The New 2009 Non Taxable Income

In this year of 2008, House of Representative has done its job to finish the amendment of income tax law. This new income tax law will be effective since January 1, 2009. One of article which has been amended is Article 7 about Non Taxable Income or Personal Exemption or widely known as PTKP.
The basic non taxable income for individual taxpayer is changed from Rp13.200.000,00 to Rp15.840.000,00. Additional non taxable income for married taxpayer will be Rp1.320.000,00 respectively. The old one is Rp1.200.000,00. Additional non taxable income or personal exemption for individual taxpayer's spouse which her income is joined in his annual tax return will be Rp15.840.000,00. The old one is Rp13.200.000,00.
For dependent family member, the additional non taxable income is Rp1.200.000,- for each family member. In 2009, the non taxable income for family member will be Rp1.320.000,00. For one family, the maximum non taxable income is three dependent.
Example:
In beginning of 2009, Taxpayer Ahmad has a wife and 4 (four) dependent children. If his wife has income from an employer who has withheld income tax under Article 21 and the employment has no relationship to the business of her husband or other members of the family, the non-taxable income of Taxpayer Ahmad is Rp21,120,000.00 i.e. Rp15,840,000.00 + Rp1,320,000.00 + (3 x Rp1,320,000.00). Whereas for the wife, at the time of Article 21 tax withheld by her employer, there is a personal exemption of Rp15,840,000.00. If the wife's income is combined with that of her husband, the non-taxable income granted to Taxpayer Ahmad would be Rp36,960,000.00 i.e. Rp21,120,000.00 + Rp15,840,000.00.

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Value Added Tax (VAT)

According to Article 4 the Law Number 18 of the year of 2000, there are several object of Indonesian VAT. They are :

1. a supply of Taxable Goods by a Taxable Person for VAT purposes within the Custom Area of Indonesia;
2. importation of Taxable Goods;
3. rendering of Taxable Service by a Taxable Person for VAT purposes in the Customs Area of Indonesia;
4. utilization of intangible Taxable Goods obtained from outside the Customs Area of Indonesia within the Customs Area;
5. utilization of Taxable Service obtained from outside the Customs Area of Indonesia within the Customs Area; or
6. exportation of Taxable Goods by a Taxable Person for VAT purposes.

Based on six kinds of VAT objects above, the VAT exists if the goods should meet the definition of Taxable Goods, the service should be in definition of Taxable Service, the goods or service consumption is in Customs Area in Indonesia and the seller must be Taxable Person (except for importation of goods, intangible goods, and service from abroad).

Goods are tangible goods, which according to their nature and legal status are movable, or immovable goods, and intangible assets. Taxable Goods are goods, which according to their nature and legal status are movable, or immovable, and intangible assets, which are subject to VAT. Services are any service activity under a contractual agreement or legal arrangement which makes available for use goods, facilities or rights, including services provided on order or request, for which the material is provided by the customer. Taxable Services are a service which are subject to tax according to this Law. So, all goods and services are taxable except the law say the contrary.

Customs Area is the Territory of the Republic of Indonesia, which covers land, sea, and air as well as specific areas within the Exclusive Economic Zone and the Continental Shelf within which Law Number 10 Year 1995 on Customs apply. The meaning of customs are is important beacuse VAT is imposed to goods or service that are in customs area only. In other words, the consumption in outside customs are is not object of Indonesian VAT.

Taxable Person for VAT purposes is a Firm which supplies Taxable Goods and or renders Taxable Services which are subject to tax according to VAT Law, excluding small firms with a turnover not exceeding a limit determined by the Minister of Finance Decree, but including small firms which choose to be confirmed as Taxable Person for VAT purposes. Firm is an individual or an entity, which in the course of business or work, produces goods, imports goods, exports goods, engages in trading activities, utilises intangible goods obtained from outside the Customs Area, provides business services, or utilities services obtained from outside the Customs Area. Entity is a group of individual and or capital as a union, whether conducts or not conduct business activity, covering a limited company, partnership, other partnership, a State owned enterprise or company owned by a Regional Government in whatever name and form, “firma", "kongsi", "cooperative", permanent establishment, foundation or such kind of organisations, institute and other business form.

The Value Added Tax rate is 10% (ten percent). The Value Added Tax rate on the export of Taxable Goods is 0% (zero percent). The amount of VAT is found by multiplying tax rate to tax base. Tax Base is the Sales Price or Consideration or Import Value or Export Value, or such other value as may be determined by the Minister of Finance Decree, to be used as the basis for calculating tax payable. Sales Price is the value in money, including all costs charged or which should be charged by a seller, on supply of Taxable Goods, excluding tax withheld in accordance with this law and any rebate which is written in the Tax Invoice. Import value is the value in money, which forms the basis for calculating import duty plus other levies incurred under the Customs Regulations on the import of Taxable Goods, excluding tax withheld in accordance with this law. Export value is the value in money, including all costs charged or should be charged by an exporter

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Indonesian VAT

Scope of VAT
In Article 4 of the Indonesian VAT Law, VAT is the tax imposed on:

1. supply of Taxable Goods by a Taxable Person for VAT purposes within the Custom Area of Indonesia;
2. importation of Taxable Goods;
3. rendering of Taxable Service by a Taxable Person for VAT purposes in the Customs Area of Indonesia;
4. utilization of intangible Taxable Goods obtained from outside the Customs Area of Indonesia within the Customs Area;
5. utilization of Taxable Service obtained from outside the Customs Area of Indonesia within the Customs Area; or
6. exportation of Taxable Goods by a Taxable Person for VAT purposes

Key Terms
So, there are some terms in VAT we have to know like Taxable Goods, Taxable Service, Taxable Persons, Firm, Tax Invoice and Custome Are. These meaning of term are important to understand VAT Concept.

Taxable Goods (or Barang Kena Pajak in Indonesian) are goods, which according to their nature and legal status are movable, or immovable, and intangible assets, which are subject to VAT.

Taxable Services (or Jasa Kena Pajak in Indonesian) are any service activity under a contractual agreement or legal arrangement which makes available for use goods, facilities or rights, including services provided on order or request, for which the material is provided by the customer, which are subject to tax according to the VAT law.

Taxable Person (or Pengusaha Kena Pajak in Indonesian) for VAT purposes is a firm which supplies Taxable Goods and or renders Taxable Service according to the VAT Law, excluding small firms with a turnover not exceeding a limit determined by the Minister of Finance Decree. However, small firms may choose to be confirmed as Taxable Person for VAT purposes.

Firm (or Pengusaha in Indonesian) is an individual or an entity, which in the course of business or work, produced goods, imports goods, export goods, engages in trading activities, utilizes intangible goods obtained from outside the Customs Area, provides business service, or utilizes service obtained from outside the Customs Area.

Customs Area (or Daerah Pabean in Indonesian) is the Territory of the Republic of Indonesia, which covers land, sea, and air as well as specific areas within the Exclusive Economic Zone and the Continental Shelf within which Law Number 10 Year 1995 on Customs apply.

Tax Invoice (or Faktur Pajak in Indonesian)is proof of tax withheld by a Taxable Person for VAT purposes on supply of Taxable Goods or rendering of Taxable Services or by the Directorate General of Customs and Excise on the importation of Taxable Goods.

Non Taxable Goods and Services
There are some kinds of goods which are excluded as taxable goods in Art. 4A of Indonesian VAT Law. Their catagories are :

1. Products of mining and drilling, taken directly from the source;
2. Daily necessities needed by public
3. Food and beverages served in hotel, restaurant, and such other places;
4. Money, gold, and valuable documents.

Some kinds of services are also excluded as taxable services. They are
1. healthcare;
2. social welfare;
3. postal delivery;
4. banking, insurance and financial leasing;
5. religion;
6. education;
7. culture and entertainment which has been imposed by entertainment tax;
8. broadcasting, not include advertising;
9. shipping and inland public transportation;
10. manpower;
11. rendering of services by the goverment in efforts to run the goverment in general.

VAT Mecanism

In general, taxable persons who supply taxable goods or render taxable service have to impose VAT to their buyer. The imposing VAT is done by witholding 10% VAT rate of taxbase. As proof of this VAT witholding, taxable persons have to make tax invoice. Because this tax invoice is made when they sell, the tax invoice is called output tax invoice. The VAT witheld then is called output tax.

As taxable persons buy taxable goods or taxable services, they have to pay additional payment of VAT too which witheld by their supplier. This VAT then is called input tax. The witholding proof is called input tax invoice.

In a month period, taxable persons must calculated how much they withold output tax and how much input tax they have. The output tax in a month is subtracted or credited by the input tax in a month too. If there is a positive result, they have to pay to government account. In contrary, if any negative result, they can ask restitution to government.

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Income Tax

Income tax shall be imposed on any taxable person in respect of income during a taxable year. Thus, the imposing of income tax has to fulfill that there are tax person and tax object i.e the income. The imposing income tax is engaged in a certain period named taxable year. The taxable year is calendar year but if the taxpayer want, the taxable year can be accounting year also.

The Income Tax Law regulates income tax imposition on Taxable Persons in relation to income received or accrued in a taxable year. Taxable Person will be subject to tax if that person receives or accrues income. A Taxable Person who derives income is called a Taxpayer under this law. A Taxpayer is taxed on the income received or accrued during a taxable year or a fraction of a taxable year, if the tax obligations commence or end in a taxable year.

The term a taxable year under this law means a calendar year. However, a Taxpayer may use an accounting year which is different from the calendar year insofar as the accounting year has the period of 12 (twelve) months.

Taxpayer
Taxable person consist of resident and non resident tax person. The resident tax person consist of individual and entity. The non resident tax person are Permanent Establishment (PE) and Non PE. The resident taxpayer and PE have to fill the annual tax return. The individual resident taxpayer is an individual who resides in Indonesia or is present in Indonesia for more than 183 (one hundred and eighty-three) days within any 12 (twelve) month period, or an individual who in particular taxable year is present and intends to reside in Indonesia. The entity resident taxpayer is an entity established or domiciled in Indonesia.
The term non resident taxpayer means :

• an individual who resides in Indonesia or is present in Indonesia for more than 183 (one hundred and eighty-three) days within any 12 (twelve) month period, or an individual who in particular taxable year is present and intends to reside in Indonesia
• an individual who does not reside in Indonesia or is present in Indonesia for not more than 183 (one hundred and eighty-three) days within any 12 (twelve) month period, and an entity which is not established or domiciled in Indonesia deriving income from Indonesia other than from conducting business or carrying out activities through a permanent establishment

One important difference between a resident taxpayer and a non-resident taxpayer is that a resident taxpayer is taxed on his/her income originating from Indonesia and/or from abroad, however a non-resident taxpayer is taxed on his/her income derived only from Indonesia. Therefore, any individual residing in Indonesia or any individual staying in Indonesia for more than 183 days within a period of 12 months, or any individual who, within a fiscal year, stays in Indonesia and intend to reside in Indonesia, is taxed on his/her worldwide income under any name and form whatsoever.

Taxable Object
The Tax Object shall be the income, namely any increase in economic benefit derived by a taxpayer, which may be used for consumption or increase the wealth of the taxpayer concerned, under any name and form whatsoever, including:

• Any remuneration or compensation in relation to work, services, or activities, derived from employment or independent profession, including: wages, salary, honoraria, doctor’s fees, actuarial fees, accountant’s fees, lawyer’s fees
• Any income or compensation from any business or activity
• Any income from capital including from movable and immovable assets, such as reward and gain from forgiveness of debt (“haircuts”), etc.

Tax Rate
The income tax is used to find how much yearly taxpayer income tax. Yearly income tax is tax rate x (taxable object - deductible expense - loss carry forward.)
Tax rate for resident individual taxpayer :

• 5% (five percent) for Rp25,000,000.00 (twenty five million rupiahs) or less
• 10% (ten percent) for over Rp25,000,000.00 (twenty five million and one rupiahs) - Rp50,000,000.00 (fifty million rupiahs)
• 15% (fifteen percent) for pver Rp50,000,000.00 (fifty million and one rupiahs) - Rp100,000,000.00 (one hundred million rupiahs)
• 25% (twenty five percent) for over Rp100,000,000.00 (one hundred million and one rupiahs) – Rp200,000,000.00 (two hundred million rupiahs)
• 35% (thirty five percent) for over Rp200,000,000.00 (two hundred million rupiahs)

Tax rate for resident corporate taxpayer and PE :

• 10% (ten percent) for Rp50,000,000.00 (fifty million rupiahs) or less.
• 15% (fifteen percent) for over Rp50,000,000.00 (fifty million and one rupiahs) – Rp100,000,000.00 (one hundred million rupiahs)
• 30% (thirty percent) for over Rp100,000,000.00 (one hundred million rupiahs)

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Download Indonesian Tax Treaty

Here are tax treaty files ind pdf between Indonesia and others country. Just click below.

1. United States of America
2. United Kingdom
3. Australia
4. Singapore
5. Japan
6. India

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Download Indonesian Tax Law

Here are three Indonesian tax law. You can download these laws by clicking the link below.

Income Tax Law

Value Added Tax

General Tax Rules And Procedures Law

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Permanent Establishment

Permanen Establishment (PE), in Indonesia Tax Law, is one kind of tax person and so one kind of taxpayer. The definition of PE, base on Article 2 Paragraph 5 Indonesian Tax Law, shall be an establishment used by an individual who does not reside or is present in Indonesia for not more than 183 (one hundred and eighty-three) days within any 12 (twelve) month period, or by an entity which is not established or domiciled in Indonesia in the form of, among others:

1. a place of management;
2. a representative office;
3. an office;
4. an office;
5. a factory;
6. a workshop;
7. a mining and extraction of natural resources, drilling used for mining exploration;
8. a fishery, animal husbandry, farm, plantation or forestry;
9. a construction, installation or assembly project;
10. the furnishing of services through employees or other personnel, if conducted for more than 60 (sixty) days within 12 (twelve) month period;
11. an individual or an entity acting as a dependent agent;
12. an agent or employee of an insurance company that is not established or domiciled in Indonesia if it collects premiums or insures risk in Indonesia.

A permanent establishment contains the concept of the existence of place of business, namely facilities that may be in the form of lands and buildings, including machinery and equipment.
The place of business is permanent in nature and used to carry out the business or to conduct the activities of an individual not residing or an entity not established and domiciled In Indonesia.
The concept of permanent establishment also includes individuals or entities as agents the positions of which are not independent, acting for and on behalf of an individual or entity not residing or domiciled in Indonesia. An individual not residing or an entity not established and not domiciled in Indonesia can not be assumed to have a permanent establishment in Indonesia if the individual or the entity, in conducting his/its business or activities in Indonesia uses an agent, broker or intermediary who have independent status, provided that the agent, broker or intermediary in reality fully acts in the framework of carrying out his own business/activities.
An insurance company established or domiciled outside Indonesia is deemed to have a permanent establishment in Indonesia, if it collects insurance premium in Indonesia or bears risk in Indonesia through employees, representatives or agents in Indonesia. Bearing risk in Indonesia shall not mean that the event causing the risk occurs in Indonesia. Due regard being had to the fact that the insured party shall reside, stay or domicile in Indonesia.
Although PE is part of foreign (non resident) tax person but the engagement of PE’s right and obligation is same as resident tax payer’s. This means that PE must have taxpayer identity card (or NPWP) and PE has to fill tax return every month and every year as long as the PE is stull exist.

Taxable Object

Based on Article 5 Indonesian Income Tax Law, Taxable object of a PE consists of:

1. income from its businesses or activities and from its owned or controlled properties. A permanent establishment will be taxed on income from its business or activities and from its owned or controlled property. Accordingly, all income concerned is subject to tax in Indonesia
2. income of the head office from businesses or activities, sales of goods, or furnishing services in Indonesia which are similar to those undertaken by the permanent establishment in Indonesia. In accordance with this provision, income derived by a head office from business or activities, sale of goods or furnishing services which are similar to those undertaken by the permanent establishment is considered income of the permanent establishment because such business or activities fall within the scope of, and could be undertaken by, the permanent establishment.
   Example: Business or activities similar to those of a permanent establishment occurs where a foreign bank with a permanent establishment in Indonesia directly provides a loan to a company in Indonesia and not through its permanent establishment.
   Sale of goods similar to those sold by a permanent establishment occurs where an overseas head office having a permanent establishment in Indonesia directly sells products similar to those sold by its permanent establishment to Indonesian buyers. Furnishing services similar to those furnished by a permanent establishment occurs where a head office of an offshore consultant company directly provides consultancy services similar to those provided by the permanent establishment to clients in Indonesia.
3. income referred to in Article 26 received or accrued by the head office provided that the properties or activities giving rise to the aforesaid income is effectively connected with a permanent establishment. income referred to in Article 26 received or accrued by the head office is treated as income of a permanent establishment if the properties or activities giving rise to the aforesaid income is effectively connected with a permanent establishment.
   For example, "X" Inc. concludes a license agreement with PT "Y" for the use the trademark of -X- Inc. Upon the use of that right, "X" Inc. receives compensation in the form of royalties from PT "Y".
   In connection with this agreement, "X" Inc. also provides management services to PT "Y" through a permanent establishment in Indonesia in the course of marketing products of PT Y" bearing the trademark.
   In this case, the use of the "X" Inc. trademark by PT "Y" has an effective connection with the permanent establishment in Indonesia, consequently, X Inc.'s income in the form of royalties is treated as income to the permanent establishment.

Expenses
Expenses related to gross income referred to in paragraphs above may be deducted from the permanent establishment’s income.
Administration expenses incurred by a head office to support the business or activities of a permanent establishment in Indonesia may be deducted from the income of the permanent establishment. The type and amount of expenses that may be deducted are stipulated by the Director General of Taxes.
Basically a permanent establishment and its head office are considered as a single unit, therefore, payments made by the permanent establishment to its head office, such as royalties on the use of head office property, are considered as a flow of funds within one company. Therefore, under this provision, payments made by a permanent establishment to its head office, such as royalties, compensation for services and interest is not deductible from the income of the permanent establishment. Where, however, the head office and the permanent establishment are engaged in a banking business, payments in the form of interest loan may be charged as an expense.
As a consequence of the foregoing, payments of a similar type received by a permanent establishment from its head office are not considered as taxable income, except for interest received by a permanent establishment from its head office related to a banking business.

PE in Tax Treaty
It is important to know that the meaning of PE is depend on the tax treaty between Indonesia and other country. The definition of PE may vary from one tax treaty to others. So, to learn about PE practice in Indonesia, we also must know about PE in tax treaty. If Indonesia has no tax treaty with some country, the income tax law PE definition should be used.

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