International Tax - Indonesia

International Tax - Indonesia

Published May 2023



Firm: Mul & Co
Country: Indonesia

Practice Area: Tax

  • Jl. Pluit Raya 121 Blok A/12
    Jakarta Utara

Guide Content

Mulyono has accounting, finance, and legal backgrounds. Mulyono has triple masters in finance, law, and Notary, as well as several professional certifications such as Certified Public Accountant, Chartered Accountant, Certified Financial Planner, Certified Management Accountant, and Affiliate Wealth Manager. He is also a licensed legal counsel in Tax Court, a licensed advocate and member of the Indonesian Advocate Association (PERADI), and a registered tax consultant. He is currently pursuing a Doctorate degree in Law. His unique combination of the technical knowledge in tax, accounting, finance, legal, as well as his expertise of the Indonesian taxation business process system, enables him to become a trusted advisor to the clients. He is able to deliver holistic and practical taxation services to the clients and to accomplish complex and challenging tax-related projects such as tax litigation, tax advisory, and tax compliance for varying industries.

Indonesia adopts a civil law system and a hierarchy of regulations, which has multiple layer of regulations from the Indonesian 1945 constitutions to Director General of Tax regulation level. The prevailing tax and legal regulations, as well as the tax and legal environment/system in Indonesia, can be very complex, and there are many areas liable to misinterpretation. As a result, one who is not well served in the subject of taxation and law may miss the saving opportunities, be exposed to tax and legal problems, or not fully comply with the regulations. Our firm is able to assist our clients both from the interpretation of regulatory provisions as well as practical implementation of such provisions by the tax office. 

There are also a few administrative requirements in relation to tax treaty implementation that are sometimes overlooked by the taxpayer. As a result, the DGT may consider that the taxpayers are not able to use the tax facility as provided the Tax Treaty. We have tried to implement several measures with our clients to advise based on previous experience for the Tax Audit findings related to this matter so that our client is able to prepare in advance for a future Tax Audit.

For the tax compliance reporting, the Director General of Tax has improved the online submission channel as well as increasing the socialization to the taxpayer. However, there are also sometimes technical issues faced by the taxpayers in practice for the tax reporting compliance using the system provided by the authority. We always try to mitigate the risks by ensuring the taxpayer completes the necessary documentation, as well as to avoid last-minute submissions. We also cooporate with an external Application Service Provider that has been approved by the Director General of Tax, to ensure timely submission of the tax returns.

In light of the above context, the Government of Indonesia has issued several regulations to tackle the above issues, such as:
a. Updated procedures of implementation of the Tax Treaty, that has been regulated in DGT regulation number PER-25/PJ/2018. This DGT regulation provides the requirements for the taxpayer in order to be eligible to use the facility in the Tax Treaty. The foreign taxpayers need to fulfill several administrative conditions, e.g., certain forms to be prepared, namely Form DGT-1 and/or COD/COR. There are also other “substantive” requirements, e.g., no Tax Treaty abuse, fulfilling the criteria of a Beneficial Owner.

b. New implementing regulation of the determination of a Permanent Establishment in the Ministry of Finance Regulation Number 35 /PMK.03/2019. In line with the OECD and UN commentaries, this MoF regulation outlines the “preparatory or auxiliary” activities that will not trigger a PE in Indonesia. Further, this MoF regulation also provides specific details on a construction PE, service PE, insurance PE, as well as the determination of a dependent and independent agent. 

c. Introduction of a digital tax and VAT collector appointment for digital products and services provider. Indonesia has just recently introduced the electronic transaction tax / digital tax, as well as the VAT collector appointment for digital products and services providers. The new VAT collector appointment for digital products and services is planned to be implemented in the third quarter this year. As for the electronic transaction tax/digital tax, it is currently under further discussion. 

In principle, Indonesia adopts a destination principle in collecting the Value Added Tax. This is further elaborated in the Ministry of Finance Regulation Number 48/PMK.03/2020. The digital product or service provider that has an obligation to collect and report VAT will be determined based on criteria, such as the total value of the transaction in a 12-month period, and/or total traffic in a 12-month period. According to this Ministry of Finance Regulation, the digital goods and services providers may also appoint a representative in Indonesia for the VAT reporting obligations. In this case, the Value Added Tax will be collected from customers by the digital goods and service providers or their representatives in Indonesia that will be appointed by them.

At the time of writing, the detailed criteria of the digital products or services providers that will be required to collect and report VAT in Indonesia will be elaborated further in a Director General of Tax regulation. The system or application for reporting in the DGT system is also currently being developed.

In light of COVID-19, our firm has implemented a full work-from-home (WFH) policy. As advised by the Government starting June 2020, we have switched to partial WFH. We use extensive online collaboration and video conferencing tools and maintain regular internal meetings, as well as with the client. For documents and information exchange, we use electronic mails (emails) extensively and reduce hardcopy documents submission. So far, we are still able to deliver our work and to maintain our existing client relationships.

This pandemic has had a significant impact on many sectors in Indonesia, including taxation. In line with the Government's efforts to prevent the spread of the coronavirus. All Indonesian Tax Offices were temporarily closed from mid-March to mid-June 2020 – all of the taxation services carried out at Tax Service Offices (KPP). Taxpayers can still reach out to Tax Offices through email or via official WhatsApp numbers.

To help the national economy and maintain financial system stability, the Government has implemented several tax incentives and relaxation, along with some other policies stipulated in the Government Regulation in lieu of Laws Number 1 of 2020. The Ministry of Finance has then issued several incentives and relaxation policies in the field of taxation for taxpayers affected by the coronavirus outbreak, such as reduction Article 21 Income Tax Incentives (withholding tax on salary), Article 22 Imports Income Tax Incentives, Article 25 Income Tax Installment incentives, VAT Incentives, and micro, small and medium enterprises Tax Incentives. Several of these tax incentives applied to certain sectors that are identified by the Government have been heavily impacted by the pandemic. 

Besides the tax incentives, the Government also stipulates some relaxation policies this year, such as reduction of Corporate Income Tax rates (from 25% to 22%), an extension of the deadline of annual individual income tax return submissions, and relaxation of certain documents that need not be attached in annual Corporate Income Tax submissions.

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