Minister of Finance Further Regulates Approvals for Tax Allowances

On February 11, 2020, the Minister of Finance (the “Minister”) enacted Minister Regulation No. 11/PMK.010/2020 of 2020 dated February 11, 2020 on the Implementation of Government Regulation No. 78 of 2019 on the Income Tax Allowances for Investments in Certain Industries and/or Certain Regions (the “Minister Regulation”). The Minister Regulation revokes the Minister Regulation No. 89/PMK.010/2015 of 2015 dated April 28, 2015 on Procedures to Impose Income Tax Concessions for Investment in Certain Field and/or Regions, Including Transfer of Assets and Sanctions for Domestic Taxpayers Receiving Concessions. The Minister Regulation acts as an implementing framework of Government Regulation No. 78 of 2019 dated November 13, 2019 on Granting of Income Tax Allowance for Investments in Certain Industries and/or Regions (“GR 78”).

As elaborated on our Newsflash concerning GR 78, GR 78 encompasses the provisions on (i) forms for the granting of the income tax allowances (the “Tax Allowance”), (ii) requirements for the granting of the Tax Allowance to corporate taxpayers (the “Taxpayers”), and (iii) requirements to apply for and obtain the Tax Allowance. Please find below the salient points of the Minister Regulation.

v  Requirements and Procedures for Determination of Tangible Fixed Asset Values

The Minister Regulation re-addresses the requirements for tangible fixed asset as a basis for the calculation of the Tax Allowance set out in GR 78. In addition, the Minister Regulation stipulates that the relevant assets do not include tangible fixed assets acquired by way of operating lease or financial lease before the option right over such asset is executed.

Further, GR 78 provides that provisions on the procedure to determine tangible fixed asset will be further regulated in a Minister regulation, where in fact, the Minister Regulation assigns this matter to the Director General of Taxation (the “Director General”). Until now, the Director General has not issued the relevant regulation on this issue.

v  Procedures for Applications to Obtain Tax Allowance

GR 78 sets out an updated list of the business activities that are eligible to apply for the Tax Allowance. The updated lists comprises 183 business sectors. GR 78 also introduces the simplified procedures for applying for and obtaining the Tax Allowance through the Online Single Submission (“OSS”) System.

According to the Minister Regulation, the OSS System will notify an applicant if its business activity is eligible to obtain the Tax Allowance. If the Taxpayer is eligible, it must submit the following requirements through the OSS System prior to the Commercial Production Starting Date:

a.      a digital copy of the shareholder’s fiscal statement letter; and

b.      a digital copy of the fixed asset’s details in the capital investment value plan.

Once the required documents have been completely submitted in the OSS System, the Minister will issue the decision to grant the Tax Allowance within 5 (five) business days since the receipt of documents.

v  Utilization of Tax Allowance

The utilization of the Tax Allowance is subject to its form, as follows:

Form of Tax Allowance

Utilization of Tax Allowance

Deduction of net income by 30% of the investment value in the form of tangible fixed assets, including the land used for the main business activities, granted in 6 (six) years divided into 5% each year.

A Taxpayer must apply in order to utilize this form of the Tax Allowance by applying through the OSS System. The Utilization of this Tax Allowance shall be stipulated by the Director General, subject to a field investigation.

Accelerated depreciation over tangible fixed assets and accelerated amortization over intangible assets obtained for the investment, granted within certain period and tariff.

The utilization of this form of Tax Allowance shall be conducted in accordance with the Income Tax Law.

Income tax over the dividends paid to foreign Taxpayers other than permanent establishments in Indonesia at the rate of 10% (ten percent) or lower, subject to the applicable tax treaty.

The utilization of this form of Tax Allowance shall commence as of the decision to approve the Tax Allowance is issued and shall expire when the Taxpayer no longer meets the requirements in the relevant decision.

Compensation for losses suffered for more than 5 years but less than 10 years.

A Taxpayer shall apply to the Director General through the OSS System in order to utilize this form of Tax Allowance. The Director General will issue the decision to compensate for losses after conducting the relevant field investigation.

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April 24, 2020

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