15/06/2010
INDONESIA REVISES ITS TAXATION RULES ON ANTI-ABUSE AND CERTIFICATE OF DOMICILE
A regulation which revises the earlier anti-abuse provisions relating to Indonesia's income tax treaties was issued on April 30 by Muhammad Tjiptardjo, Indonesia’s Director General of Taxation.
Among the important revisions are the following:
• The beneficial ownership requirement imposed on non-resident taxpayers only applies if the relevant tax treaty makes a mention of "beneficial owner".
• The phrase "active operation or business" is to be interpreted based on the taxpayer's actual situation and may be indicated by costs incurred, efforts exerted, and directly related expenditures undertaken to acquire, collect, and maintain revenues, including expenditures in the maintenance of the taxpayer's going concern.
• An Indonesian-source income will be subject to tax in the recipient's country in accordance with that country's domestic laws, provided that the recipient is a tax subject in that country and the income derived from the foreign country is taxable there. This rule does not apply if the tax subject does not legally owe taxes because, for example, the income is subject to a 0 percent tax rate, is exempted from taxation by certain provisions; or is economically not subject to tax because, for example, the tax liability is borne by the government abroad, is suspended, or is otherwise not collected.
• Not more than 50 percent of the taxpayer's total income - of any kind or from any source – as disclosed in its own (nonconsolidated) financial statement, can be used to satisfy an obligation to another party, excluding reasonable benefits provided to employees in the context of their employment, other expenses commonly incurred by the taxpayer in operating its businesses, and profit sharing in the form of dividends to shareholders.
Prior to issuing the above regulation, the Director General issued Regulation No. 24 which provides that non-resident taxpayers may submit a certificate of domicile that is issued by their resident country as proof that they are non-resident. The certificate must:
• be written in English;
• be issued on or after January 1, 2010;
• be presented in its original; if a photocopy it must be legalized by the tax office where the tax agent (withholder) or collector is registered as a taxpayer;
• include, at least, the name of the taxpayer; and
• be signed by an authorized officer, his authorized representative, or a tax office official who is authorized in the relevant treaty partner country, or carries a mark that is equal to the signature in the treaty partner country and the name of the respective official.
The certificate is to be submitted together with the form that must be filled in by the taxpayer in order to pass the anti-abusive test. (by: Freddy Karyadi)