Tax Cluster in Omnibus Law on Job Creation (Law No. 11/2020).

On 2 November 2020, despite all the contradictions, the Omnibus Law on Job Creation No. 11/2020 was finally signed which makes the Omnibus Law come into effect on the same date.

There are three Tax Laws which have been amended through this Omnibus Law, namely:

  • Income Tax Law
  • VAT Law and
  • General Provisions and Procedures of Taxation

We’d like to highlight some of the key changes to the Tax Laws as a result of the Omnibus Law coming into effect which may have immediate impact to you:

Income Tax
DescriptionBased on Omnibus LawPreviously
Income Tax object for expatriatesFor expatriates with certain skills who are working in Indonesia and considered as local taxpayer (i.e. having NPWP), the income tax will only be imposed on the income from Indonesia for the first 4 years since registered for NPWP.All local taxpayer, including expatriates who obtained NPWP will be taxed on his/her worldwide income.
Income Tax objectProfit sharing for cooperative members and remaining funds of social and religious organization is not subject to tax.Subject to income tax at applicable tax rate.
Income Tax on dividendDividend received by local individual taxpayer from local company is not subject to tax as long as such dividend is invested in Indonesia for certain period of time.Subject to 10% final tax.
Dividend received by local corporate taxpayer from local company is not subject to tax.Subject to tax if the ownership is less than 25% and/or the dividend is not coming from the retained earnings balance.
Dividend received by local taxpayer from overseas is not subject to tax as long as such dividend is invested or used to support other business activities in Indonesia for certain period of time and fulfil some other requirements.Subject to tax based on the applicable income tax rate.
VAT
DescriptionBased on Omnibus LawPreviously
VAT objectDelivery of taxable goods in relation with a consignment agreement is no longer considered as subject to VAT. On the other hand, coal is subject to VAT.Consignment is subject to VAT, whilst coal will be subject to VAT if it is in the forms of briquettes.
Transfer of asset as a substitute for paid up capital (inbreng) is not subject to VAT.Subject to VAT.
Relaxation in crediting input VATInput VAT received prior to the start of commercial operation (i.e. issuing output VAT from main business activity) can be credited. However, if the VAT-able entrepreneur fails to start its commercial operation within certain period of time, the credited input VAT can be cancelled.Only input VAT from capital goods is creditable prior to the start of commercial operation.
Input VAT found in tax audit process can be credited.These input VATs cannot be credited.
80% of Input VAT amount paid before registered as VAT-able entrepreneur can be credited.
Input VAT paid based on tax assessment letter can be credited.
General Provisions and Procedures
DescriptionBased on Omnibus LawPreviously
Change on the penalty calculationLate payment penalty per month on voluntarily amendment by the taxpayer will be calculated based on benchmark interest rate which will be determined by Minister of Finance plus 5% and divided by 12. This penalty is capped for a maximum of 24 months. This penalty also applies for late payment for normal monthly tax return and annual Corporate Income Tax Return – CITR.2% late payment penalty per month without any cap.
Underpaid taxes found based in tax audit result (i.e. underpaid tax assessment letter) is subject to late payment penalty which will be calculated based on benchmark interest rate which will be determined by Minister of Finance plus 15% and divided by 12. This penalty is capped for a maximum of 24 months.2% penalty per month with a maximum of 24 months.
In relation with VAT audit process, the tax office may apply single administrative sanction with the highest amount.Multiple administrative sanction will apply.
Late issuance of tax invoice is subject to 1% penalty from the tax base.2% from the tax base for issuing the tax invoice not in timely manner (both early or late issuance).
Late payment penalty per month on tax assessment letter, objection decision, appeal decision, etc will be calculated based on benchmark interest rate which will be determined by Minister of Finance divided by 12. This penalty is capped for a maximum of 24 months.2% late payment penalty per month without any cap.

Aside from the above, the Omnibus Law also changes some other provisions on the above Tax Laws, such as:

  1. when at the latest the tax office can issue a tax collection letter;
  2. applicable penalty for preliminary evidence audit (Pemeriksaan Bukti Permulaan) and discontinuation of tax crime investigation (Penghentian Penyidikan Tindak Pidana Pajak);
  3. issuance of tax collection letter for incorrect interest reward paid to taxpayer;
  4. profit share of cooperative, Haj fund managed by authorized institution and excess of funds in social and religious institution is not subject to income tax;
  5. room for the government to adjust the Art. 26 WHT for interest; and
  6. inclusion of ID number (Nomor Induk Kependudukan/NIK) for buyer who do not have tax ID (NPWP).

Considering that the Omnibus Law has come into effect in November 2020, the above changes should already be applied for November 2020 tax period. However, we will need to wait until the Minister of Finance issues the implementing regulation in order to fully understand the mechanism and/or procedures to implement the above changes.

Should you have any queries or need any assistance in regards with the above, please feel free to contact us.

Tax Cluster in Omnibus Law on Job Creation (Law No. 11/2020)
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