TAX REATY
INDONESIA COMPANIES
Background
Due to the high capital costs and technical expertise required, most drilling rigs, particularly offshore rigs, are owned by foreign entities. Up to 1985 these rigs were contracted directly with production sharing contractors to provide drilling services. However, following an amendment to Indonesian foreign investment regulations, production-sharing contractors were required to enter contracts with companies established in Indonesia – either wholly Indonesian owned or those with an approved foreign shareholding (PMA companies). In turn those companies holding the contracts would enter into rig charter, technical assistance and other agreements with the foreign companies to provide the necessary facilities and expertise.
Due to the high capital costs and technical expertise required, most drilling rigs, particularly offshore rigs, are owned by foreign entities. Up to 1985 these rigs were contracted directly with production sharing contractors to provide drilling services. However, following an amendment to Indonesian foreign investment regulations, production-sharing contractors were required to enter contracts with companies established in Indonesia – either wholly Indonesian owned or those with an approved foreign shareholding (PMA companies). In turn those companies holding the contracts would enter into rig charter, technical assistance and other agreements with the foreign companies to provide the necessary facilities and expertise.
Iman Santoso - Tax Partner at PSS Consult-Ernst & Young Indonesia and lecturer at University of Indonesia, 8 Nopember 2007
Taxation regime for drilling
industries
Indonesian tax regime distinguishes
the drilling companies into: (i) National drilling companies (NDC), with local
investment (PMDN) legal status or foreign investment (PMA) companies; and (ii)
Foreign drilling companies (FDC). NDCs are considered as Indonesian tax
resident, whilst FDCs are treated as permanent establishment thus non-resident
taxpayer.
Special taxation considerations,
which apply to FDC, include among others:
Corporate income tax and branch
profit tax
According to the prevailing Income
Tax Law, FDC are taxed based on a special calculation norm (so called “deemed
profit”). The current percentage of deemed profit is 15% of gross income
derived from drilling contracts of the FDC. Exception should be given to
reimbursable costs and handling charges if they are not exceeding 10% of the
drilling fees.
·
Tax rates
A progressive tax rate of the
following schedule will be applied to such deemed taxable profit:
Taxable income bracket (Rp)
|
Rate
|
|
On the first
|
50,000,000
|
10%
|
On the next
|
50,000,000
|
15%
|
Over
|
100,000,000
|
30%
|
Other income, if any, is subject to
progressive tax rate.
Example calculation of the corporate
and branch profit taxes are as follows:
Corporate Income Tax
|
Amount
|
Notation
|
Revenue from drilling services
|
100
|
A
|
Deemed taxable profit (15%)
|
15
|
B=15%*A
|
Other income
|
10
|
C
|
Taxable income
|
25
|
D=B+C
|
Corporate Income Tax
(progressive rate of 10%, 15%, and 30%) |
||
Effective Corporate Income Tax
(Using the highest rate = 30%) |
7.5
|
E=30%*D
|
Branch Profit Tax
|
||
Branch Profit Tax Base
|
17.5
|
F=D-E
|
Branch Profit Tax
(in general 20%) (Could be reduced pursuant to the tax treaty provision) |
1.575
|
G=20%*F
|
·
Monthly Installment Art. 25
Monthly installment Article 25 for
FDC is one-twelfth of the income tax computed on the annualized monthly deemed
profit.
·
Due dates of Payment & filling the Tax Return
Payment Date
|
Reporting Date
|
|
Monthly corporate tax
|
15th of the following month.
Penalty for late payment : interest penalty at 2% per month (for a maximum 24 months period) of tax due |
20th of the following month
Penalty for late reporting : Rp 50,000 per return (become Rp 100,000 starting from year 2008) |
Annual corporate tax
|
25th of the third month following
year end.
Penalty for late payment : interest penalty at 2% per month (for a maximum 24 months period) of tax due |
End of the third month following
year end.
Penalty for late reporting : Rp 100,000 per return (become Rp 1,000,000 starting from year 2008) |
The following are other Indonesian
tax issues that we consider applicable to the FDC:
Employee Income Tax
The FDC is responsible to withhold
Article 21/26 income tax on the monthly salary/ remuneration payable/paid to
the employees. Objects of the withholding tax are basically all payment of cash
remuneration in whatever forms to individuals, including payments of insurance
premium by the employer. Starting from year 2001, any benefits in kind provided
to the employees are also subject to employee income tax withholding.
Whilst for local employees basis of
the withholding tax is the gross amount of remuneration paid to the employees,
for expatriates there was a decree issued by the Minister of Finance (MoF) in
1994 (Decree of MoF ref. No. 433/KMK.04/1994 dated August 26, 1994) which
stipulated the deem salaries as basis for calculating Article 21 income tax of
the expatriates working in the oil and gas drilling business in Indonesia.
The deemed salaries are categorized
in accordance to the position of the employees and have covered all of the
income components, including benefits in kind accounts. Further there is no
deductions allowed to offset the deem income in calculating the income tax.
The deemed salaries are as follows
(on monthly basis):
General Managers
|
US$
|
11,275
|
Managers
|
US$
|
9,350
|
Rig Supervisors/Rig
Superintendent/Tool Pushers
|
US$
|
5,830
|
Assistant Rig
Supervisors/Assistant Rig Superintendents/Assistant Tool Pushers
|
US$
|
4,510
|
Other crews
|
US$
|
3,245
|
There is no further explanation of
what the categories are, however in practice, the business practice or industry
understanding is applied.
The deemed salary rates will apply
irrespective of the tax status of the individual (i.e. a resident or non
resident).
·
Tax Rates
Tax rates applicable depend on tax
residency status of the employees. The Indonesian tax laws define an Indonesian
tax resident as:
- an individual residing in Indonesia or present in Indonesia for more than 183 days within any 12 months period, or
- an individual present in Indonesia in a tax year and intending to reside in Indonesia
As such, an expatriate may be
considered as an Indonesian tax resident, provided the above conditions are
met.
The income tax rates for
Indonesian-residents are as follows:
Taxable income
|
Tax Rates
|
Up to Rp 25,000,000
|
5%
|
Rp 25,000,001 up to Rp.50,000,000
|
10%
|
Rp 50,000,001 up to Rp 100,000,000
|
15%
|
Rp 100,000,001 up to Rp
200,000,000
|
25%
|
above Rp. 200,000,000
|
35%
|
The rate for non-resident
individuals is a flat rate of 20%, subject to tax treaty relief.
Further, provided the expatriate is
qualified as an Indonesian tax resident, he/she will be required to register
for tax with the Indonesian tax authorities and comply with all Indonesian tax
regulations, including reporting of his/her own individual tax returns in
Indonesia on his/her worldwide income.
·
Period of withholding tax
The FDC is required to calculate and
withhold the Article 21/26 income tax on a monthly and annual basis. It is
likely starting from year 2008, no longer annual employee income tax return
required to be submitted. Withholding tax should be made and reported on the
month the salaries/remuneration are paid or accrued. These constitute tax
prepayments, which will deduct the final Article 21/26 withholding tax dues,
which will be computed at the end of the fiscal year.
·
Due dates of Payment & filling the Tax Return
Payment Date
|
Reporting Date
|
|
Monthly Employee income tax
|
10th of the following month.
Penalty for late payment : interest penalty at 2% per month (for a maximum 24 months period) of tax due |
20th of the following month
Penalty for late reporting : Rp 50,000 per return (become Rp 100,000 starting from year 2008) |
Annual Employee income tax
|
25th of the third month following
year end.
Penalty for late payment : interest penalty at 2% per month (for a maximum 24 months period) of tax due |
End of the third month following
year end.
Penalty for late reporting : Rp 100,000 per return (no longer annual return to be filed pursuant to the Law No. 28 Year 2007) |
Withholding income taxes
Payment/accruals of dividends,
interests, royalties, technical & management fees for services performed in
Indonesia to Indonesian and non-Indonesian residents are subject to withholding
tax.
- Tax Rates/Effective Tax Rates
The
withholding tax [Article 4(2)/15/22/23/26] rates may vary, depending on whether
it is paid to a resident or non-resident as follows:
- Rates applied on payments to Indonesian residents or permanent establishment vary from 1.5% to 15% depending on the nature of the payment or service rendered. The withholding tax may be final in nature (e.g. in the case of rental payment for the lease of real property) or non-final (e.g. payment for management, administration or technical services).
- Rate applied on payment to non-Indonesian residents is 20 %, subject to tax treaty relief.
- Period of withholding tax
The taxes
should be withheld at the payment date of the fees or at the date the fee
become payable, whichever comes first.
- Due dates of Payment & filling the Tax Return
The FDC
must remit the withholding income tax to the Kas Negara (State Treasury) by the
10th of the month following the tax withholding and submit the tax return to
the tax office by 20th of the following month. Interest penalty for late
payment is 2% per month for a maximum 24 months of tax due whilst penalty for
late reporting is Rp 50,000 per return (become Rp 100,000 starting from year
2008).
Value Added Tax and Sales Tax on
Luxury Goods
Basically, Value Added Tax (VAT) is
applied to:
- Delivery of taxable goods and services inside the Indonesian customs area
- Import of taxable goods into the Indonesian customs area.
- Services performed by a non-resident for an Indonesian resident (self-payment basis by the service recipient)
VAT and sales tax on luxury goods
becomes payable at the time of the delivery of the goods/services, or at the
receipt of payment if the payment is made in advance. The seller must issue tax
invoice at the end of the month following deliveries, at the latest, or at the
receipt of payment if the payment is made in advance.
Output VAT
As the drilling fee provided by the
FDC is subject to VAT, it is required by law to register as a VATable company
and assess VAT on each delivery. This will become FDC’s output VAT due.
Input VAT
The FDC’s suppliers will collect
input VAT on purchases of goods/services that are subject to VAT. If the seller
is not an Indonesian tax resident, then the FDC, as the purchaser, has the
obligation to pay the VAT on self-assess basis. Examples of such VAT objects
are importation of goods and utilization of services provided by overseas
company that does not have permanent establishment in Indonesia.
- Tax Rates
Tax rate
applicable for deliveries within Indonesia customs area is 10%, whilst export
of goods is subject to VAT at 0%.
In
addition, there is also sales tax on luxury goods ranging from 10% to 75%.
- Due dates of Payment & filling the Tax Return
Any excess
of output VAT over input VAT must be paid to Kas Negara (State Treasury) at the
latest on the 15th of the following month and VAT return must be reported to
the tax office within the 20th of the following month.
In
practice, most of the FDC’s customers are VAT collector companies, which will
settle payment of the FDC’s output VAT due directly to the State Treasury. As
such, the FDC’s input VAT amount will most likely exceed its output VAT amount.
This excess may be carried over to the following month or requested for refund.
Such VAT refund might be claimed on either annual or monthly basis.
SUMBER : http://www.pajakonline.com/