Tax Cluster in Omnibus Law
- November 18, 2020
- Posted by: Administrator
- Category: Tax News
Following two months of deliberation by the Parliament, the Omnibus Law on Job Creation was signed by President Joko Widodo on 2 November. There have been several versions; the latest is the 1,187-page version.
The Omnibus Law consists of several regulations to promote Job Creation, including a Taxation Cluster for changes in certain articles of the existing tax laws. These are found in Article 111 regarding the Income Tax Law (UU PPh), Article 112 regarding the Value Added Tax Law (UU PPN), and Article 113 regarding General Tax Procedures and Provisions (UU KUP).
As highlights, below are some major changes:
- Specification of Tax Subject:
The criteria to determine whether an individual taxpayer will be a tax subject or not are segregated for Indonesian citizens and foreigners.
The Omnibus Law also provides for the exclusion of Indonesian citizens who are outside Indonesia for more than 183 days within a period of 12 (twelve) months as resident taxpayers.
- Tax Basis for Expatriates:
Expatriates who are resident taxpayers with certain special skills will be taxed only on income sourced from Indonesia (territorial basis) for 4 (four) fiscal years starting from the period of becoming resident taxpayers.
- Dividend Income Exemption:
Individual and/or Local Corporate Shareholders may be exempted from tax on dividend if the dividend is reinvested in Indonesia and meets certain requirements. For dividends received from an offshore private company and the after-tax profit of an offshore Permanent Establishment (PE), a partial or full tax exemption will be available, depending on the extent to which the dividend or PE profit is reinvested in Indonesia.
- Distribution of Net Income by a Cooperative:
This is no longer included as a tax object in Indonesia.
- Lower Withholding Tax Rate for Interest:
Through a Government Regulation, payment of interest to overseas can be granted a withholding tax rate lower by 20%. It seems the lower withholding tax rate may be relevant for payment to a non-treaty country partner as well.
Value Added Tax (VAT):
- Excluded from the Definition of Delivery of Taxable Goods:
Delivery of Taxable Goods by consignment is no longer included in the definition of delivery of Taxable Goods, nor is the transfer of Taxable Goods in exchange for share capital.
- Coal Mining Product:
Coal mining product no longer falls under the definition of non-tax object.
- Update on Failure in Production:
The term “failure in production” is no longer used and is updated with a provision whereby for a VAT-able Entrepreneur (PKP) that does not yet have any taxable delivery, the relevant Input VAT can only be credited in accordance with the requirements of the laws and regulations.
- Input VAT:
Input VAT can be credited even though PKP registration has not been completed, with a maximum of 80% of the relevant output VAT.
A PKP will also be allowed to claim Input VAT that is collected through a tax assessment notice, as long as the amount due has been paid and there is no filing of an objection or any other legal proceeding. Further, the Input VAT that has not been reported in the VAT return but is obtained during a tax audit process can still be credited.
- VAT Invoice:
PKP retail merchants can produce VAT Invoices without including information of the buyer’s identity and name and signature of the seller in the case of delivering Taxable Goods (BKP) and/or Taxable Services (JKP) to buyers with end consumer characteristics, which will be further regulated through a Minister of Finance (MoF) regulation.
General Tax Procedures and Provisions (KUP):
- Tax Penalty:
The calculation method for Tax Penalty is changed from fixed monthly interest of 2% to the use of a benchmark interest rate (plus a certain percentage, depending on the type of error) divided by 12 months, with a maximum of 24 months.
Disclosure of tax untruths such as failure to report or misreporting a tax return will be subject to an administrative sanction of 100%.
- Tax Payment Installment or Postponement:
The limit of installments or postponement of tax payments shall no longer be only 12 months. It will be further regulated by the MoF.
- Reward of Interest:
If the overpayment refund process is delayed for more than one month, the Director General of Tax (DGT) shall give a reward of interest (benchmark interest rate plus 5% applies, divided by 12), with a maximum of 24 months.
- Issuance of Tax Assessment:
The issuance of an Underpaid Tax Assessment Notice (SKPKB) can only be done through a Tax Audit.
For greater details about the tax stipulations under the Omnibus Law, please reach out to our professionals to further discuss the items relevant to your case.