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Tax Structuring Considerations – Indonesia

Tax Structuring Considerations – Indonesia

October 10, 2017

Despite the increased focus across the globe on tax issues in recent years, many companies still fail to consider the full impact of tax regulations and procedures when entering into a new investment or transaction.

Tax planning does not need to mean devising intricate structures with fancy names. It can be as simple as ensuring that the timing of transactions is correct or that all options available are thought through.

In many cases this can save considerable cost.

Issues to be considered in optimizing structures from a tax perspective will very much depend on the individual circumstances. Generally, considerations include the following:

Profit extraction (sale by foreign investor)“Capital Gain” – 5% of deal price (unlisted)Utilise available DTAExemption from 5%
Profit extraction (local listing)“Capital Gain”- 0.1- 0.6% deal price (listed)IPO or convertible bonds (subject to limitations  through disclosure requirements  etc)Minimal tax. In theory may be exempted
Profit extraction (after tax profits)Dividend flow – 20%Utilise DTApossible 5% WHT
Profit extraction (financing)Interest flow – 20% Consider DERUtilise DTApossible 5% WHT
Profit extraction (IP)Royalty flow – 20%Utilise DTApossible 5% WHT
Profit extraction (shared costs etc.)Services flow – 20% Consider PE issuesUtilise DTAPossible reduction or exemption
The above will also involve Transfer Pricing Considerations
Investment in Real EstateImpact of taxes on property  transfersTake advantage of new “REIT’ regulationsPossible elimination of double taxation and accelerated VAT refund
Special tax regimesImpact of investment in certain business sectors on effective tax ratesConsider  whether investment can be split or re-structuredReduction in effective tax rates
Tax incentivesEligibility – sector and areaInvestment allowances, accelerated depreciation, withholding tax reductions, extended loss c/fReduction in overall tax cost
Tax holidaysSignificant  investment, sector specificApply for tax holidayUp to 100% reduction in corporate income tax 5-15 years