Page 2 - Newsletter (Taxation Policies to Counter the Threat of Economic Recession and the Issuance of APA Implementing Regulation)

DDTC Newsletter Vol.03 | No.07 I April 2020 Page 2 of 9

Taxation Policies to Counter the Threat of Economic
Recession and the Issuance of APA Implementing Regulation

Taxation Policies in the Face of reported by foreign traders, foreign service providers,
Economic Recession Threat and foreign and/or domestic Trade Through Electronic
Systems Provider (Penyelenggara Perdagangan Melalui

Sistem Elektronik/PPMSE) that have been appointed by
The government has released a regulation on taxation
the Minister of Finance.
policies to address the economic impact of the Corona
Virus Disease 2019 (COVID-19) pandemic. These taxation Foreign traders or foreign service providers refer to
policies is part of a series of extraordinary measures individuals or entities residing or domiciled outside
undertaken by the government to save the national customs areas that carry out transactions with buyers
economy and financial system stability. of goods or recipients of services within customs areas
through electronic systems. PPMSE, on the other hand,
The tax policies and extraordinary measures undertaken refers to business players that provide electronic
by the government are outlined in Government communication facilities used for trade transactions.
Regulation in Lieu of Law of the Republic of Indonesia
In addition to being appointed as a VAT withholder,
Number 1 of 2020 concerning State Financial Policies
foreign traders, foreign service providers, and/or foreign
and Financial System Stability to Address Corona Virus
PPMSE may also be treated as permanent establishments
Disease 2019 (COVID-19) Pandemic and/or in the
and imposed with income tax if they meet the significant
Context of Countering Threats to the National Economy
economic presence requirement.
and/or Financial System Stability (Perpu No.1/2020).
The government stipulates three conditions for significant
In further detail, four taxation policies are aimed at
economic presence, namely (i) the gross turnover of the
addressing the threat of economic impacts of COVID-19.
consolidated business groups up to a certain amount;
First, the adjustments to income tax rates of resident
(ii) certain amount of sales in Indonesia; and/or (iii) a
corporate taxpayers and permanent establishments.
certain number of active digital media users in Indonesia.
Under this regulation, the government reduces the
In the event that the stipulation as PEs cannot be carried
income tax rate for corporate taxpayers from 25% to
out due to tax treaties with another country’s government,
22%, which shall be in force in 2020 and 2021 tax years.
the foreign service providers, and/or foreign PPMSE that
The corporate tax rate will be further reduced to 20% in
meet the significant economic presence requirement
2022.
shall be subject to the electronic transaction tax.
Additionally, resident taxpayers in the form of publicly-
This regulation defines the electronic transaction tax as
listed companies with a total number of paid shares
a tax imposed on the sale of goods and/or services from
traded on a stock exchange in Indonesia of a minimum
outside Indonesia through PMSE to buyers or users in
of 40%, and meeting certain conditions are eligible for a
Indonesia carried out by non-resident taxpayers, both
3% lower rate.
directly and through foreign PPMSE.
This implies that corporate taxpayers included in this
Additionally, income tax and electronic transaction tax
category are entitled to a rate of 19% in 2020 and 2021,
must be paid and reported by foreign traders, foreign
while in the subsequent years, they shall be subject to a
service providers, and/or foreign PPMSE themselves.
rate of 17%.
This regulation, however, allows them to appoint
Second, the tax treatment for Trade Through Electronic representatives domiciled in Indonesia to fulfill their tax
Systems (Perdagangan Melalui Sistem Elektronik/PMSE). obligations.
The regulation defines the PMSE as trade in which the
However, the amount of rates, tax base, and procedures for
transactions are carried out through a series of electronic
the calculation of income tax and electronic transaction
devices and procedures. Further, under this regulation,
tax are not yet stipulated in this regulation and shall
there are two tax treatments for PMSE, i.e. subject to
be regulated by or based on Government Regulations.
value added tax (VAT) and income tax or electronic
Likewise, further provisions related to procedures for
transaction tax.
the implementation of tax rights and obligations shall
The imposition of VAT for PMSE conforms to the provisions be further regulated through the Minister of Finance
referred to in Law No. 42 of 2009 concerning the Third Regulations.
Amendment to Law Number 8 of 1983 concerning Value
The regulation also emphasizes that foreign traders,
Added Tax of Goods and Services and Sales Tax on Luxury
foreign service providers, and foreign and domestic
Goods (VAT Law).
PPMSE that do not meet the stipulated provisions shall
Moreover, VAT on goods and/services from outside the be subject to administrative sanctions as per the General
customs area through PMSE is withheld, deposited, and Provisions and Tax Procedures Law.