15/11/21

ASIA: Indonesian amnesty offers lower tax rates for repatriated offshore assets.

As published on step.org/industry-news, Monday 15 November, 2021.

Indonesia's president has signed the Law No 7 of 2021 on Harmonization of Tax Regulations (Undang-Undang Harmonisasi Peraturan Perpajakan, the Law), introducing a six-month voluntary disclosure programme (VDP) inviting taxpayers to disclose historically undeclared assets.

The VDP, which will run from 1 January 2022 to 30 June 2022, consists of two separate schemes: one for assets obtained during the period 1985-2015, the other for assets obtained by an individual who was tax-resident between 1 January 2016 and 31 December 2020. The separate schemes reflect the fact that Indonesia offered a tax amnesty in 2016 and it is necessary to distinguish between residents who used that disclosure opportunity and those who did not.

Under the new arrangement, taxpayers who participated in the 2016 tax amnesty can now disclose net assets that they already owned before 2016 but did not declare. These assets will now be taxed at 6 per cent if they are disclosed and invested in state obligations, natural resource processing or renewable energy in Indonesia, whether they were already held onshore or not. Assets disclosed and invested in any other enterprise in Indonesia will be taxed at 8 per cent. Any offshore assets that are declared in the new amnesty without being repatriated to Indonesia will be taxed at 11 per cent.

The other strand of the VDP allows individual taxpayers who were resident between 1 January 2016 and 31 December 2020 to disclose assets they did not declare in their 2020 annual tax return. Assets disclosed in the new amnesty will be taxed at 12 per cent if they are now invested in state obligations, natural resource processing or renewable energy businesses in Indonesia or at 14 per cent if invested in some other sector. Offshore assets that are declared now but not transferred to Indonesia will be taxed at 18 per cent.

To benefit from the VDP, offshore assets must be repatriated to the country before 30 September 2022 and invested by the following September for a period of at least five years.

Not all the associated regulations have been published yet. 'While the aim of the enactment of this new HPP Law is to create a more just taxation system as well as to ensure legal certainty, some of the tax provisions in the HPP Law will only be effective when the implementing regulations are issued', says law firm Hadiputranto, Hadinoto & Partners, a member firm of Baker McKenzie.

Further review of these regulations may be required to fully understand the impact of the Law on a business, the firm says.

The new law also amends some of the enforcement and penalty provisions for certain tax offences under the country’s General Tax Provisions and Procedures Law (Ketentuan Umum dan Tata Cara Perpajakan).