[*] Chapter II – Article 2
1. Expanded dividend exemptions are provided for, which are basically as per those stated in Law No 11/2020 (i.e., Omnibus Tax Law on Job Creation). Please refer to our tax alerts regarding “Important tax provisions in the Omnibus Law on Job Creation dated October 2020 with the link here: tax-alert_important-tax-provisions-in-the-omnibus-law-on-job-creation.pdf (ey.com) and “Further details on Omnibus Law tax treatment to support ease of doing business” dated April 2020 with the link here: further-details-released-on-omnibus-law-tax-treatments.pdf (ey.com). [Article 4(3)(f)]
2. Certain benefits in kind, will now be tax-deductible under Article 6(1)(n) of the Income Tax Law (“ITL”) and taxable income for the employee/ recipient under Article 4(1)(a) of the ITL. The elucidation of Article 4(1)(a) states that benefit in kind means consideration in kind in the form of goods other than money; and/or consideration in the form of enjoyment for the right to use certain facilities and/or services. Article 4(3)(d) provides tax exemption for the following benefits in kind: (1) food and beverages and their ingredients provided to all staff; (2) benefits in kind provided in certain remote areas/ regions, including offshore where the water depth is more than 50 meters; (3) benefits in kind that must be provided by the employers for the execution of work; (4) benefits in kind that are sourced or funded from the State/Regional/Village budget; or (5) benefits in kind of a certain type and/or of a certain limit. Further criteria on the above benefits in kind shall be regulated under a Government Regulation [Article 32C paragraphs (d) and (n)]
3. The annual income tax free threshold shall be at the minimum of:
a) IDR 54 million for an individual taxpayer;
b) Additional of IDR 4.5 million for a married taxpayer;
c) Additional of IDR 54 million for a wife whose income is combined with the husband’s income; and
d) Additional of IDR 4.5 million for each child, including adopted child, for a maximum of 3 children for each family. [Article 7(1)]
4. Part of a certain annual gross revenue up to IDR 500 million of an individual taxpayer that is subject to final tax as stated in Article 4(2)(e) is not subject to income tax. [Article 7(2a)]
5. Deductibility of provision for bad debts for banks and other companies providing credit facilities, leasing companies, consumer finance companies and debt factoring companies shall be calculated based on the prevailing financial accounting standards with certain limits prescribed after consultation with the Financial Services Authority (“OJK”). [Article 9(1)(c)(1)]
6. Depreciation of permanent building that has a useful life of more than 20 years shall be carried out using the straight-line method within 20 years or in accordance with the actual useful life based on the taxpayer’s accounting records. [Article 11(6a)]
7. Amortization of intangible assets that has a useful life of more than 20 years shall be amortized within 20 years or in accordance with the actual useful life based on the taxpayer’s accounting records. [Article 11A(2a)]
8. Progressive income tax rates for individual taxpayers now fall into five tax brackets (previously four) with a new maximum tax rate of 35% (previously 30%). The marginal tax rates are as follows:
Taxable income |
Tax rate |
Up to IDR 60 million (previously IDR50 million) |
5% |
More than IDR 60 million up to IDR 250 million |
15% |
More than IDR 250 million up to IDR 500 million |
25% |
More than IDR 500 million up to IDR 5 billion |
30% |
More than IDR 5 billion |
35% |
[Article 17(1)(a)]
9. Corporate taxpayers and permanent establishments are subject to corporate income tax rate of 22% starting from the 2022 fiscal year. This effectively cancels the previous regulation which reduced the rate to 20% [Article 17(1)(b)]
10. Indonesian corporate taxpayer that is: (a) a public company; (b) has at least 40% of its paid-up capital traded on the Indonesian Stock Exchange; and (c) meet certain conditions, can obtain a 3% income tax rate reduction from the applicable normal corporate income tax rate. [Article 17(2b)]
11. The Government has the authority to prevent a tax avoidance practice used by the taxpayer to reduce, avoid, or postpone the tax payment that should have been payable that is contrary to the purpose and objective of the prevailing tax laws. One way to avoid tax is by conducting a transaction that is not in accordance with the real situation that is contrary to the substance over form principle, that is recognizing the economic substance over its form. [Elucidation of Article 18]
12. The Minister of Finance has the authority to regulate the maximum amount of borrowing cost for tax purpose. [Article 18(1)]
13. Taxpayers may avoid tax using many means, including under reporting revenue, over reporting expenses, reporting profits that are too little when compared to the financial performance of other taxpayers in the same business sector, or reporting unreasonable business losses for 5 years although the taxpayer has been conducting commercial sales. In such circumstances, the DGT is authorized to redetermine the amount of revenue and/or expenses in accordance with fair and reasonable common business principles that are not influenced by the special relationship. In redetermining the amount of revenue and/or expenses the DGT may use the following methods: (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) other methods such as (i) profit split method; (ii) transactional net margin method; (iii) comparable uncontrolled transaction method; (iv) tangible and intangible asset valuation; and (v) business valuation. For a taxpayer who reported too little profit or suffered unreasonable losses for 5 years, the DGT may perform benchmarking with other taxpayers in the same business sector to calculate the amount of tax that should have been paid. The difference between the transaction value that is influenced by the special relationship and the transaction value that is not influenced by the special relationship that is in accordance with fair and reasonable common business practice shall be deemed a dividend that is subject to income tax. [Elucidation of Article 18(3)]
14. The Government has the authority to form and/ or carry out a bilateral or a multilateral tax agreement and/ or arrangement with the government of a partner country or jurisdiction for:
a) Double tax agreement;
b) Base erosion and profit shifting;
c) Tax exchange information;
d) Tax collection assistance; and
e) Other tax cooperation.
[Article 32A]
15. Further provisions that will be stipulated under a Government Regulation are:
a) Income from gain due to assets transfer in relation to gift, aid or donation that are excluded from the tax objects because it was given to direct family, or to religious, educational and social institutions including foundation, cooperative, and small medium enterprise, provided there is no business, employment, ownership or control relationship between the parties as referred in Article 4(1)(d)(4);
b) Criteria of certain expertise as well as income tax imposition on foreigners as referred in Article 4(1a);
c) Donated assets received by direct family, religious, educational and social institutions including foundation, cooperative, small medium enterprise, provided there is no business, employment, ownership or control relationship between the parties, that are excluded from the tax objects as referred in Article 4(3)(a)(2);
d) Benefits in kind excluded from the tax objects as referred in Article 4(3)(d);
e) Criteria, period and change of limitation of invested dividend, as well as provisions on dividend or other income exempted from income tax as referred in Article 4(3)(f);
f) Income from investment in certain business sectors received by pension funds, which are excluded from tax objects as referred in Article 4(3)(h);
g) Scholarships meeting certain conditions, which are excluded from the tax objects as referred in Article 4(3)(l);
h) Excess of funds received or earned by non-profit institutions, which are engaged in the education and/ or R&D sectors, that are excluded from the tax objects as referred in Article 4(3)(m);
i) Aid or compensation paid by the Social Security Agency (BPJS) to certain taxpayers, that are excluded from the tax object as referred in Article 4(3)(n);
j) deposit funds for the cost of organizing the haj pilgrimage (BPIH) and / or special BPIH and income from Haj financial development in certain sector or certain financial instruments received by Haj Financial Management Institution (BPKH), that are excluded from the tax objects as referred in Article 4(3)(p);
k) excess of funds received by social and religious institutions that are excluded from the tax objects as referred in Article 4(3)(p);
l) promotional and marketing expenses that are tax deductible as referred in Article 6(1)(a)(7);
m) bad debt expenses that are tax deductible as referred in Article 6(1)(h);
n) benefits in kind that are tax deductible as referred in Article 6(1)(n);
o) certain provisions that are tax deductible as referred in Article 9(1)(c);
p) group of tangible assets, useful life and depreciation calculation as referred in Article 11(6) and 11(6a);
q) depreciation of tangible assets owned and used in certain business sectors as referred in Article 11(7);
r) amortization starting period for certain business sectors as referred in Article 11A(1a);
s) amortization calculation as referred in Articles 11A(2) and 11(2a);
t) maximum amount of borrowing cost that is tax deductible as referred in Article 18(1);
u) determination of when the dividend is earned by resident taxpayers on their investment in a foreign non-public company as referred in Article 18(2);
v) the application of fairness and business practice principles in the context of calculating the amount of taxable income for taxpayers who have special relationships with other taxpayers as referred in Article 18(3);
w) implementation of advance pricing agreement between related parties as referred in Article 18(3a);
x) determination of the actual party who acquire the shares or company’s assets via other party or special purpose company as referred in Article 18(3b);
y) determination on the sale or transfer of shares of a company that is established or domiciled in Indonesia or a permanent establishment as referred in Article 18(3c);
z) re-determination of the amount of income received by a resident individual taxpayer from an employer that has a special relationship with other company that is not established or does not reside in Indonesia as referred in Article 18(3d);
aa) criteria of special relationship as referred in Article 18(4); and
bb) formation and/ or implementation of mutual agreement in tax as referred in Article 32A.
[Article 32C]