Operational Requirements for Foreign Corporations
Office
Modes of Entry
Foreign joint venture company (either joint venture with an Indonesian party or 100% foreign ownership)
Registered permanent establishment (mainly for oil and gas participants under a Production Sharing Contract)
Representative office
Registration/Licensing Requirements
Foreign joint venture company principal license and business license registration from the Capital Investment Coordinating Board (, or ‘BKPM’);
BKPM is authorized to issue business licenses on behalf of government ministries in accordance with applicable law and regulations of the related ministries (e.g. Ministry of Public Works, Ministry of Trade, Ministry of Agriculture, Ministry of Industry, Ministry of Tourism, Ministry of Health, Ministry of Transportation, Ministry of Public Housing, Ministry of Communication and Informatics, Ministry of Maritime Affairs and Fisheries, Indonesia Police Force, Ministry of Forestry, Ministry of Energy and Mineral Resources and the Ministry of Education and Culture); location permit ( Izin Lokasi ) from the relevant regional authority;
recommendation from relevant government body (for business license); and articles of association ratification from the Ministry of Law and Human Rights.
Permanent Establishment a permanent establishment (‘PE’) is a foreign entity which generates income in Indonesia without establishing any legal entity in Indonesia (among others, upstream oil and gas contractors and foreign banks);
licensing and registration requirements for a PE depend on the field of such PE, for instance, the licensing and registration requirements of a foreign bank are different to those required for an oil and gas establishment. Foreign banks are required to obtain a business license from Bank Indonesia whilst oil and gas companies are required to obtain a business license from the Directorate General of Oil and Gas of the Mineral Resources; and
a PE is subject to taxation obligations in Indonesia, so a PE must also apply for a taxpayer registration number (‘NPWP’) from the relevant tax office.
Representative Office general representative offices must obtain a license from the BKPM for general corporate and investment preparation purposes (among others, to prepare the establishment and development of the relevant company’s business in Indonesia);
trading representative offices should obtain licenses from the BKPM for marketing and market research purposes; and
oil and gas representative offices should obtain a license from the Directorate General of Oil and Gas of the Ministry of Energy and Mineral Resources
Foreign Employment Limitations
Expatriates are allowed to hold positions where qualified Indonesian nationals are not available, and subject to the condition that such position is open for expatriates, provided there is gradual Indonesianization of these positions. In practice, the limit of foreign employees in a company shall be determined by the Directorate of Foreign Manpower Utilization from the Ministry of Manpower upon 4 application for approval of a company’s or representative office’s foreign manpower utilization plan, taking into consideration the amount of equity and the number of intended employees.
Foreign employees must obtain an entry/exit permit for entering/ leaving the country and a police certificate card.
All expatriates resident in Indonesia are required to register with the Indonesian Tax Office and file personal income tax returns on a worldwide basis.
Retail Trade
Government Regulations No.15/1998 and 46/1998 (amending various preceding regulations) were issued in 1998 to allow foreign investors in the manufacturing sector to set up retail companies and/ or export import companies in Indonesia.
Currently, foreign companies are generally still operating under technical assistance agreements or franchise agreements with local-owned companies.
Foreign Investment Incentives
Foreign investment incentives for investment projects approved by the BKPM include:
possible exemption from import duties and VAT on the import of capital goods, machines or equipment;
for designated provinces and investment in certain business sectors that satisfy certain criteria, ‘tax allowances’ are potentially available, including an investment allowance of 30% over six years, accelerated depreciation, extended loss carried forward in excess of five years, and 10% dividend withholding tax for non-resident shareholders, if required; and
a ‘tax holiday’ of up to ten years has recently been introduced for investments over IDR 1 trillion (USD 120 million) for five designated business sectors. Further developments and details are awaited.
Restrictions on Foreign Property Ownership
Generally, foreign individuals or foreign companies that are not registered under current Indonesian laws enjoy only the Right of Use (Hak Pakai).
Under Government Regulation No. 41/1996 issued in June 1996, individual foreigners are allowed to own residential property. Foreigners who provide benefits to the national development, reside permanently or temporarily in Indonesia, and have immigration documents or visa, may purchase:
non-subsidized houses on land with Right of Use title;
strata-titled apartment units on land with Right of Use title; and
vacant land with Right of Use title or other land use agreements with the land title holder, and build a house on the land.
The Indonesian government is currently reviewing the 1996 Government Regulation, with a view to possibly opening up the ability for foreign individuals to hold a Right of Use (Hak Pakai) title for a longer period of time (i.e., for 95 years and extendable), although it may be restricted to properties valued over a certain threshold. Whether these changes are implemented remains to be seen.
Foreign Exchange Controls
Indonesia has limited foreign exchange controls. The rupiah has been, and in general is, freely convertible within or from Indonesia. However, to maintain the stability of the rupiah and to prevent the utilization of the rupiah for speculative purposes by non-residents, Bank Indonesia has introduced regulations to restrict the movement of rupiah from banks within Indonesia to offshore banks, an offshore branch of an Indonesian bank, or any investment denominated in rupiah by foreign parties and/or Indonesian parties domiciled or permanently residing outside Indonesia, thereby limiting offshore trading to existing sources of liquidity. In addition, Bank Indonesia has the authority to request information and data concerning the foreign exchange activities of all people and legal entities that are domiciled, or who plan to be domiciled, in Indonesia for at least one year.
Bank Indonesia Regulation No. 14/21/PBI/2012 on Foreign Exchange Reporting (‘PBI 14/21/2012’) requires bank institutions, non-bank financial institutions, non-financial institutions, state/ regional-owned companies, private companies, business entities and individuals to submit a report to Bank Indonesia on their foreign exchange activities. The report is required to include:
trade activities in goods, services and other transactions between residents and non-residents of Indonesia;
the position and changes in the balance of foreign financial assets and/or foreign financial liabilities; and
any plan to incur foreign debt and/or its implementation.
Indonesian companies are required to submit a foreign exchange report for any activities stipulated under PBI 14/21/2012 to Bank Indonesia, by no later than the fifteenth day of the subsequent month. Any plan to obtain an offshore loan is required to be submitted to Bank Indonesia by no later than 15 March of the respective year when the plan is formulated by the company. In the event there is a change to the company’s plan to obtain an offshore loan, an amendment to such report must be submitted to Bank Indonesia by no later than 1 July of the year of such change. Further, an Indonesian company which obtains an offshore loan is also required to file its financial data with Bank Indonesia no later than 15 June and 15 December of each year. Failure to submit the foreign Indonesia Property Investment Guide 2014 5
exchange report could result in the imposition of an administrative sanction in the amount of IDR 10,000,000 (USD 904.89). Bank Indonesia will issue a warning letter and/or report to the licensing authority, should the non-banking institution fail to submit a report. The aforementioned sanctions will be effective as of 2014.
On 27 December 2012, Bank Indonesia issued Bank Indonesia Regulation No. 14/25/PBI/2012 on the Receipt of Export Proceeds and Withdrawal of Offshore Loans in Foreign Currency Reporting and issued its implementing regulation, Bank Indonesia Circular No. 15/5/DSM on Foreign Exchange Reporting Except for Offshore Loan on 7 March 2013 (‘PBI 14/25/2012’). Under PBI 14/25/2012, Indonesian recipients of export proceeds (with the exception of (i) government export proceeds which are received through Bank Indonesia, and (ii) export proceeds which are domestically received in cash as proven by written explanation and sufficient supporting documents) or foreign loans are required to withdraw proceeds through foreign exchange banks located in Indonesia, and such withdrawal must be reported to Bank Indonesia. PBI 14/25/2012 also stipulates that the accumulated amount of withdrawals for an offshore loan must be equal to the commitment amount of such offshore loan as stated under the relevant offshore loan agreement. If the accumulated amount of withdrawals is not equal to the commitment amount of the offshore loan, the Indonesian debtor must provide a written explanation to Bank Indonesia. Any violation of PBI 14/25/2012 will subject Indonesian debtors to a fine of IDR 10,000,000 for each non-complying withdrawal.
Taxes on Possession and Operation of Real Estate
Property Tax
The property tax (‘PBB’) rate on land and buildings is a maximum of 0.3% of the sale value of the property (‘NJOP’) (which is determined by the Local Government on average every one to three years) less non-taxable NJOP (minimum IDR 10 million (USD 904.89)).
For example in DKI Jakarta for year 2013:
Non-taxable NJOP is IDR 15 million (USD 1,357).
PBB rate is as follows:
A 50% reduction in the property tax rate is given to land and buildings used for non-profit activities, including social and educational activities and health care services. Land and buildings used for religious worship, nature reserves, parks, diplomatic offices and designated international organizations are exempted.
From 1 January 2014, PBB for rural and city areas will be classified as Regional Tax (Pajak Daerah) for all regions and will no longer be National Tax regulated by the Directorate General of Tax.
Withholding Tax on Property Income
Income derived from rental payments and service charges are subject to a final tax of 10% of the transaction value. The party from which the payment is due is responsible for the deduction and payment of the withholding tax to the tax authorities. If not, the lessor must pay the 10% itself.
Taxes on Acquisition and Transfer of Real Estate
Stamp Duty and Legal Costs
Stamp duty is levied on various legal documents to which a monetary value is affixed. The rates are fixed, as follows:
Notary fees for the processing of legal documents are usually charged at about 0.5% to 1.5% of the transacted price.
Individuals or companies obtaining rights to land or buildings are required to pay a Land and Building Transfer Duty (‘BPHTB’) of 5%. The 5% duty is computed based on the transaction value or the assessed value, whichever is higher.
The non-taxable threshold amount for BPHTB varies by region, and the minimum threshold currently is IDR 60 million (USD 5,422). For acquisitions by inheritance, the non-taxable property value is stipulated by the regional authorities, but the minimum is set at IDR 300 million (USD 27,114).
Capital Gains Tax
Land and Building Transfers A 5% tax on sales value is levied on companies and individuals for the sale/transfer of land rights and/or buildings. For transfers of simple houses and apartments by taxpayers engaged in property development business, the tax rate is 1%.
No comments:
Post a Comment