The long-awaited Indonesia's tax amnesty bill was finally passed by the parliament on Tuesday, 28 June 2016. The new tax amnesty scheme will apply from July 2016 until the end of March 2017, with a recent government announcement clarifying that the Bill will only take effect after Hari Raya Puasa, which falls on 6 and 7 July.
The new tax amnesty provides a waiver of tax dues, administrative sanctions, and tax crime sanctions if the taxpayer makes redemption payment as stipulated by the legislation.
Redemption payment rates
The redemption payment rates for declared assets/funds
repatriated back to Indonesia are: 2% for declaration done before
end of September 2016, 3% before end of December 2016 and 5% before
end of March 2017, and the redemption payment rates for declared
assets which continue to be maintained overseas are 4%, 6% and 10%,
for the same corresponding 3-monthly period.
The announced rates of 2% to 10% are higher than the proposed rates
under an earlier bill where the proposed rates then were 2% to
6%.
The Bill passed also clarifies that the lower rates of 2% to 5% are
applicable not only to foreign assets remitted back to Indonesia
but also assets currently within Indonesia provided that the
applicant commits to retaining such assets within Indonesia for at
least the next 3 years.
There is also an expanded list of assets that the remitted funds
must be invested in for at least 3 years after repatriation. Other
than Government securities/State Owner Enterprise bonds, it also
includes private company bonds the trading of which is supervised
by the Financial Services Authority, certain infrastructure
investments effected through government cooperation with business
entities, and certain real estate investments based on priorities
set by the government through a separate MoF Decree and other
investment forms. Further announcements on the range of permitted
investments will therefore have to be made to elaborate on this
list and this will impact on the rate of repatriation of declared
funds. Remittances have to be done by 31 Dec 2016 for taxpayers
seeking the 2% and 3% rates and by 31 March 2017 for the 5%
rate.
Applicable Rates Summary Table:
Tax Amnesty application & procedure
To apply for the tax amnesty, the applicant must submit a
Declaration Letter disclosing the net value (assets minus
liability) of the under-declared assets (ie assets not declared in
their last income tax return for year 2015. The applicable
redemption payments are computed by multiplying the relevant rate
and the net value of the additional assets declared. Each applicant
is allowed to submit not more than 3 separate Declaration Letters
up to 31 March 2017.
There is however a limitation on deductible debt for the purpose of
determining the net value. For an entity taxpayer the debt must be
no greater than 75% of the value of the additional assets and for
an individual the limit is 50%.
The amnesty terms also require the applicant to settle all assessed
tax arrears, to withdraw requests relating to outstanding tax
objections/appeals and to make full payment of the redemption
payment. It also specifies that the taxpayer must submit the latest
tax return and a detailed list of assets together with information
on the ownership of the assets that are reported.
For taxpayers with foreign trusts, foundations or holding entity
structures with professional nominees in place, it will be
important to have more clarity and confirmation on what constitutes
sufficient information on the ownership of the assets held through
such foreign structures, in order to avoid future disputes on the
completeness of their submitted declarations.
It is provided that the Minister or his appointed official shall
issue a Tax Amnesty Certificate within 10 working days from the
date of receipt of the completed application with attachments. If
the applicant does not receive such a Certificate within the
promised 10-day period, then the Declaration Letter itself shall be
deemed to be received as a Certificate. With such Certificate, the
applicant is then entitled to the indemnity against tax audits and
investigations for tax offences under the terms of the amnesty. For
taxpayers who have already been subject to on-going tax audits or
investigations, such process must also cease upon receipt of the
Certificate.
However if it should be discovered subsequently that data or
information were not completely disclosed in the Declaration Letter
then additional taxable income (with applicable penalty) could be
deemed to have been received or earned by the taxpayer at the time
of such discovery. Clarity on what constitutes complete disclosure
for the amnesty application purposes is therefore important to
avoid lingering negotiations and disputes.
The amnesty also requires taxpayers to transfer title in any
declared land, building and/or stocks back to the name of the
taxpayers. Such title transfer shall be exempt from Indonesia
income tax if the application for transfer of rights/title is done
by 31 December 2017 or in the case where the title cannot yet be
transferred, then a notarial statement done before 31 December 2017
stating that the assets is truly owned by the taxpayer.
The taxpayer should therefore understand the full legal and tax
implications not only in but also outside Indonesia in connection
with the unwinding of any foreign holding (and also local nominee
holding) structures.
If the assets are retained in foreign holding structures, the
continuing Indonesia tax exposure on such assets may be higher than
holding the assets directly through Indonesia holding company or in
individual names. The applicability of the Indonesia's
Controlled Foreign Corporation (CFC) laws and the deemed domiciled
and permanent establishment rules will depend on the ownership and
management of the assets and structures. If the foreign holding
structures are only unwound beyond the above specified period, then
the taxpayer will have to factor in the additional Indonesia tax
costs for doing so.
The tax amnesty only includes obligations of income tax, value
added tax and sales tax on luxury goods up to 31 December 2015. If
any income or gains have accrued this year (whether due to current
year restructuring, transfers or receipts not otherwise producing
tax exempt income/gains) then such income and gains would not
appear to fall within the scope of the amnesty.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.