New Final Income Tax Regulation for Small Medium Enterprises
NEW FINAL INCOME TAX REGULATION FOR SMALL MEDIUM ENTERPRISES
Government of Indonesia has recently issued its regulation No. 23 Year 2018 (“GR 23/2018” or “the Regulation”) on June 8th, 2018 concerning Income Tax on Income from businesses received or earned by taxpayers having certain gross turnover. This regulation will be effective on 1 July 2018. The Regulation revokes its previous regulation Government Regulation No. 46 year 2013 dated June 20th, 2018 (“GR 46/2013”).
Key differences between GR 23/2018 and GR 46/2013:
• Rate reduction;
• Validity period;
• Option to choose to be subject of final income tax or not (with a notification letter requirement);
• Corporate taxpayer criteria for GR 23/2018;
• Subject exclusion for GR 23/2018;
• Affirmation of turnover for Individual Taxpayer;
• Additional payment method: selfassessed or withheld.
Tax Object of GR 23/2018
Generally all income in any form is an object of income tax, except
- Income earned or received by individual taxpayer from freelance services.
- Income earned or received in overseas that has been taxed in source country;
- Income that has been subject to final income tax; and
- Income that is excluded as tax object.
Tax Subject of GR 23/2018
The tax subject that can use this facility is taxpayers with gross turnover not more than 4.8 billion in a tax year, except:
• Taxpayer who chooses to be subject to income tax based on Article 17 paragraph (1) letter a, Article 17 paragraph (2a) or Article 31E of Income Tax Law.
• Corporate taxpayer in the form of limited partnerships or firms formed by several individual taxpayers who have the special expertise in delivering the services exempted as tax object as regulated on Government Regulation No. 23 year 2018.
• Corporate taxpayer granted Income Tax facility pursuant to Article 31A of Income Tax Law or Government Regulation No. 94 year 2010 concerning Calculation and Redemption of Income Tax in the Current Year and its supplement regulation.
• Permanent Establishment
Final Income Tax Rate of GR 23/2018
The gross turnover described as:
• Gross turnover is calculated for the last 1 year, prior to the current year.
• Gross turnover as a basis for taxation is an Income before sales discounts, cash deductions, and/or similar deductions.
• For corporate taxpayer, gross turnover is the number of turnover of head and branch office.
• For married individual taxpayer, gross turnover is the turnover of husband and wife.
How To Calculate Final Income Tax based on GR 23/2018
Final Income Tax = 0.5% x gross turnover of the current month
Procedures for GR 23/2018
A taxpayer wishing to use GR 23/2018 must submit notification to the Director General of Taxation.
The payable tax shall be paid by paying every month or through the mechanism of withholding / collection if the transaction is made to the counterpart party. If using the mechanism of collection, the Tax payer must provide a statement letter as a taxpayer using this facility from the tax office to the transaction counterpart.
Taxpayer can obtain the benefit of this facility with the following period:
• 7 years for individual taxpayer;
• 4 years for corporate taxpayer in the form of cooperatives, limited partnerships or firms; and
• 3 years for corporate taxpayer in the form of limited liability company.
In case in the middle of the year gross turnover has exceeded IDR 4.8 billion, the taxpayer still uses the rate of GR 23/2018 until the end year. In the subsequent year, the taxpayer shall use the tax rate of Article 17 paragraph (1) a, Article 17 paragraph (2a) or Article 31E of the Income Tax Law.
Taxpayer which from the beginning chooses to be subject to Income Tax according to the rate of Income Tax Article 17 paragraph (1) letter a, Article 17 paragraph (2a) or article 31E of Income Tax Law can not granted GR 23/2018 facility.
Transition Treatment
In the event the taxpayer between 1 January to 30 June 2018 meets the requirement for GR 46/2013 but are not eligible for GR 23/2018. The tax rate will be applied as follows:
a. from 1 January to 30 June 2018, 1% final tax rate on monthly gross turnover;
b. from 1 July to 31 December 2018, 0.5% final tax rate on monthly gross turnover; and
c. for income in 2019, subject to normal tax rates.
The technical guideline regarding Tax Exemption Letter of GR 46/2013 is further regulated in DGT Letter No. S – 421/PJ.03/2018 dated 5 July 2018.
The Tax Exemption Letter that is already obtained under GR 46/2013 is still valid and treated as a subtitute for Notification Letter under GR 23/2018.
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