Crowe Horwath - Indonesia
March 2011
In This Issue:
1. Regulation on Limitation of Activity and Type of Services that Imposed Value
Added Tax (“VAT”) on its Export
2. Implementing Regulation on Advance Pricing Agreement was Issued to Reduce
Transfer Pricing Disputes
3. Implementing Regulation on Deemed Dividend from Controlled Foreign
Corporation (CFC)
4. Implementing Regulation on Calculation of Taxable Income and Tax Prepayment
in the Current Year
5. Implementing Regulation on Donations that can be Deducted from Gross Income
REGULATION ON LIMITATION OF
ACTIVITY AND TYPE OF SERVICES
THAT IMPOSED VALUE ADDED TAX
(“VAT”) ON ITS EXPORT
On 28 February 2011, The Ministry of
Finance issued an amendment to the
regulation regarding the limitation of
activity and type of services that imposed
VAT on its export*.
This new regulation most importantly
stipulates the procedure for reporting toll
manufacturing services in the monthly
VAT return.
Under
this
new
regulation,
toll
manufacturing is defined as provision of
services in processing a product either
partly or completely by a service provider
(sub-contractor) in which the service user
determines the specifications of the
product, supplies the raw materials, semifinished goods and/or other materials, with
ownership of the goods stays with the
service user.
Further, the toll manufacturer should
report the export of goods resulting from
toll manufacturing contract in its monthly
VAT return. Also, under the new
regulation, the input VAT on the
acquisition of taxable goods/services,
utilization of intangible taxable goods/
services from offshore and import of
Executive TaxBrief
Crowe Horwath – Indonesia
taxable goods can be credited
accordance with VAT regulation.
in
As a consequence to this new regulation,
the toll manufacturer may have a VAT
overpayment position, and it may request
a VAT refund. This is because export of
goods as well as the toll manufacturing
service fees is subject to 0% VAT, while
the input VAT on the acquisition of taxable
goods/services, utilization of intangible
taxable goods/services from offshore and
import of taxable goods can be claimed as
a tax credit.
Under its previous regulation*, Ministry of
Finance regulates only fees received from
toll manufacturing contract should be
reported in its Monthly VAT return
(excluding the value of the export of
goods), consequently the input VAT on
the acquisition of taxable goods/services,
utilization of intangible taxable goods/
services from offshore and import of
taxable goods could not be claimed as a
tax credit.
This regulation is effective on the date of
promulgation i.e. 28 February 2011.
*Reference: PMK No. 30/PMK.03/2011 as
an amendment to PMK 70/PMK.03/2010
March 2011
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Crowe Horwath - Indonesia
March 2011
IMPLEMENTING
REGULATION
ON
ADVANCE PRICING AGREEMENT WAS
ISSUED TO REDUCE TRANSFER
PRICING DISPUTES
On December 31, 2010 the Directorate
General of Taxes (DGT) issued the longawaited implementing regulation for the
issuance of advance pricing agreement
(APA) unilaterally between a taxpayer and
the DGT*.
APA determines the prices of transactions
concluded by a taxpayer with other parties
having special relationship (transfer
pricing) which had been a frequent source
of disputes between taxpayers and the
DGT during a tax audit.
Once agreed, APA will be applicable
prospectively for 3 years. On certain
conditions, APA may be applicable
retroactively for 1 year prior to the year it
was signed.
Unlike transfer pricing
documentation which is mandatory, APA
is optional to taxpayers.
On the positive note, this implementing
regulation shall provide more certainty to
the taxpayers with special - relationship
transactions by resolving any potential
transfer pricing issues in advance of a tax
audit in a less confrontational environment.
This new regulation also provides clarity in
terms of administrative steps for
preparation, discussion, issuance as well
as evaluation of APA.
However, the DGT may cancel APA on
certain conditions such as change in the
critical assumptions which could affect
methods in determining transfer pricing.
APA does not lift all the risks during a tax
audit as it does not prevent the DGT from
conducting a tax audit on the transfer
pricing transactions.
*Reference: PER-69/PJ/2010; Income Tax
Law article 18 (3a)
Executive TaxBrief
Crowe Horwath – Indonesia
IMPLEMENTING
REGULATION
ON
DEEMED DIVIDEND FROM CONTROLLED FOREIGN CORPORATION (CFC)
The Directorate General of Taxes (DGT)
recently
issued
an
implementing
regulation for reporting of deemed
dividend
from
controlled
foreign
corporation (CFC) by a domestic taxpayer
in its income tax return*.
Under the Ministry of Finance (MOF)
Regulation previously issued in 2008*,
qualifying shareholders are deemed to
receive dividends from their CFC if they
holds
equity
participation,
whether
individually or in conjunction with other
domestic taxpayers, of at least 50% of the
total paid-up shares of a non-listed foreign
business entity.
Qualified Indonesian companies with CFC
need to recognize dividend in its annual
income tax return based on the after-tax
profit of the CFC in proportion to its share
ownership percentage regardless of
whether the CFC distributes dividends or
retains its profit.
In more details, this new implementing
regulation from DGT determines the
timing, the basis in calculating the amount,
the utilization of foreign tax credit as well
as the procedures for reporting the
dividend deemed.
*Reference: PER-59/PJ/2010; PMK
256/PMK.03/2008
March 2011
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Crowe Horwath - Indonesia
March 2011
IMPLEMENTING
REGULATION
ON
CALCULATION OF TAXABLE INCOME
AND TAX PREPAYMENT IN THE
CURRENT YEAR
With a purpose to stimulate foreign direct
investment into the country, The
Government of Indonesia recently issued
a regulation regarding the calculation of
taxable income and tax prepayment in the
current year*.
This regulation stipulates among others:

Tax facilities in the form of net income
reduction, accelerated depreciation,
import duty exemption, investment
allowance, land and building tax
reduction can be given to the
taxpayers
who
enter
capital
investment as “industry pioneer”.
Industry pioneer is defined as large
scale industry, providing significant
added
values;
introduce
new
technologies and having strategic
value for the national economy.

Non-interest
bearing
loan
from
shareholder is allowed under
the
following conditions:


The capital to be paid by the
shareholders providing the loan
has been paid fully;

The shareholders providing the
loan are not in a loss position; and


The loan is sourced from the funds
of the shareholders providing the
loan (i.e. not from a third party);
The company receiving the loan is
experiencing financial difficulties
for the continuation of its
operations.
Taxpayer is obliged to maintain a
separate bookkeeping in case of it
receives non-taxable income and/or
income subject to final tax regime.
IMPLEMENTING
REGULATION
ON
DONATIONS
THAT
CAN
BE
DEDUCTED FROM GROSS INCOME
The Government of Indonesia issued new
regulation on December 31, 2010
regarding several donations that can be
deducted from gross income for income
tax calculation purposes*.
Under this regulation, the donation are
defined as donation in relation to the
national
disaster,
research
and
development
activities,
educational
facilities, sports development activities,
social infrastructure for public use given to
the appropriate authorities.
Such donation can be deducted from
gross income if the following conditions
are met:

Previous year corporate income tax
return is not in a loss position;

Donation does not cause loss on the
fiscal year when the donation is given;

Supported with legitimate evidence;

Parties who receive donation have tax
registration number, except for party
which are non-subject to tax under the
income tax law.
The amount of donation that can be
deducted from gross income is at the
maximum of 5% from the previous year
fiscal net income; meanwhile donations
and development expenses between
related parties are non-deductible.
Donation may be in the form of cash or
kind, except for social infrastructure for
public use that can only be given in the
form of facilities.
This regulation becomes effective starting
fiscal year 2010.
*Reference: PP 93 Year 2010; Income
Tax Law article 6 paragraph 1 letter i to m
*Reference: PP 94 Year 2010; Income
Tax Law
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Crowe Horwath – Indonesia
March 2011
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Crowe Horwath - Indonesia
March 2011
Contact Information:
Name
Wilmar Sidabutar
Army Djatiprasetya
Serep H. Lumbantoruan
Munir Ali
E-mail
wilmar.sidabutar@crowehorwath.co.id
army.djatiprasetya@crowehorwath.co.id
serep.lumbantoruan@crowehorwath.co.id
munir.ali@crowehorwath.co.id
Title
Partner
Director
Director
CEO
Center for Investment and Business Advisory
Member Crowe Horwath International
st
Cyber 2 Tower, 21 Floor
Jl. H.R. Rasuna Said Blok X-5
Jakarta 12950, Indonesia
Tel +62 (21) 2553 5699
Fax +62 (21) 2553 5698
www.crowehorwath.co.id
Center for Investment and Business Advisory / Kosasih, Nurdiyaman, Tjahjo & Rekan is a member of Crowe Horwath
International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and independent legal entity.
Center for Investment and Business Advisory / Kosasih, Nurdiyaman, Tjahjo & Rekan and its affiliates are not responsible or
liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically disclaim any and all
responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member.
© 2011 Center for Investment and Business Advisory / Kosasih, Nurdiyaman, Tjahjo & Rekan
Executive TaxBrief
Crowe Horwath – Indonesia
March 2011
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