On 3 September 2019 the Minister of Finance announced the Government’s plan to propose a number of changes to the Income Tax, Value Added Tax (VAT), and General Tax Provision laws. The process of the change of the legislation is still at an early stage and many key aspects of the proposals are still not clear.
Key highlights of the proposed changes are:
- The corporate income tax rate, currently 25%, will be gradually reduced to 22% for 2021 and 2022, to 20% for 2023 and thereafter. Income tax rate for newly listed Indonesian companies will be 19% for 2021 and 2022 and 17% for 2023 and thereafter for a period of five years. After the five year period, the rate will become 20%.
- Dividends received by Indonesian companies and individuals from both domestic and foreign companies, if reinvested in Indonesia, will be tax exempted. Currently, Indonesian companies pay 25% corporate income tax on all foreign sourced dividends and pay the same on domestic sourced dividends when the company’s shareholding is less than 25%.
- The penalty for not issuing, or for the late issuance of a VAT invoice would be cut to 1% of the VAT (current rate is 2%). Interest for underpayment of tax (due to amendments and assessments) will be reduced from 2% per month to a benchmark interest rate (will be determined by the Minister of Finance on a regular basis) plus 5%, prorated on a monthly basis. A new penalty of 1% for failing to register for VAT purposes.
- Situations in which companies will be able to claim input VAT will be broadened, including VAT paid during pre-production periods and certain other situations.
- The legal and regulatory frameworks for Indonesia’s various incentives will be consolidated into one part of the law.
- International digital companies will be required to register for, collect and report VAT at a rate of 10%, through their representatives in Indonesia. This will be applied to international sellers, international service providers and international platform companies.
- Income Tax Law will be updated to allow the Indonesian Government to tax profits without physical presence in Indonesia (”significant economic presence” concept). It is not known the expected impact of this change to treaty agreements.