Indonesia: Updates on corporate income tax allowance and AEOI

April 30 2018

The Minister of Finance (MoF) issued MoF Regulation No. 35/PMK.010/2018 of 2018 concerning Granting of Corporate Income Tax Allowance (MoF Regulation 35) on April 4 2018, which replaced the old regulations issued in 2015 and 2016 stipulating the same. In general, MoF Regulation 35 provides terms that are arguably more beneficial to corporate taxpayers as compared to those under the old regulations. Note that 'corporate taxpayers' herein refers only to those making new investments in pioneer industries.

To start with, MoF Regulation 35 does not stipulate the minimum allowance to be granted (under the old regulations, the allowance varied between 10% and 100% of the amount of outstanding payable tax), meaning that all corporate taxpayers that meet the requirements under MoF Regulation 35 will be entitled to a 100% tax allowance on the amount of outstanding payable tax. Further, the tax allowance will be granted for new investments for a period of between five and 20 years, depending on the value of the investment plan, which must amount to a minimum of IDR 500 billion ($36.4 million). The old regulations required a minimum value of IDR 1 trillion. After this period expires, the relevant taxpayer will be granted a tax allowance for 50% of the outstanding payable tax for the subsequent two tax years (this was not the case under the previous regulations).

MoF Regulation 35 stipulates a detailed definition of 'pioneer industry', covering economic infrastructure which may include the power plant. Another important change is that the corporate taxpayer no longer needs to submit a letter of undertaking to place funds in an Indonesian bank of a minimum of 10% of its total investment plan value without withdrawing the funds until the commencement of the investment realisation. The application to obtain the tax allowance must be submitted to the head of the investment coordinating board (BKPM) before commercial production: (i) Simultaneously, with the application for investment registration; or (ii) At the latest one year after the issuance of the investment registration.

MoF Regulation 35 also provides an opportunity for corporate taxpayers that are engaged in industries not included in the definition of pioneer industries to obtain a tax allowance, however they must meet other requirements, including a minimum investment value, to qualify to submit the application to obtain a tax allowance. The relevant ministries, as well as BKPM, will then arrange for an inter-department discussion to determine the eligibility of the taxpayer. As part of the compliance procedures, certain annual reports must be submitted to the director general of tax (DGT).

Corporate taxpayers who have obtained tax holiday/tax allowance under the previous regulations may still use these facilities until they expire. Tax allowance proposals submitted by the head of BKPM to the MoF from August 16 2015 up until the issuance of MoF Regulation 35, but which have not yet been approved or rejected, will be processed under the terms of MoF Regulation 35. Corporate taxpayers who have obtained a principle licence/investment licence/investment registration issued by the head of BKPM since the issuance of the old regulations in 2015 and 2016, but before the issuance of MoF Regulation 35, may submit an application to obtain a tax allowance under MoF Regulation 35. This application must, among other things, be submitted no later than one year after the issuance of MoF Regulation 35. All in all, this newly issued regulation is expected to attract more foreign investors, including those in the electricity sector.

On a separate subject, with regard to the automatic exchange of information (AEOI), on April 5 2018, the DGT announced: a list of participant jurisdictions and destination jurisdictions for reporting; a list of types of non-reporting financial institutions; and a list of types of exempted financial accounts. Seventy-nine jurisdictions are listed as participants, including Australia, the Netherlands, BVI, Cayman Islands, the UK, Japan, China, and Singapore. Indonesia will conduct AEOI reciprocally with 69 of the participants, and non-reciprocally with five of them by September 2018, and will act reciprocally with the remaining five participants by September 2019.