prevailing at the time the concession was granted). Holders of the more recent concessions are taxed in accordance with the prevailing tax laws (current rate is 22%). Although withholding tax on dividends paid overseas is generally imposed at a rate of 20%, some earlier concessions provide a reduced rate of 10%. These rates may be subject to reduction under certain tax treaties.
Construction companies. Construction companies are subject to corporate income tax with tax rates ranging from 1.75% to 6% of the contract value. The income tax applies to complete or partial construction activities. The applicable tax rate depends on the business qualification of the respective company and/or the type of services performed. The tax is final in nature. Consequently, no corporate income tax is due on the income at the end of a fiscal year. Foreign construction companies operating in Indonesia through a branch or a permanent establishment are subject to further branch profit tax of 20% on their net profits after tax (accounting profit adjusted for tax) after deduction of the final tax. The rate is subject to applicable tax treaties. Exemption from branch profit tax may apply in the circumstances described above (see Branch profit tax).
Foreign drilling companies. Foreign drilling companies are subject to corporate income tax at an effective rate of 3.75% of their gross drilling income, as well as to branch profit tax of 20% on their net profits after tax. The branch profit tax may be reduced under certain tax treaties. Branch profit tax may be avoided in the circumstances described above (see Branch profit tax).
Nonresident international shipping companies and airlines. Nonresident international shipping companies and airlines are subject to tax at a rate of 2.64% of gross turnover (inclusive of branch profit tax). As a result of the reduction of the corporate tax
subject to a final tax of 10%. To qualify for tax exemption, the dividend paid to resident companies and resident individuals must be declared at the annual general meeting of shareholders or as an interim dividend based on the prevailing regulations. Under the Company Law, dividends can only be paid out of profits.
Dividends remitted to overseas shareholders are subject to a final 20% withholding tax, unless an applicable tax treaty provides a lower rate (tax treaty will apply if certain domestic requirements are met).
Foreign dividends paid by offshore companies and after-tax profit from offshore permanent establishments, which are received by corporate or individual tax residents, are exempt from tax if such income is invested in Indonesia or used to support other businesses in Indonesia for a certain time period and satisfy certain conditions.
Foreign tax relief. A credit is allowed for tax paid or due overseas on income accruing to an Indonesian company, provided it does not exceed the allowable foreign tax credit. The allowable foreign tax credit is computed on a type (basket)-of-income and countryby-country basis.
C. Determination of trading income
General. Income is broadly defined. It includes, but is not limited to, the following:
• Business profits
• Gains from sales or transfers of assets
• Interest, dividends, royalties and rental and other income with respect to the use of property
• Income resulting from reorganizations, regardless of the name or form
• Gains from sales or transfers of all or part of a mining concession, funding participation or capital contribution of a mining company
• Receipt of refund of tax that has been claimed as a tax deduction
• Income earned by syariah-based businesses (syariah refers to businesses conducted in accordance with Islamic law)
• Interest compensation
• Surplus of Bank Indonesia
Certain income is not taxable or is subject to a final tax regime. Interest earned by resident taxpayers on time deposits, certificates of deposit and savings accounts is subject to a 20% withholding tax, representing a final tax on such income. A final 20% (or lower rate provided in a tax treaty) withholding tax is imposed on interest earned by nonresidents.
Taxpayers are generally able to deduct from gross income all expenses to the extent that they are directly or indirectly incurred in earning taxable income. Nondeductible expenses include the following:
• Income tax and penalties
• Expenses incurred for the private needs of shareholders, associates or members
• Gifts
• Donations (except for donations for national disasters, grants in the framework of R&D activities in Indonesia, grants for the development of social infrastructure, grants in the form of education facilities [for example, books, computers, chairs, tables and other educational resources] and grants for the development of sport)
• Reserves and provisions for certain industries
Business losses incurred overseas are not deductible.
Foreign-exchange gains and losses are treated as taxable income and deductible expenses in accordance with the generally accepted accounting procedures in Indonesia that are consistently adopted.
Under the HPP Law, starting from the 2022 fiscal year, certain benefits in kind will now be tax-deductible for the employer and become taxable income for the employee/recipient. “Benefit in kind” means consideration in kind in the form of goods other than money and/or consideration in the form of enjoyment for the right to use certain facilities and/or services. The HPP Law provides certain exemptions from this treatment.
Inventories. For tax purposes, inventories must be valued at cost using either the first-in, first-out (FIFO) or average-cost method. The last-in, first-out (LIFO) method is not allowed.
Provisions. Provisions are generally not deductible for tax purposes.
Certain taxpayers that may claim bad debt provisions as deductible expenses include banks and certain nonbank financial institutions, such as other corporate entities providing loan facilities, insurance companies, leasing companies that lease assets under finance leases, consumer financing companies, and factoring companies. The following companies may also claim tax deductions for reserves or provisions:
• Social insurance providers: reserves of social funds
• Forestry companies: reserves for reforestation
• Mining companies: reserves for reclamation of mining sites
• Industrial waste treatment companies: reserves for closure and maintenance of waste treatment plants
Taxpayers may claim tax deductions for bad debts if all of the following conditions are satisfied:
• The costs have been claimed as corporate losses in commercial financial reports.
• A list of the names of the debtors and totals of the bad debts is submitted to the Director General of Taxation.
• A legal suit for collection of the debt is filed with the public court or government institutions handling state receivables, or there is a written agreement on receivable write-off/debt forgiveness between the creditor and the debtor, or the bad debt has been published in a general or specialized publication, or there is an acknowledgment of the write-off of the bad debt from the relevant debtor.
The write-off of receivables from a related party is not deductible for tax purposes.
Depreciation and amortization allowances. Depreciation is calculated on the useful life of an asset by applying the straight-line method or declining-balance method. In general, depreciation is
Nature of tax Rate (%)
at the carbon market per kilogram of carbon dioxide equivalent (CO2e) or its equivalent unit; if the carbon price rate at the carbon market is lower than IDR30 per kilogram CO2e, the law appears to set a carbon tax floor of IDR30 per kilogram of CO2e or its equivalent unit; to date, the carbon tax is not yet in effect, with the planned 1 April 2022 implementation postponed; many key aspects of the carbon tax will not be known until implementing regulations are released See description of tax
E. Miscellaneous matters
Foreign-exchange controls. No exchange controls affect the repayment of loans and the remittance of dividends, interest and royalties. Underlying documents must be submitted to the remitting bank for the remittance of funds in foreign currency of more than the equivalent of USD100,000. Foreign loans must be reported to Bank Indonesia to enhance the monitoring of the country’s foreign exchange reserves.
Debt-to-equity rules. Under the tax law, the Minister of Finance may determine an acceptable debt-to-equity ratio. In September 2015, the Minister prescribed a maximum debt-to-equity ratio of 4:1, effective from the 2016 tax year. This rule applies only to Indonesian resident companies, which are companies that are established or incorporated in Indonesia or domiciled in Indonesia and that have their equity made up of shares. It does not apply to permanent establishments. Certain taxpayers are exempted from the rule. It is expected Indonesia will move away from a pure debt-to-equity ratio approach in the future in favor of other thincapitalization tests.
Under the Minister of Finance Regulation regarding the debt-toequity ratio, if a taxpayer breaches the ratio limit, the Directorate General of Taxation is entitled to adjust the taxpayer’s borrowing costs based on the debt-to-equity ratio limit. For a taxpayer that has a nil or negative equity, all costs related to the borrowing are treated as nondeductible for corporate tax purposes. Foreign loans must be reported to the Directorate General of Taxation. Non-reporting of foreign loans results in the forfeiting of the deductibility of the interest.
Interest rates on related-party loans must be at arm’s length.
Transfer pricing. The law provides that the following methods may be used to determine arm’s-length pricing:
• Comparable uncontrolled price method
• Resale-price method
• Cost-plus method
• Other methods, such as the profit-split method, the transactional net margin method, the comparable uncontrolled transaction method, the tangible and intangible asset valuation method and the business valuation method
The Indonesian tax authority requires that related-party transactions or dealings with affiliated companies be carried out on an