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Indonesia Tables Legislation For Comprehensive Tax Reform

by Mary Swire,, Hong Kong

20 February 2020

Indonesia has reportedly tabled draft legislation in the House of Representatives to make wide-ranging changes to the tax system, including lowering the corporate tax rate and modernizing rules for digital economy players.

The bill would deliver on the various tax proposals announced in the 2020 Budget in August last year.

So far the Government has announced that Indonesia intends to gradually reduce the corporate tax rate to 20 percent from 25 percent, with a cut to 22 percent in 2021 and a further reduction to 20 percent in 2022 expected.

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. The bill is also expected to include new rules bringing more services rendered to local consumers by foreign retailers within the ambit of the Indonesian tax system.

The Budget also included proposals for 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.

A number of new incentives will be introduced, for both individual and corporate taxpayers, who reinvest their profits or invest their wealth in Indonesia. For companies, this may include a number of income tax exemptions, including for interest and dividends, where amounts are reinvested in Indonesia.

According to local reports, Indonesia is also considering introducing a territorial tax system for non-resident individuals. Under the plan, non-residents would be exempt from Indonesian tax on their worldwide income and taxable only on Indonesia-source income.

TAGS: tax | investment | value added tax (VAT) | interest | legislation | transfer pricing | Indonesia | dividends | retail | services | BEPS

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