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SETTING UP BUSINESS IN INDONESIA
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General Aspects Indonesia is a 2,831.9 million sq km (742,308 sq miles) country, located in Southeast Asia, spread across a chain of thousands of islands between Asia and Australia. Ethnically it is highly diverse, with more than 300 local languages. The people range from rural hunter-gatherers to a modern urban elite. Indonesia has the world’s largest Muslim population and Southeast Asia’s biggest economy. Historically, sophisticated kingdoms existed before the arrival of the Dutch, who consolidated their hold over two centuries, eventually uniting the archipelago in around 1900. After Japan’s wartime occupation ended, independence was proclaimed in 1945 by Sukarno, the independence movement’s leader. Having the 4th largest population in the world, Indonesia has a large domestic market to offer, over 53% of which lives in urban areas and adopts a modern lifestyle INDONESIA SNAPSHOT Currency – Indonesian Rupiah Capital: Jakarta Population: 269.603 million (2021) Income Category: Lower middle income Exchange rate: an average of 14,000 IDR per US dollar (2/21/2021) GDP Growth: 3.1%(2021) by World Bank; 4.8% (2021) by Central Bank (BI) Inflation rate: 3 - 4% (2021 -MoF), 2.30% (Trading Economics) Indonesian Crude Price (ICP) at $ 65 USD per barrel (2020) Tax revenue: 1.49 quadrillion IDR (2019) Ease of Doing Business: 73/190 (World Bank 2019) Indonesia’s sovereign credit rating: BBB (S&P, Fitch and Moody’s) Government budget 5.5% (2021) Special Drawing Rights (SDR): 1,114.59 million
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Major economic indicators 2017
2018
2019¹
2020¹
2021
5.1
5.2
5.10
-2.2
4.4 – 55%
3.6
3.1
3.2
4.0
2.3 - 3%
28.5
31.5
33.0
35.0
40.0
13,381
14,250
14,250
14,400
14,000
4.25
6.00
5.25
-1.7
-3.0
-2.5
-2.7
n.a
264
267
270
275
270
10.1
10.0
9.8
9.2
9.7
5.5
5.3
5.2
7.07
n.a
130.2
117.2
125.9
135.0
138.0
Gross Domestic Product² (annual % change) Inflation/CPI (annual % change) Government Debt (% of GDP) Exchange Rate (IDR/USD) Benchmark Interest Rate (%)
n.a
Current Account Balance (% of GDP) Population (in millions) Poverty (% of population) Unemployment (% of work force) Foreign Exchange Reserves (in billion USD)
Sources Statistics Indonesia (BPS), Trading Economics, World Bank
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Economic outlook Topic
Feature
INDONESIA’S ECONOMIC PROJECTIONS FOR 2021
1. Indonesia’s economy is slowly recovering during the second half of 2020 aided by the gradual re-opening of the domestic and global economies and massive policy support among others. fiscal & monetary policies. •
growth would rebound to 4.4% in 2021.
•
confidence improves, since provided an effective and safe vaccine is available to a large part of the population.
•
capital flows have stabilized, and the Rupiah has recovered.
•
The government’s strong fiscal response to save lives and livelihoods and stimulate the recovery (4.3% of GDP) has been decisive.
•
The World Bank is projecting a more optimistic growth of around 3.0 to 4.4 percent for the Southeast Asia largest economy. Earlier the World Bank predicted Indonesia’ economic growth at zero percent due to the COVID-19 pandemic.
2. Majority of the lowest income has received government support through the national economic recovery program (ERP), either in the form of a Social Safety Net, assistance, as well as electricity subsidies. The government has allocated a budget of Rp203.9 trillion (US$13.78 billion) or around 3. 0.9 percent of gross domestic products (GDP). While for the poverty rate, 4. Restrictions on mobility, increased health risks, and the weakening of the global economy have put pressure on domestic demand, both consumption and investment activities. 5. The monetary response to the crisis has been strong. Bank Indonesia’s local-currency government bond purchase program (1.8% of GDP in August compared to 1.7% of GDP on average among emerging markets) has helped maintain financial stability and finance the fiscal deficit. It has also contributed to lowering long-end local currency government bond yields. But the program involves macro-financial tradeoffs that need to be managed INDONESIA’S ECONOMIC PROJECTIONS FOR 2021
1. Economic growth is targeted at 4.4.% meanwhile domestic demand and surplus export are expected to be the two main driving forces. 2. Inflation will remain low at 3.0 % to support public purchasing power 3. Rupiah exchange rate is estimated at around Rp. 14,600 per USD. The 3-month SPN (state treasury) interest rate is estimated at 5.4 percent. 4. The current account deficit will remain defisit tat 3% of GDP 5. Indonesian Crude Price (ICP) is estimated at around USD 65 / barrel. Having high sensitivity to various global dynamics, the government continues to monitor the movement of oil and global commodity prices. 6. The 2021 budget deficit is planned to be 1.76% of GDP or IDR307.2 trillion with state revenues and grants of IDR2.221.5 trillion, and state expenditure of IDR2,528.8 trillion
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1. Indonesia’s economy is slowly recovering during the second half of 2020 aided by the gradual re-opening of the domestic and global economies and massive policy support among others. fiscal & monetary policies.
INTERNAL & EXTERNAL CHALLENGES
•
growth would rebound to 4.4% in 2021.
•
confidence improves, since provided an effective and safe vaccine is available to a large part of the population.
•
capital flows have stabilized, and the Rupiah has recovered.
•
The government’s strong fiscal response to save lives and livelihoods and stimulate the recovery (4.3% of GDP) has been decisive.
1. Internal. The Government of Indonesia will focus on securing and accelerating the recovery in the wake of the COVID-19 crisis by: a. Prioritizing public health : strengthening testing and contract tracing, preparing to widely administer an effective and safe vaccine once it is approved; b. Maintaining support to affected and vulnerable households and firms, and continuously monitor and improve the effectiveness of the c. programs; d. Developing well prioritized tax and expenditure reforms e. Advancing structural reforms to boost investment, productivity and human capital and lift Indonesia’s potential growth. f. Developing Indonesia’s food security challenges and modernize the agri-food system. •
Broaden the food security agenda to move beyond self-sufficiency in rice and other strategic commodities and shift to consider availability, affordability and quality for all.
•
Adjust policy goals and instruments to focus more on enhancing agricultural productivity, crop diversification and competitiveness
•
Improve public spending to enhance productivity, innovation, food quality, and food safety.
2. External a. Indonesia is ranked 73 among 190 countries in The Ease Of Doing Business according to the latest World Bank annual ratings. The rank of Indonesia remained unchanged at 73 in 2018 from 2020. b. Corruption Indexin Indonesia decreased to 37 points in 2020 from 40 ponts in 2019 (source: Transparency International) c. Indonesia Competitiveness Ranked. d. Indonesia is the 50 most competitivenation in the world out of 140 countries ranked in th 2018 edition of the Global Competitiveness Report published by the World Bank Economic Forum
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Doing business in indonesia 2021 An Introduction to Doing Business in Indonesia 2021 covers the following: A. Corporate establishment; B. Human resources and payroll; C. Tax and accounting; D. Audit and compliance.
Topic
Feature
A. CORPORATE ESTABLISHMENT
Requirement and Process of company registration based on Type of Legal Entities:
continued
Local Company, Foreign Direct Investment Company known as a Limited Liability Company, and Representative Office. 1. LOCAL COMPANY (PT) A foreigner can start doing business in Indonesia as a local citizen or a foreign investor under a local nominee arrangement as this kind of company allows only 100% local ownership. On the contrary to other legal entities, a local company is not a subject to such strict requirements and limits. Local Company (PT) is the most common legal entity in Indonesia Even though a local company is intended for Indonesian citizens only, there are some circumstances under which a foreign investor can incorporate a local company in Indonesia as well. Registration Process of a Local PT STEP 1:
COMPANY NAME APPLICATION Submit your company name to Ministry of Law & Human Rights
STEP 2:
ARTICLE OF ASSOCIATION PREPARATION This requires presence of a notary
STEP 3:
DEED OF ESTABLISHMENT APPROVAL Deed of Establishment is approved by Ministry of Law & Human Right
STEP 4:
CERTIFICATE OF DOMICILE ACQUISITION Obtained from local government to show business location
STEP 5:
TAXPAYER REGISTRATION NUMBER (NPWP) APPLICATION To secure other licenses, fulfill tax obligations and open a bank account
STEP 6:
BUSINESS IDENTIFICATION NUMBER (NIB) APPLICATION Application is done via Online Single Submission (OSS) system
STEP 7:
COMPANY REGISTRATION CERTIFICATE (TDP) ACQUISITION After, you can apply for additional licenses (if required)
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A. CORPORATE ESTABLISHMENT continued
Benefits of a Local Company in Indonesia for Foreigners Even though there are other legal entities particularly designed for foreigners — a limited liability foreign-owned company and representative office — starting a local company might bring more benefits to some foreign entrepreneurs. a. Not Restricted from Some Business Fields The Negative Investment List is a document that regulates foreign ownership of businesses based on business sectors they operate in. Thus, some business activities are fully closed to non-domestic investors, and some are partially limited. On the other hand, a local company is not a subject to this regulation, and it might be the only choice how to start a business in Indonesia in your field. b. Lower Incorporation Costs In comparison with a foreign-owned company, the paid-in capital of a local company is much lower. In general, it ranges from IDR 50,000,000 up to more than IDR 10,000,000,000. The amount of the capital defines the size of the company, which further determines whether a company is eligible to sponsor a work permit for a foreign worker (and how many). •
Small : IDR 50,000,000 – 500,000,000
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Medium : IDR 500,000,001 – 10,000,000,000
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Large : above IDR 10,000,000,001
2. FOREIGN OWNED COMPANY (PT PMA) A foreign-owned company in Indonesia, known as PT PMA, has been designed to meet the needs of foreign entrepreneurs. On the contrary to the incorporation process of a local company or a representative office, establishment of a foreign-owned limited liability company (LLC) in Indonesia might be more challenging and time-consuming. The Negative Investment List stipulates the maximum allowed foreign ownership in particular business sectors, causing some industries to be fully closed or only partially open to foreigners. Therefore, having an expert partner in Indonesia or engaging professional assistance becomes a critical point to succeed when forming an international company in Indonesia. Foreign-owned limited liability company is a legal entity that can be fully owned by foreigners. However, the maximum foreign ownership is determined by the business sector and business activities. The restrictions are listed in a regulation called the Indonesian Negative Investment List.
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A. CORPORATE ESTABLISHMENT
Establish a PT PMA Company: The Procedures. STEP 1:
continued
Approval of Company Name It should consist of three words that are not vulgar or obscene
STEP 2:
Deed of Incorporation It should include an Article of Association, and a notary must be present
STEP 3:
After submission of Deed of Incorporation by the notary, the Ministry of Law and Human Rights will give approval
STEP 4:
Registration of Tax ID (NPWP) A valid NPWP is required for securing other company’s licenses, banking activities, and fulfilling tax obligations
STEP 5:
Domicile Letter Required to show the location of your business.
STEP 6:
Application of NIB Alongside NIB, Business License(s) and Location Permit will also be granted one day following the registration via OSS.
STEP 7:
Application of Other Licenses Depending on the business sector, additional licenses such as commercial license and tourism license may be required before operation
Benefits of a Foreign-Owned Company Although the establishment process is more demanding, foreign-owned companies offer vital benefits that entirely compensate the previously invested time and efforts. a. Employment of Foreign Workers b. A foreign-owned company can sponsor and issue work permits as well as stay visas (working ITAS) for its international employees. c. Furthermore, this kind of company is allowed to sponsor business visas of its business partners and clients arriving in Indonesia for a short stay. d. Full International Ownership To attract more foreign investors and multiple investments critical to the Indonesian economy, Indonesia has been relaxing the limited foreign ownership lately. Wholly-owned foreign companies became less rare, and it is, therefore, likely that you can start an international company without any partnership or local shares of your property.
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A. CORPORATE ESTABLISHMENT
3. REPRESENTATIVE OFFICE Commonly considered as a branch of parent company overseas, it can be your first step to enter the Indonesian market. The purpose of this legal entity is marketing activity, preparing the establishment of PT PMA, or conducting market research. No direct selling or generating revenues is allowed. Registering a Representative Company in Indonesia A representative office means market presence without large capital investment. The primary purpose of representative offices in Indonesia is testing the water before the actual company incorporation. Furthermore, a representative office might conduct market research, approach potential clients and build brand awareness of your business. However, no activities that generate profit are allowed, and this is the prominent factor that distinguishes a representative company in Indonesia from other legal entities. Registration Process of a Representative Office in Indonesia Step 1: obtaining a representative office (KPPA) license Step 2: obtaining domicile letter from the local subdistrict Step 3: applying for taxpayer registration number (NPWP) Step 4: getting a company registration certificate (TDP) The Benefits of Representative Office in Indonesia a. Low Incorporation Cost As mentioned, a representative office (RO) is an affordable way of how to penetrate the market in Indonesia. Whether you are not sure about your target audience or the presence of business partners, these companies will help you to understand the Indonesian market properly. b. Visa Sponsorship Even though representative offices are not permitted to generate revenues, they are entitled to sponsoring work and stay permits for their foreign employees. Moreover, an RO can sponsor a business visa for business partners coming to Indonesia. Organisational Structure To establish a representative office in Indonesia might be the most feasible solution for many entrepreneurs due to its lenient corporate structure. As opposed to a foreign company no shareholder or director is required, and only one chief executive is sufficient. Currently, four types of representative offices are available: a. KPPA: General RO of a Foreign Company b. KPPPA (known as KP3A or K3PA): RO of a Foreign Trading Company c..BUJKA: RO of a Foreign Construction Service Company d . KPPA MIGAS: RO of a Foreign Oil and Gas Company
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B. HUMAN RESOURCES & PAYROLL continued
Indonesian Employment Law And Covid-19: As a result of the serious economic disruptions from COVID-19, there are several options available to employers under Indonesian employment law, as follows: 1. SALARY CUTS AND UNPAID LEAVE a. If employees freely agree to the employer’s proposal to salary cuts and/or unpaid leave, that agreement should be recorded in writing. b. If there is a union at the company then the employer must consult with and secure the approval of the union for any agreed salary cuts and/or unpaid leave. c. If employees decline to agree to salary cuts and/or unpaid leave, the employer can seek to encourage agreement by implying that employees who do not agree to the proposed changes could potentially be made redundant, subject to a mutual termination agreement (“MTA”) or, if disputed, approval from the labor court. It is important to secure the consent from each employee for proposed salary cuts and/or unpaid leave. The agreement with employees must be signed in the Indonesian language. A dual-language form of the agreement can be drafted but the prevailing language must be Indonesian. If the agreement is not signed in the Indonesian language, there is a risk that it could be considered null and void if disputed in the courts. 2. EMPLOYEE TERMINATIONS The central government and regional governments have not issued any impending regulations with regard to the termination of employment, specifically during the COVID-19 pandemic. Companies should therefore, follow the regulations stipulated in the Labor Law. There are a number of different scenarios employers might consider in response to COVID-19 as follows: a. The complete closure of the business. The business is no longer financially viable and the redundancy of all the employees, or laying off only a portion of the workforce. Considerations include the following: 1. Under the Indonesian Manpower Law, terminations for efficiency basically can be done only when there is a closure of the business (including partial closure or a reduction of overall business activities), either preceded with or without losses for two consecutive years (this is relevant for determining termination entitlements). 2. Whether a force majeure event would be an acceptable reason for employee terminations with minimal severance payment. 3. If the business is not being shuttered, employee terminations can still be done but only with the express written agreement of employees by way of a mutual termination agreement (“MTA”). 4. Without an MTA the proposed terminations will be deemed as being disputed and can only be settled through the labor court, a process that can take six months or more, during which the employees’ salaries must be paid.
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B. HUMAN RESOURCES & PAYROLL continued
5. Indonesia does not recognize the concept of notice of termination. Unless an MTA is reached, the lengthy and costly termination process for permanent employees is as follows: a. The parties (the employer and employees, or if applicable, a labor union) are required to meet in an attempt to reach an amicable termination settlement, a process known as bipartite negotiation. b. If a settlement is reached, an MTA should be executed and registered at the relevant labor court; c. If negotiations fail, either the company or the employee may file the dispute with the relevant manpower affairs office. The manpower office will ask both parties whether the dispute should be resolved through conciliation with private conciliators or mediation with a mediator from the manpower office. d. If the non-binding written recommendation of the conciliator or mediator is rejected, the matter must be brought by either party to the relevant labor court to approve the termination and the benefits payable in connection with the termination. e. If the labor court decision is appealed the case then goes to the Supreme Court. b. Statutory Severance Requirements 1. For contract/fixed-term employees: The balance of the contract must be paid to fixed-term employees terminated before the end of their fixed-term employment agreement. 2. For permanent employees: A permanent employee’s entitlement in connection with termination of employment depends on their years of service and the circumstances of the separation. The categories of possible separation entitlements under Article 156 of the Manpower Law consist of: a. severance pay of up to nine months’ wages, b. service pay of up to 10 months’ wages, and c. other compensation (ie, for unused annual leave, any applicable relocation costs or expenses, compensation for housing, medical and hospitalization, and other separation benefits as may be agreed). Under the Indonesian Manpower Law, in the event of terminations as a result of the company closing down due to two consecutive years of continuous losses or due to force majeure, terminated permanent employees are entitled to single severance pay, single service pay, and compensation. In the event of terminations for downsizing due to efficiency reasons (ie, not due to financial losses or force majeure), terminated permanent employees are entitled to double severance pay, single service pay and compensation. Note that an ex gratia payment of two to three months’ salary on top of the permanent employee’s mandatory severance entitlements may be necessary to ensure the mployee signs an MTA to avoid the costly labor court process.. 3. EMPLOYMENT WAGES 1. Worker/Labor Protection and Business Continuity for the Prevention and Control of COVID-19. Under the circular – Letter of Republic of Indonesia Ministry of Manpower No. M/3/HK.04/III/2020 on Worker/Labor Protection and Business Continuity for the Prevention and Control of COVID-19 – employers must continue paying the full wages of employees working from home unless an agreement between the two parties says otherwise.
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B. HUMAN RESOURCES & PAYROLL continued
Employees who are under the ODP (monitored) status will still be entitled to full salaries. An ODP status means the person has a travel history of entering a COVID-19 hotspot and came in contact with possible COVID-19 patients, and thus have to go into self-isolation. Employees who are under the PDP status (surveillance) are those that have displayed symptoms of COVID-19, such as fever, respiratory problems, and dry coughs and are undergoing self-isolation – they will be categorized as being on sick leave. The company will then have to adhere to the Law No. 13 of 2003 (Labor Law). Under the Labor Law, the employee on sick leave is entitled to: a. 100 percent of wages during the first four months of sick leave; b. 75 percent of wages during the second four months of sick leave; c. 50 percent of wages during the third four months of sick leave; and d. 25 percent of wages during each subsequent month of sick leave (until the termination of employment is agreed upon). 3. Possible Deduction Of Employees’ Payroll And THR In essence, companies cannot make wage deductions beyond those agreed upon by employers and employees in their respective work contracts. This can be excluded if the clause regarding wage deduction is prescribed in a work contract, collective agreement or the company regulations. This wage deduction also applies to certain conditions, such as fines, compensation, and advance payment of wages. Although, based on the Circular of the Minister of Manpower No. M/3/HK.04/III/2020 regarding Worker/Labor Protection and Business Continuity in the Context of Preventing and Countering Covid-19, it mentions that for companies that limit business activities by considering business continuity, changes in wage levels and ways of payment can be made in accordance with agreement between the company and their employees. However, this does not have a strong legal basis, which may lead to industrial relations disputes, where dispute of rights are defined in Article 1 number 2 of Law No. 2 of 2004 regarding Industrial Relations Disputes Settlement: “dispute of rights refers to a disput which occurs due to the non-fulfillment of rights because there is inconformity between the implementation or interpretation of provisions under laws and regulations, employment agreement, company regulation, or collective labor agreement.” THR is a part of non-wage income. As is the case in a wage, the company shall also pay the THR to employee(s) at least 7 (seven) day before the Religious Holiday. THR is regulated in a number of regulations including Government Regulation No.78 of 2015 concerning Wages and Regulation of the Minister of Manpower (GR No.6 of 2016 concerning THR for employees in the Company). As per the Minister of Manpower Regulation No.20 of 2016 concerning Procedures for Granting Administrative Sanctions, companies who fail to pay on time or does not pay THR to employees may be subject to consequences in the form of fines or administrative sanctions with accordance to the prevailing laws and regulations. However, for companies that have difficulty paying THR amid Covid-19, they can open a dialogue with employees to reach agreement on other options in paying the THR to employees. The company can propose a suspension of THR payments up to a mutually agreed period or the company can pay THR in stages to employees.
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B. HUMAN RESOURCES & PAYROLL
4. Postponement Of Employees’ Minimum Wages For The Protection Of Employees’ Right Companies are facing issues such as low running income, disrupted production, but the burden of expenditure is keeping the business world on the verge of mass bankruptcy. With the economic decline, companies may not be able to pay finance expenses without any income including their employees’ wages by the end of June 2020. It is stipulated in Law No.13/2003 that the employer is prohibited from paying the employees’ wages lower than the minimum wages. However, an employer who is unable to pay the minimum wages can ask for a postponement for the payment of minimum wages to their employees. This postponement of the payment of minimum wages is explained in Article 90 paragraph (2) of Law No.13/2003 wherein the specific article . The postponement of the payment of minimum wages by a company that is financially unable to pay minimum wages is intended to temporarily release the company from having to pay minimum wages for a certain period of time. If the postponement comes to an end, the company is then under an obligation to pay minimum wages that are applicable at the time of postponement, where the remaining wages that were not paid during the postponement period will be paid to the employee (aggregate amount of remaining wages for the postponement period) subsequent to the end of postponement period. The procedure for the postponement of the payment of minimum wages is regulated in Minister of Manpower and Transmigration Decree No. Kep.231/MEN/2003 concerning Procedures for Postponing the Application of the Minimum Wage. The application for the postponement of the minimum wage payment obligation must be submitted by the employer to the Governor through the provincial Manpower Office no later than 10 (ten) days before the minimum wage is implemented effectively The application itself must be made in the form of a written agreement between the employer and the employees/labor union, which was made pursuant to an in-depth, honest, and open negotiation between the 2 (two) parties. Thus, if the employer is in financial distress due to the Covid-19 outbreak and has not been able to pay his employees’ wages according to the minimum wage, then the employer can postpone payment of wages by first negotiating with the employees or worker union/ labor union. However, the postponement of payment of the minimum wage by employers to employees does not eliminate the obligation of employers to pay the difference in minimum wages during the postponement period (where the remaining amount of wages that was postponed must be given to the employee after the end of the postponement period).
C. TAX AND ACCOUNTING continued
In a bid to provide certainty to tax and fiscal during COVID-19 pandemic, the Government has issued Government Regulation Number 29 of 2020 on Income Tax Facilities to Address Corona Virus Disease (Covid-19). The statement was made by Taxation Regulation Director II Yunirwansyah in a virtual Media Briefing on Taxation on Thursday (25/6), in Jakarta. Taxpayers who support the Government’s efforts in tackling COVID-19 pandemic are eligible for income tax facilities. Based on the Regulation, the Government provides 5 tax facilities; among others: 1. Indonesian Resident Taxpayers (WPDN) who produce medical equipment and/or Household Health Supplies (PKRT) to handle COVID-19 are entitled to an additional reduction in net income by 30 percent of the costs incurred. The medical equipment includes of N95 surgical masks and respirators, body protection, medical disposable ventilators, and diagnostic test reagents for Covid-19. Meanwhile the PKRT may include antiseptic hand sanitizers and disinfectants. 2. For taxpayers who give donations to address COVID-19, the donations can be deducted from gross income. These donations must be supported by the receipt of donations and received by charitable institutions that have Taxpayer Identification Numbers (NPWP) such as National Disaster Management Agency (BNPB), Regional Disaster Management Agency (BPBD), Ministry of Health, Ministry of Social Affairs, or charitable institutions. However, the deduction must either follow provisions of Government Regulation Number 29/2020 or Number 93/2010.
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C. TAX AND ACCOUNTING continued
3. In Government Regulation Number 29 of 2020, the donations may be given to the BNPB, BPBD, Ministry of Health, Ministry of Social Affairs, or charitable institutions that have the NPWP. The charitable institutions are obliged to report the donations. In this regard, donations may be given in the form of money, goods, and others. 4. Donations that have been deducted as a reduction in gross income under Government Regulation No. 93 of 2010, cannot be further reduced 5. under Government Regulation Number 93/2010. The taxpayers must choose between Government Regulation Number 29 or Number 93 6. The Regulation also states that individual taxpayers that are health workers and assigned to provide health services to address Covid-19 will receive additional income from the Government in the form of honoraria or other benefits.The additional income is subject to final Article 21 Income Tax withholding at a rate of 0 percent. 7. The health workers consist of medical staff and health support staff including cleaners, administrative staff, morticians, ambulance drivers, and other supporting staff. 8. Income of taxpayers in the form of the Government’s compensation and reimbursement for the use of assets based on Government Regulation Number 34 of 2017 is subject to a final income tax of 0 percent. 9. Taxpayers of publicly-listed company who are willing to buyback shares traded on the stock exchange are entitled to a 3 percent lower rate. Thus, 40 percent of their shares will be traded on the Indonesian Stock Exchange (BEI) or owned by at least 300 parties. Each party may only own shares of less than 5 percent of the total issued and fully paid shares within a minimum of 183 calendar days within a tax year. The parties do not include publicly-listed company taxpayers that repurchase their shares and/or are affiliated. The taxpayers are considered meeting these requirements once they received appointment and approval from the Ministry/ Financial Services Authority (OJK). The share buyback is carried out from 1 March until 30 September 2020. The share can only be owned until 30 September 2020. They are obliged to submit report of share buyback in their Annual Tax Returns (SPT). (Ministry of Finance/EN) (Source: Office of Assistant to Deputy Cabinet Secretary for State Documents & Translation Date 26 Juni 2020) Tax Developments In Response To Covid-19 Tax-related measures introduced in Indonesia in response to the COVID-19 pandemic are regulated under Ministry of Finance (MoF) Regulation No. 86/PMK.03/2020 and MoF Regulation No. 110/PMK.03/2020 on Tax Incentives for Taxpayer Affected by the Coronavirus Outbreak, and Government Regulation in Lieu of Law (Perppu) no 1 year 2020. Article 21 Employee Income Tax For the months of April – December 2020 for employees who: •
receives income from a qualified employer (There are 1,189 categories of industries and companies, those listed in the Attachment A of MoF No. 86/PMK.03/2020)
•
has a Tax ID number (NPWP)
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receives an annualized regular gross income not exceeding IDR 200 million. Bonus and Religious. Holiday Allowance are not included in calculating the threshold.
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C. TAX AND ACCOUNTING continued
The employer should give the Art. 21 income tax as additional payment to the employee. The taxpayer should prepare e-billing with notes “employee income tax is borne by Government based on MoF 86/PMK.03/2020.” Article 22 Income Tax on Imports can be exempted for companies who: •
have a business classification stated in that is among those listed in the Attachment H of of MoF No. 86/PMK.03/2020 (there are 721 specific industrial fields or companies that have been granted KITE (Import Facility for Export Purposes)).
•
Qualified taxpayers must apply for this incentive via DJP Online website. If approved, the DJP Online system will issue a Tax Exemption Letter (SKB) that is valid starting from the issuance date up to and including 31 December 2020.
The taxpayer should submit realization letter to DGT (three months period for April – June 2020), realization letter should be submitted on 20 July 2020 at the latest and on the 20th of the following month thereafter, through DJP online with specific format that can be uploaded from DJP online. Article 25 Income Tax •
50% reduction of the Article 25 Monthly Tax Installments for qualified taxpayers (1,013 specific industrial fields, listed in the Attachment M of MoF No. 110/PMK.03/2020) is provided.
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50% reduction of the Article 25 Monthly Tax Installments for qualified taxpayers (1,013 specific industrial fields, listed in the Attachment M of MoF No. 110/PMK.03/2020) is provided.
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This reduction in tax installments is valid until the tax period of December 2020.
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Qualified taxpayers must inform the tax office that they are utilizing this incentive via DJP Online website.
Value Added Tax (VAT) •
The government will automatically consider qualified taxpayers (listed in the Attachment P of MoF No. 86/PMK.03/2020) as low-risk and provide a preliminary VAT refund facility for the fiscal periods April through December 2020.
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Applicable for VAT returns (including amendments) that are submitted before 20th January 2021 with overpayment status, with a maximum amount of IDR 5 billion (per month).
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Taxpayer is not in the preliminary evidence audit position and did not perform any criminal actions during the last five years before VAT return submission.
New digital economy tax measures •
On 31 March 2020, the Indonesian government issued the Government Regulation in Lieu of Law (Peraturan Pemerintah Pengganti Undang- Undang/Perppu) No.1 Year 2020 (the regulation) which purports to apply new measures to the digital economy.
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On 16 May 2020, Perppu 1/2020 was passed into Law No. 2 Year 2020. The new law imposed tax on over-the-top electronic transaction. This tax is imposed on foreign traders, foreign service providers, and / or trade operators through an overseas electronic system (PMSE) that cannot be designated as a permanent establishment (BUT). The issuance of these regulations occurred in the context of the Indonesian government’s response to Covid-19.
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C. TAX AND ACCOUNTING continued
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Starting July 2020, PER-12/PJ/2020 imposes 10% VAT to the provision of intangible goods and services through an ecommerce system by non-
•
residents for consumption in Indonesia.
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The obligation to register and account for VAT applies to foreign e-commerce providers (including foreign platforms, foreign individuals and digital companies). Foreign e-commerce providers are entitled to appoint a representative in Indonesia to fulfil their tax obligations.
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On-line platform operators may wish to verify their VAT obligations in Indonesia.
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The obligation to collect VAT from payments made by Indonesian buyers and customers is the responsibility of the ecommerce business providers (either e-commerce foreign or domestic providers, or offshore traders). The Indonesian tax office will appoint the e-commerce business providers as VAT collectors if the transactions satisfy certain thresholds in the Indonesia market.
E-commerce marketplace providers will be appointed as VAT Collectors if their activity in the Indonesian market meets either of the following thresholds: •
transaction value with customers in Indonesia exceeding IDR 600 million in a year or IDR 50 million in a month;
•
access to their e-commerce platform from Indonesia exceeds 12 thousand users in 12 months, or one thousand users in one month.
Other tax measures •
MoF Regulation No. 125/PMK.010/2020 on import Value Added Tax (VAT) for newsprint paper and/or magazine paper, borne by the 2020 state budget until December 31, 2020
•
Liquefied Natural Gas or LNG has been added to list of products the imports of which will no longer be charged with VAT : Government Regulation No. 48/2020 on the amendment to Government Regulation No. 81/2015 on the import and/or submission of taxable strategic goods that are exempted from added value taxes,
•
MoF Regulation No. 96/PMK.010/2020 on the amendment to MoF Regulation No. 11/PMK.010/2020 on the implementation of Government Regulation No. 78/2019 on Income Tax Facilitation for Investment in Certain Business Fields and/or Certain Regions. The regulation effectively gives the Indonesia Investment Coordinating Board (BKPM) the authority to determine the eligibility of companies for the tax allowance as the application must now be done through the BKPM’s Online Single Submission (OSS) system. This regulation came into effect starting August 10, 2020.
RECOVERY PLAN 1. Business or taxation Incentives Taxes borne by the government such as reduction in article 25 (corporate income tax), exemption from income tax Article 21 (employee income tax), Article 22 on imports tax, and preliminary VAT refunds. 2. Ministries & Regional Governments Almost 35% of Ministeries & Regional government budget has been allocated to boost tourism sector, food security and fisheries, industrial estates, ICT development, Central Government loan to regional governments, and anticipating economic recovery.
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C. TAX AND ACCOUNTING
REQUIREMENTS TO QUALIFIED INCENTIVES 1. Companies/individual need to obtain an Ease of Import for Export Purposes (KITE) under certain Business Classification Code (KLU) in the Attachment MoF No. 110/PMK.03/2020. 2. Exemption of Income Tax Article 22 on Import Tax and purchases of the aforementioned goods by agencies/government institutions, referral hospitals, and other parties designated to assist in handling the COVID-19 outbreak as mentioned in appendix I of 86/PMK.03/2020 (PMK 86/2020). 3. Preliminary VAT refund for low-risk Taxable Entrepreneur (PKP) who submits an overpayment of VAT Tax Return overpayment for April – December 2020 tax period up to IDR 5 billion per month. 4. An exemption of Income Tax Article 21 on Employee Income Tax with annual gross income up to Rp200 million. Taxpayer should prepare e-billing with notes “employee income tax is borne by Government based on PMK 86/2020.
D.AUDIT & COMPLIANCE
A Guide for Foreign Investors
continued
1. The Company Law
Investors should be paying attention to Company Law, Investment Law and Market Law.
a. Foreign investors should understand, which sets outs the requirements for audit compliance and preparing financial statements. Other important and relevant laws are the Investment Law and Capital Markets Law. b. If a company’s fiscal year differs from the calendar year, then their deadline for reporting and paying corporate income tax is four months after the end of their fiscal year. c. There is currently no single unifying regulation on auditing and compliance in Indonesia. Foreign investors will need to be aware that regulations regarding auditing, accounting, and financial reporting are stipulated over several laws and bylaws, and that a good understanding of these can ensure their business stays compliant. d. Investors should use the services of registered local advisors to make sure they understand the prevailing regulations. The Investment Law Lys out of the basic requirements on how to operate in Indonesia. These are part of key compliance norms: a. Implementing good corporate governance; b. Undertake corporate social responsibility activities; c. Comply with the labor law; d. Submit quarterly investment activities to the Investment Coordinating Board (BKPM); e. Honor the cultural traditions of communities. f. Criteria for the company to be audited g. Companies with assets exceeding 50 billion rupiah (US$3.6 million); h. Public companies; i.
Companies that issue debt instruments;
j. The company is a state-owned enterprise; or k. The company collects or manages public funds (such as banks and insurance companies).
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D.AUDIT & COMPLIANCE
By law, a company must keep its accounting records and books for at least ten years from the end of its reporting period. Moreover, audits are to be conducted based on the Indonesian Financial Accounting Standards (SAK), which are set by the Financial Accounting Standards Board (DSAK IAI) and the Indonesian Sharia Accounting Standards Board (DSAS IAI), for sharia-based companies. Since 2015, the DSAK IAI has converged its accounting standards with that of the International Financial Reporting Standards (IFRS), issued by the IFRS Foundation and the International Accounting Standards Board (IASB). (The IFRS are a set of global accounting standards that apply to all financial reporting, quality control, and auditing standards relating to all profit-oriented entities.) This is part of Indonesia’s efforts to make local financial statements more comparable and understandable across international boundaries as the country aims to attract greater foreign investment and play a more prominent role within the G20.
Abbreviation 1. DGT : Directorate General of Taxation - The Ministry of Finance 2. JCI : the Jakarta Composite Index 3. DPK: third-party funds (in bahasa: Dana Pihak Ketiga) 4. ICP: the Indonesian Crude Price (ICP) ‘ 5. FDI: Foreign Direct Investment Company 6. The Investment Coordinating Board (in bahasa Badan Koordinasi Penanaman Modal) 7. Foreign Investment Company (in bahasa Pnanaman Modal Asing) 8. Trading Representative Office (“TRO”) : an Indonesian or foreign national appointed by a foreign company or an overseas company group as representative in Indonesia for promotion and marketing of the company’s products in Indonesia. 9. Foreign Representative Office (“FRO”) : The FRO is led by one or more Indonesian or foreign citizens being appointed by a foreign company or an overseas company group as representative in Indonesia to carry out the following activities: Handling interests of the company or its affiliated company; and Preparing the establishment and business development of a foreign investment company operating in Indonesia or another country 10. LLC : Limited Liability Companies in bahasa Perusahaan terbatas) 11. Public Company (Perseroan Terbuka) 12. The Workers Social Security Program (in bahasa BPJS) 13. Construction Representative Office (in bahasa -Badan Usaha Jasa Konstruksi Asing – “BUJKA”) 14. T he List of Business Fields (in bahasa –Daftar Negatif Investasi) 15. Permanent Stay Permit/Card (in bahasa KITAP = Kartu Izin Tinggal )
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This guide has been prepared by KAP DJOKO, SIDIK & INDRA, an independent member of Antea KAP DJOKO, SIDIK & INDRA Tel: +6221 39839735 kapdsi.kpusat@gmail.com www.kapdsi.com
Antea members in Indonesia: JAKARTA Contact partner: Indra Soesetiawan Tel.: + 6221 39839735/ 39838735 Mail: kapdsi.kpusat@gmail.com Web: www.kapdsi.com
Mallorca, 260 àtic 08008 – Barcelona Tel.: + 34 93 215 59 89 Fax: + 34 93 487 28 76 Email: info@antea-int.com www.antea-int.com
JAKARTA (legal services) Contact partner: Fadriyadi Kudri Tel.: +62 21 5225453 Mail: f.kudri@kndlawyers.com Web: www.kndlawyers.com
This publication is intended as general guide only. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This information should not be relied on as a substitute for such an advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, not Antea Alliance of Independent Firms neither its members accepts no responsibility for any errors or omission it may contain whether caused by negligence or otherwise, or forany losses, however caused, sustained by any person that relies upon it. © 2021 ANTEA