Tax Flash KIB Consulting Dec 19

1. TAX FLASH
“To manage assets
amounting to IDR 8,200
trillion, I need solid team-
work comprising not only
smart people but also
those with good morals”
~ Erick Thohir —Minister
of State Enterprise
In This Issue
• USD IDR historical
record in 2019
• DER (Debt to Equity
Ratio)
• Omnibus Law
• Season’s Greetings
• Our Involvement
USD IDR Jan-Dec 4, 2019; sources: TradingEconomics; Bank Indonesia.
“Synergy, transformation, and
innovation”
Perry Warjiyo emphasized the importance of having all
three in confronting the impact of the diminishing of
globalization and the rise of digitalization.
Source: an opinion article - abridge from the Governor of Bank Indonesia
(BI)’s speech at BI’s annual meeting on Nov. 28 - the Jakarta post
KIB E-newsletter Dec 2019
IDR had gained 2.44 percent (year-to-
date) against the USD as of the end of Octo-
ber. The strong rupiah has been supported
by maintained foreign capital inflows together
with a well-functioning foreign exchange sup-
ply and demand mechanism from the busi-
ness sector.

2. DER (Debt to Equity Ratio)
Income Tax Law art. 18 (1)
Minister of Finance Regulation no. 169/PMK.010/2015
Key Points:
1. Maximum DER for corporate taxpayers (established or carrying out activities in Indonesia
is 4:1— one for equity and four for debt).
2. Will impact on both domestic and foreign companies doing business in the country. The
DER rules will require taxpayer to review existing funding arrangements that determine rel-
evant interest under the DER rules for tax purposes.
3. Any borrowing cost on debt which exceeds the ratio will not be tax deductible for corporate
income tax purpose. It is important to note that the rule applies to both related-and third –
party debt, whether foreign or domestically availed.
“The avoidance of taxes is the only intellectual pursuit that carries any reward.”
-John Maynard Keynes
4:1
Objectivity:
To tackling the taxation of multinationals and the global tax base erosion and profit-shifting
problem.
To collect more tax due from companies with DER higher than the prescribed limit.
Background:
DER rules are made in many countries since the tax authorities find tax avoidance with exces-
sive interest charges on loans from affiliated parties, especially those residing abroad and not
made because of concerns over foreign debt.
DER rules also aimed to address tax avoidance through excessive interest charges

3. DER (Debt to Equity Ratio)
Definition:
“ The income tax created more criminals than any other single act of government.”
-Barry Goldwater
Long-term and short-term debts, including any account payable with
interest
EQUITY
Equity or capital is determined by the applicable financial accounting
standards and non interest-bearing loans from parties that have special
relationships with the corporate taxpayers.
Corporate
taxpayer
Business entity which is established and/ or carrying business in
Indonesia
Exempted from DER 4:1
Bank Insurance Subject to Final
income tax
Finance Mining *) Infrastructure
*) Mining, oil and gas companies that are bound by production sharing contract, contract of work, or coal con-
tract of work which itself governs the DER. If the contract does not include a provision for the DER or the con-
tract has expired, PMK-169 will prevail
The basis of calculation:
A. The average debt or equity balance at the end of each month in the relevant fiscal year; or
B. The average debt or equity balance at the end of each month of a part of the relevant fiscal
year.
Taxpayers who have zero or less than zero equity balance, the entire borrowing expense will
be disallowed for income tax calculation purpose.
Taxpayers with negative retained earnings could reduce the amount of deductible borrowing
expenses.

4. DER (Debt to Equity Ratio)
Cost of Borrowing
“ A person doesn’t know how much he has to be thankful for until he has to pay taxes on it.”
-Anonymous
PMK—169
Interest*)
Discount and premiums in connection with the debt
Additional costs incurred in relation to the arrangement of
borrowings
Finance charges on lease financing
Guarantee fee
Foreign exchange differences arising from loans in foreign currencies as
long as the differences are adjustments to the interest expense and other
expenses as referred to the above 5
*) Any interest expense from related-party debt must also comply with arm’s length principle in
Indonesia, which includes the requirement to document the need for the debt, the existence
test, and analyzing the arm’s length basis of the applied interest rate.
Corporate Tax Payer ?
Consist of capital (equity
shares) ?
Deduct cost of borrowings into
corporate income tax calcula-
tion ?
Have foreign private debts?
Yes
Required to submit Debt to
Equity report
(attached to Annual Corporate
Tax Return)

5. Omnibus Law
Draft law—the substantive:
“The avoidance of taxes is the only intellectual pursuit that carries any reward.”
-John Maynard Keynes
Objectivity:
Background:
Global
Economy
Slowdown
Economy
Stagnant
Middle -
income trap
Boost
Investment
competitiveness
Business attractiveness
Economy growth
Legal stability
Knowledge transfer
Tax payer compliance
Fairness to businesses in both locally
and internationally
to increase
National Development
Economy Growth
Investment
Funding
Taxation System Tax Compliance Tax facility
Business
Fairness
Income tax tariff
regulation:
A. Decreasing
tariff gradual-
ly
B. Eliminating
dividend tax
A. Determining
tax subject
(resident &
foreign)
B. System im-
plementation
1. Relaxing tax
credit input
for Taxable
Business
(PKP)
2. Lower tax
penalty
Digital Economy
Taxation:
A. Appoint VAT
collector
B. SPLN taxable
income
A. Tax Holiday
B. Super deduc-
tion
C. For Special
economic
zones
D. Govt. bond

6. Omnibus Law
“The best things in life are free, but sooner or later the government will find a way to tax them.”
-Anonymous
No. Subject Now
Omnibus Tax Law
(DRAFT)
1 Corporate income tax
a Reduction in Corporate Income Tax 25%
2021-2022 = 22%
2023 onwards = 20%
b
Newly listed companies on the Indo-
nesia Stock Exchange, that meet cer-
tain requirements, would be reduced
by a further 3%, for the first five years
of listing
5% lower than normal
tariff
3% lower than normal
tariff
Valid for up to 5 years
2 Tax exemption on dividends received by domestic taxpayers
a
Indonesian-sourced dividends re-
ceived by resident taxpayers will be
exempted from tax *)if reinvested in
Indonesia for a certain period.
Ownership interest:
>= 25% = 0
<25% = normal tariff
Ownership interest:
>= 25% = tariff 0%
< 25% =normal tariff*
Individual taxpayer =
10% final*
b
Foreign-sourced dividends, or the
after-tax profits of a permanent es-
tablishment, which is earned by resi-
dent taxpayers (either listed or non-
listed) will also be exempted *)if rein-
vested in Indonesia for a certain peri-
od,
Normal tariff Detail to be specified*
3
Territorial basis in calculating tax-
able income of individual taxpay-
ers —subject to time test
WNI (Indonesian Citi-
zenship) = Tax resident
WNA (Foreign Citizen-
ship / foreign taxpayer)
> 183 days = tax resi-
dent
WNI and/or WNA:
• >183 days = Tax
resident
• <= 183 days = Non
Tax Resident
4 Relaxation on creditable Input VAT for VAT-able Entrepreneurs
a
Input VAT on Taxable goods and ser-
vices, before becoming VAT-able En-
trepreneurs
Non creditable
Creditable, provided
with Tax Invoice

7. Omnibus Law
“We must care for each other more, and tax each other less.”
-Bill Archer
No. Subject Now Omnibus Tax Law (DRAFT)
b
Unreported Input VAT found in
tax audit
Non creditable
Creditable, provided with tax
invoice
c
Payable input VAT with STP
(Surat Teguran Pajak)
Non creditable Creditable only at tax principle
d
Payable of Input VAT on taxable
goods and services before goods
and service delivery takes place
Creditable only for
capital goods
Creditable. If there is an over-
paid tax (LB), it then can be
carried forward to the following
period and returnable at the
end of the fiscal year
5 Administrative sanctions to increase voluntary tax compliance
a
Interest penalty on underpaid tax
due to tax return correction
2% per month from the
underpaid tax
Monthly penalty = (interest
rate + 5%)/12, the Minister of
Finance will determine the in-
terest rate and penalty
b
Interest penalty on underpaid tax
due to SKP (Notice of Tax As-
sessment)
2% per month from the
underpaid tax
Monthly penalty = (interest
rate + 10%)/12, the Minister of
Finance will determine the in-
terest rate and penalty
c
Penalty on improper issuance of
VAT invoices
2% from the taxable
base
1% from the taxable base
d
Penalty for not registering as
VAT-able Entrepreneurs
None
1% from the taxable base, in
conformity with VAT—able En-
trepreneurs who does not is-
sue VAT invoice or who issue
VAT invoice improperly
6 Integrating Tax facilities into the Tax Law
a Tax Holiday
Given to Corporate tax
payer in pioneering
industries as regulated
in Capital investment
law jo. PMK
1) Given to corporate taxpay-
er in pioneering industries
2) For main activities in Spe-
cial Economic Zone
3) Recent development on
designated industries

8. Omnibus Law
“The purpose of a tax cut is to leave more money where it belongs: in the hands of the working men and working
women who earned it in the first place.”
- Bob Dole
No. Subject Now Omnibus Tax Law (DRAFT)
7
Taxation on E-commerce v Conventional commerce PMSE (Perdagangan Melalui
Sistem Elektronik) PP 80/2019
a
VAT withholding and pay-
ment on imported goods
and service
Being withheld by the im-
porter with SSP (Surat
Setoran Pajak)
Referring to:
1. SPLN (Foreign Tax Payer) -
Merchants, Service Provider ,
Platform, have to withhold,
pay, and report their VAT.
2. SPLN to appoint its repre-
sentative in Indonesia to with-
hold, pay, and report their VAT
on their behalf
b
Taxable electronic trans-
action being done in Indo-
nesia by SPLN, who does
not have physical pres-
ence in Indonesia
Not yet regulated
a. Redefining BUT (Badan Usaha
Tetap) to not only based on its
physical presence. but also shall
be based on its significant eco-
nomic presence
b. Tariff and tax base will be ad-
justed in accordance with the in-
come tax law.
b Super deduction
Given to corporate taxpay-
er:
a) who organize vocation-
al activities, research
and development
b) Capital investment in
labor-intensive indus-
try—PP 45/2019
Given to corporate taxpayer:
a) who organize vocational activi-
ties, research and development
b) Capital investment in labor-
intensive industry
c Special Economic Zone
Reducing net income to
max. 30%; shorten depre-
ciation timeline; additional
loss compensation to max.
10 years; dividend tax 10%
Reducing net income to max.
30%; shorten depreciation time-
line; additional loss compensation
to max. 10 years; dividend tax
10%
d
Government securities
traded in the international
market
Lower tariff
Exemption/ reduced income tax
on interest yield / discount

9. “Christmas is not a time nor a season, but a state of mind. To cherish peace and goodwill, to be plenteous in mer-
cy, is to have the real spirit of Christmas.”
-Calvin Coolidge
“At this special time of the year, we would like
to thank our clients and partners, with whom we
grow our business together. Thanks for a great
year, and we wish you all the best as we embark
on the successful 2020.
From all of us at KIB Consulting”

10. Tax Dialogue at DGT head office, December 10, 2019
With API (Asosiasi Pertekstilan Indonesia) addressing investment issues & solution
Our Involvement

11. At the kick-off meeting of KADIN & Government joint task force on
Omnibus Law, 6 December 2019
Contact Us
Phone:
(62-21) 2929 5870-73
Bambang B. Suwarso
bambang.suwarso@kib-
consulting.com
Rachmat Kurniawan
rachmat@kib-
consulting.com
Yosefine Amelia
yosefine@kib-
consulting.com
Raden Roro Ratna
Indah Wulandari
wulan@kib-
consulting.com
Addresses:
North Jakarta —144550 Indonesia
The Koppel Building Suite IB.
Jalan Pluit Selatan Raya no. 10
Gold Coast Tower Eiffel Unit N
Pantai Indah Kapuk
www.kib-consulting.com
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publication are for information purposes only, and
are not necessary and/or must not be relied upon
as being to those of the publisher or of the institu-
tions for which the contributing authors work.
Although every part of content has been taken to
ensure the accuracy of the information contained
within this publication, it should not be by any
person relied upon as the basis for taking any
action or making any decision.
KIB Consulting and its representative, cannot be
held liable or otherwise be responsible in anyway
for any advice, action taken or decision made on
the basis of the facts, surveys, and opinions stated
or expressed within this publication.
KADIN Trade & Investment Acceleration Task Force
Our Involvement