Indonesia is changing. With tax amnesty, the Jokowi administration aims to bring Indonesia into a new era, shedding light on undocumented assets and increasing potential tax earnings to develop the country’s infrastructure. Tax amnesty is a right, not an obligation. There are obvious benefits but also costs. Your overall strategy should withstand the heightened level of scrutiny in the new tax order.
As a foreigner, am I eligible to take part in tax amnesty? I do not have an NPWP.
Yes, foreigners who earn an income, reside in Indonesia more than 183 days a year, or maintain residence in Indonesia, are eligible. If you do not have an Indonesian tax identification number (NPWP), one will be issued for participation in tax amnesty.
I have lived in Indonesia for many years and am now retired. What benefits are there for me to take part in tax amnesty?
You may have inadvertently made a mistake or simply forgotten to declare all your assets or incomes in your annual tax returns (SPT). Participating in tax amnesty absolves any and all your past tax mistakes. As specified in Article 11 of the Tax Amnesty Law No. 11 of 2016, participants in tax amnesty will not be subject to investigation for the period prior to and including 2015. If you have never paid tax in Indonesia, this is an excellent opportunity to claim tax residence and gain tax-legitimate access to income previously received overseas, for a fraction of the tax cost, i.e. at the current 3% rate instead of up to 30% progressive tax that income is subject to. An alternative is to correct your previous SPT to declare assets acquired using income on which you have paid tax. You may do either tax amnesty or correction of SPT, but not both.
Do I have to declare my assets and incomes overseas, e.g. my house, pension, or any passive income from rental or interest on investments?
Yes, if you are eligible to participate in tax amnesty, you are also a tax resident and are liable for Indonesian tax. Your overseas income is subject to Indonesian tax. You do not have to pay tax on overseas income earned prior to becoming an Indonesian tax resident. Another exemption includes inheritance and direct line bequests, which are not taxable.
My Indonesian spouse owns our properties under his/her name and has not declared them in his/her SPT previously.
Should he/she take part in tax amnesty? Assuming you have a prenuptial agreement, your spouse should take part in tax amnesty to declare the properties under his/her name and secure tax legitimacy. If his/her SPT does not show that he/she has the funds to own such properties, he/she may be subject to an audit by the tax office, which may lead to sanctions (see below question for more information on sanctions). If you had provided the funds to purchase the properties, with separation of property, such gifts between spouses are subject to income tax. If you do not have a prenuptial agreement, you may now do a marriage agreement postnuptially to separate your property, in accordance with the Constitutional Court Ruling No. 69/PUU- XIII/2015 which became the law on 27 October 2016.
How does tax amnesty work if I want to transfer my property from my nominee?
The Tax Amnesty Law No. 11 of 2016 provides a waiver of final income tax (PPh) for such transfer of property, provided the change of name on the certificate occurs before 31 December 2017. The redemption fee (uang tebusan) is payable at the current 3% rate (or 5% as of 1 January 2017) based on a reasonable self-assessed amount. The title deed duty (BPHTB) is still be payable, at 5% of the government assessed value (NJOP). A notarial deed acknowledging the nominee owner of a property needs to be signed.
My employee received an appeal letter from the tax office to declare her personal assets. She claims her brother bought these assets using her name, and she does not have the money to pay the redemption fee. What should she do?
For assets in the form of property and shares, the rightful owner should take part in tax amnesty and acknowledge in a notarial deed that your employee was holding them in nominee. Ideally, the rightful owner, not the nominee, should pay the redemption fee.
Are there sanctions that I should be aware of?
Yes. If you participate in tax amnesty and are found within 3 years to hold additional undeclared assets, the latter is considered income at the time of discovery, subject to the applicable income tax plus a sanction of 200%. This means that you could lose up to 90% of the undeclared asset. If you do not participate, undeclared assets found by the tax office are immediately subject to the applicable income tax, i.e. potentially up to 30% of the asset. Until tax is paid, a penalty of 2% per month is due for a maximum of 48% of the tax amount. Therefore, you risk losing up to 44.4% of the asset. The tax office will subject delinquent taxpayers to further scrutiny, as it hopes to find other undeclared assets.
I received a letter from my service provider asking me to pay the redemption fee for the shares they hold in my company. What’s going on?
It is likely that your service provider is participating in tax amnesty because it did not report its shares in your company in its annual tax return. Taxes were not paid for the income used to pay up into the capital of your company. While offering a solution, they put your company at risk by failing to provide tax legitimacy. They may not have the tax asset to justify their holding of the shares, and are not meticulous in ensuring tax legitimacy. You should make sure that individuals have sufficient net worth declared in their SPT to cover their shares. In the case where the shareholder is a company, clarify that it has the paid up capital necessary to cover the value of the shares it holds.
I am just an employee or a small business. What are the chances that the tax office would pick me for an audit?
PT PMAs have been receiving undue attention in the past year. Thousands of Principal Licenses have been revoked due to non-filing of the Investment Activity Report (LKPM). Regulations around expatriates working in Indonesia have become more stringent as well. To this end, it is not inconceivable that PT PMAs and foreign employees become easy targets for the local tax office. To give you an idea of the level of scrutiny the tax office has gone to, below are snippets of letters brought to our attention.
Letter 1. Demands explanation on reduction of Rp. 22 million on taxes paid from 2015.
Letter 3. Highlights discrepancy between zero income and shareholding in companies.
I’m interested in taking part in tax amnesty. Where do I start?
You could directly engage us to take care of your tax amnesty submission. If you are interested in hosting a tax amnesty seminar at your office, we can propose a reasonable package for up to 2 sessions a day of about 3 hours each, including a presentation, panel Q&A, and 1-on-1 consultation with our tax, accounting, legal and notarial staff. Required documents include the 2015 SPT, NPWP, List of Assets and List of Liabilities. Alternatively, come to an open information session at our office every Friday at 10 AM.
Putranto Alliance is a synergy of professional services companies, carefully selected to provide comprehensive tailored solutions to meet your legal and corporate requirements. Our experience and expertise come from understanding and applying corporate, finance, accounting and tax laws and regulations, leveraging our strong business network to improve business outcomes and results for you. Navigating Indonesia’s myriad regulations can be confusing, and we are here to listen, guide, advise, clarify and assure – so you can focus on growing your business.
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Disclaimer: This article is not meant to provide standalone legal and tax advice. Specific situations may vary among individuals and corporations.