Indonesia: New taxation rules for certain mineral mining companies
On August 2 2018, Government Regulation 37 of 2018 concerning treatment of taxation and/or non-tax state revenue in the mineral mining business field (GR 37/2018) was enacted. The purpose of this regulation is to provide legal certainty in terms of taxation and/or the imposition of non-tax state revenue for holders of mineral mining licences in Indonesia. GR 37/2018 stipulates that the income tax provisions regulated thereunder will only apply to certain mineral mining companies, those being: (i) holders of a Mining Business Licence (Izin Usaha Pertambangan, or IUP); (ii) holders of a Special Mining Business Licence (Izin Usaha Pertambangan Khusus, or IUPK); (iii) holders of a People’s Mining Licence (Izin Pertambangan Rakyat, or IPR); (iv) holders of an Operation-Production Special Mining Business Licence (Izin Usaha Pertambangan Khusus Operasi Produksi, or IUPK Operasi Produksi) from the conversion of an unexpired contract of work; and (v) holders of a contract of work which stipulates income tax obligations in accordance with the prevailing income tax laws (i.e., the Indonesian Income Tax Law). For holders of a contract of work that stipulates income tax obligations in line with the prevailing Income Tax Law, the taxation provisions under that contract of work will apply until the contract expires.
Specifically for mineral mining companies that hold an IUPK Operasi Produksi from the conversion of an unexpired contract of work, the following taxation, non-tax state revenue, and regional/local revenue provisions will apply: (i) royalty (iuran produksi) and land rent (iuran tetap); (ii) non-tax state revenue in the field of environment and forestry; (iii) non-tax state revenue in the form of the central government portion: 4% of net profits; (iv) corporate income tax: 25%; (v) land and building tax; and (vi) the regional/local government portion: 6% of net profits, until the IUPK Operasi Produksi expires. ‘Net profits’ in this case refers to net profits after deducting income tax annually from the start of production, based on financial statements audited by public accountants. Other types of tax, non-tax state revenue, and regional/local revenue, such as VAT, import-export duty, and excise duty, are also applicable (as relevant). It is important to note that Article 20 of GR 37/2018 stipulates that the taxation provisions under the regulation will only come into effect as of the 2019 tax year (next year).
Under GR 37/2018, existing mineral mining companies, such as PT Freeport Indonesia, which have obtained an IUPK Operasi Produksi from the conversion of an unexpired contract of work, will be subject to income tax of 25% (in line with the tariff under the Indonesian Income Tax Law for corporate bodies) starting from the 2019 tax year, until the expiry of their IUPK Operasi Produksi. Apart from income tax, these companies will also be paying portions for the central government and regional/local government, at 4% and 6% rates, respectively, as elaborated above.