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Indonesia Explains New Dividend Tax Exemptions

by Mary Swire,, Hong Kong

13 September 2019

Following the release of the 2020 Budget, the Indonesian Government has explained in greater detail its plans to reform the tax code to foster increased investment by foreign and domestic businesses.

Minister of Finance Sri Mulyani Indrawati said in a September 10, 2019, statement that revisions will be made to the law on general provisions and tax procedures, the income tax act, and the value-added tax law.

So far the Government has announced that Indonesia intends to gradually reduce the corporate tax rate to 20 percent from 25 percent, starting from 2021. In addition, a tax holiday, potentially involving a 17 percent corporate tax rate, may be offered for five years to companies that publicly issue their shares.

The finance minister has also hinted that the country's permanent establishment rules may be amended to capture within the income tax regime profits accruing to a company with a significant digital presence in the territory that lacks a permanent establishment.

Further, the Government announced that it would introduce a new investment allowance for labor-intensive industries, as well as value-added tax reliefs for the importation of capital goods and transportation vehicles, including ships, aircraft, and trains.

In a new statement, released September 4, 2019, the Government has said that individual entrepreneurs and enterprises will be able "avoid income tax" if they invest their resources in Indonesia. Tax liability will arise if money is kept in the form of income, bank savings, or other forms, it stated.

It further clarified its plans to waive tax on dividends in its September 10, 2019, statement. It said where a domestic corporate taxpayer owns 25 percent of more of a domestic company paying a dividend, the income will be exempt from income tax. Further, those Indonesian businesses receiving dividends who own less than 25 percent of the company paying the dividend will be exempt only if the funds are invested in Indonesia within a certain period of time, it said.

Further, for dividends paid from abroad, income tax will be waived if the amount is invested in Indonesia within prescribed time limits, it disclosed.

TAGS: Finance | tax | investment | business | law | entrepreneurs | transfer pricing | Indonesia | dividends | Tax | BEPS

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