Indonesia: New tax amnesty law and real estate investment funds in Indonesia
The House of Representatives approved a draft tax amnesty law on June 28 2016.
The tax amnesty entails a waiver of outstanding tax for taxpayers, not subject to any sanctions under tax law, enabled by disclosing the assets/property and paying compensation money as regulated under the tax amnesty regulation. This regulation is expected to be enforced immediately until the end of March 2017. The law is expected to boost the government tax revenue and capital inflow.
The redemption payment rates to participate in the tax amnesty are as follows:
2% to 5% for taxpayers whose assets are located in Indonesia, or are not located in Indonesia but would be invested in Indonesia for at least 3 years;
4% to 10% for taxpayers whose assets are not located in Indonesia and remain abroad;
Special rate for small medium taxpayer is as follows:
0.5% for taxpayers that disclosed its assets at the amount of Rp 10,000,000,000.00 ($765,000);
2% for taxpayers that disclosed its assets at the amount of exceeding Rp 10,000,000,000.00
Taxpayers participating in the amnesty are prohibited from doing certain set-offs of their tax obligations with carried-forward fiscal losses, and from depreciating or amortising the newly declared immovable assets.
There are 200% penalties for any future finding of undisclosed assets to be imposed to the taxpayer participating to the amnesty. The government plans to issue three implementing regulations of this law. It is unclear how the controlled foreign corporation rules will be applied to the newly disclosed assets in the form of shares in offshore entities, whether the market value or acquisition costs of the newly disclosed assets to be used as the basis of the redemption payments, and how to achieve sufficient information on the ownership of the foreign assets held through foreign trusts, foundations, holding company and nominee structures.
Separately, the Indonesian government has issued Minister of Finance Regulation No. 200/PMK.03/2015 on the tax treatment for taxpayers and taxable entrepreneurs using certain collective investment contracts in the financial sector (PMK 200/2015).
This regulation introduced the tax exemption given for collective investment contract in the form of real estate investment funds (REITs).
REITs are used to raise funds from investors for investment in the real estate assets, assets related to real estate, and/or cash or its equivalent. Tax exemptions are given to REITs under a special purpose company (SPC) established for the purpose of REIT in the form of collective investment contract. The SPC shall be owned by REIT at least 99.9% from its paid up capital.
Tax facilities given under PMK 200/2015, released on November 10 2015, are as follows:
Dividend received by collective investment contract form of KIK DIRE are not deducted by income tax;
Real estate transfer from the existing owner to REIT is exempted from the normal final 5% tax over the gross revenue but subject to normal corporate income tax on the net income;
REIT is given a VAT refund priority or the excess tax payment.
As an update, Indonesian Coordinating Ministry of Economy announced the 11th Economy Policy Package (Economy Package) in March 2016, which aims to lower the high tax rates applicable on the sale of property under real estate investment funds (DIRE).
The economy package regulates several changes in the policy including, among others:
to deduct tax from 5% to 0.5% for the company which establishes a REIT;
to reduce the land and building acquisition duty from 5% to 1% for the land and building in the DIRE's assets.
It is believed that the implementation of economy package will boost real estate investment in Indonesia.
Freddy Karyadi (email@example.com) and Luna Puspita (firstname.lastname@example.org), Jakarta
Ali Budiardjo, Nugroho, Reksodiputro, Counsellors at Law
Tel: +62 21 250 5125