zigacha | Makhfal and Mai

 

Seen from the flow of the increasing economic capability of the Taxpayer, income could be classified into:

         i.     income form any form of employment or professional work, such as salary, honorarium, income derived by a physician, notary, actuary, accountant, lawyer, et cetera;

         ii.     income from conducting business and activities.

         iii.    income from capital (movable or immovable property) such as interest, dividend, royalty, rent, gain on sales of property, or rights which are not used for the business; and

         iv.    other income, such as discharge of indebtedness, and gift.

From the usage of income poit of view, income could be classsified as amean to be used for consumption or to be put into savings to increase the wealth of a Taxpayer.

Because this Law adheres to the concept of income in a broad meaning, all types of income received or earned in a taxable year shall be combined to establish a basis for tax imposition. Therefore, if in a taxable year a business or an entity suffers a loss, the said loss may be compensated with other income (horizontal compensation), except if the loss is incurred abroad. However, if a type of income is taxed with a rate which is final in nature or is exempted as a Taxable Income, then the said income shall not be combined with other income, which is imposed with the general tax rate.

The examples of income referred to in these provisions are intended to clarify the concept of income in a broad meaning, which is not limited to the examples.

a.     compensation or remuneration received or accrued in respect of employment or service rendered, including salary, wage, allowance, honorarium, commission, bonus, gratuity, pension, or other forms of remuneration, unless otherwise stipulated by this Law;

All payments or remuneration in connection with employment, such as wages, salaries, life insurance and health insurance premium paid by an employer, or compensation in any other form, shall be Taxable Income. The term "compensation in another form" shall include benefit in kind, which essentially constitutes an income.

b.    lottery prizes, or gifts in respect of employment or activities, and reward;

The term "gift" shall include prizes from lotteries, work, and activities, such as the prize in a saving lottery, the prize of sport competition, et cetera. The term "award" shall mean compensation granted in connection with certain activities, such as compensation received in connection with archaeological foundings.

c.     business profits;

d.    gains from the sale or transfer of property, including:

                 1.    gains from a transfer of property to a company, a partneship, and other entity in exchange for shares or capital contribution;

                 2.    gains accrued by a company, a partnership or other entities from the transfer of property to its shareholders, partners or members;

                 3.    gains from a liquidation, merger, consolidation, expansion, split-up, acquisition, or reorganization in whatever name and form

                 4.    gains from transfer of property in the form of grant, aid or donation, unless they are given to relatives within one degree of direct lineage, and to religious body, educational or other social entity including foundation,cooperative, or to any individual who conducting micro and small business which stipulated by Minister of Finance, provided that aforementioned parties have no business, employement, ownership nor control relationship; and

                 5.    gains from the sale or the transfer of part or all of mining rights, participation in financing, or capitalization in a mining company;

If a Taxpayer sells property at a price higher than the book value, or at a price higher than the acquisition cost or value, the difference in price is regarded as profit. If the sale of such property occurs between a company and its shareholders, the sale price shall be used as the basis for calculation of profit is the market price.

                   Example: Company 'S' owns a car used for business activities with a book value of Rp40,000,000.00 (forty million rupiahs). The car is sold based on the market price of Rp60,000,000.00 (sixty million rupiahs). The profit earned by Company 'S" on the sale of the car is Rp20,000,000.00 (twenty million rupiahs). If the car is sold to one of the shareholders for Rp55,000,000.00 (fifty five million rupiahs), the sale value of the car shall still be calculated on the basis of market price of Rp60,000,000.00 (sixty million rupiahs). The Rp20,000,000.00 (twenty million rupiahs) difference is profit to Company 'S', while for the shareholder purchasing the car, the difference of Rp5,000,000.00 (five million rupiahs) counts as income.

                   If an entity is liquidated, profit from the sale of property, namely the difference between the sale price based on market price and the book value, will be regarded as taxable income.

                   The similar standard as above is also for the positive difference between the market price and the book value in the case of a liquidation, merger, consolidation, expansion, split up or acquisition constitutes income. If there is a transfer of property in exchange for shares or capital participation, any profit in the form of difference between the market price of the property transferred and the book value constitutes income.

                   Profit, in the form of the difference between the market price and the purchase price or book value on a transfer of property in the form of gifts, aid or donation is considered income to the party undertaking the transfer, unless the property is transferred to a relative in direct lineage of one degree Similarly, the profit in the form of the difference between market price and the acquisition value or book value of the transfer of property as aids or donation and grants to religious organizations or educational and social institutions, including foundations or small businesses including cooperatives or any individual which are regulated by the Minister of Finance Regulation, provided that there is no business, work, ownership or control relationship between the parties concerned.

                   In the case of a Taxpayer who owns mining rights transfers a part or the whole rights to other Taxpayer, the profit gained is subject to tax.

e.     refund of tax payments which already deducted as an expense and any additional payment of tax refund;

A tax refund regarded as an expense at the time of calculating Taxable Income, is considered as taxable income. For example, if Tax on Land and Buildings which has been paid and accounted for as an expense is subsequently refunded for whatever reason, the total amount of the refund is regarded as income.

f.     interest including premium, discounts, and compensation for loan repayment guarantees;

The term 'interest' includes premiums, discounts and compensation in connection with guarantees loan. A premium occurs if, for example, a bond is sold above its par value while a discount occurs if a bond is purchased below the par value. The premium is income for the issuer of the bond while discount is income for the purchaser.

g.    dividends, in whatever name and form, including dividends from an insurance company to its policyholders, and distribution of net income by a cooperative;

Dividend is the share of profit received by shareholders or insurance policyholders, or the distribution of net income of a cooperation received by its members.

The term dividend shall include:

                   1)     distribution of profit, directly or indirectly and under whatever name or form;

                   2)     refund in a liquidation in excess of the paid-up capital;

                   3)     bonus shares received without payment, including bonus shares derived from the capitalization of premiums on new shares;

                   4)     distribution of profit in the form of shares;

                   5)     records of additional capital with out payment;

                   6)     the sum exceeding the amount of paid-in capital received or accrued by shareholders on a buyback shares by the company concerned;

                   7)     whole or partial refund of paid-in capital, if in previous years profits have been made, except where the refund is caused by a legal reduction in the statutory capital;

                   8)     payment related to rights of profit, including that received as redemption of the rights;

                   9)     a share of profit in connection with bond ownership;

                   10)    a share of profit received by policy holders;

                   11)    distribution of net income to members of a cooperative;

                   12)    company expenditures for the personal benefit of shareholders, which are charged as company expenses.

ln practice, it often happens that distribution or payment of dividend is not transparent, for instance, where shareholders, who have fully paid-in capital, grant a loan to the company which is repaid with a rate of interest higher th an appropriate. In such a case, the positive difference between the interest paid and the market rate will be treated as dividend. The portion of interest treated as dividend cannot be charged as an expense by the company concerned.

h.     royalty or compensation from the use of right;

ln principle, compensation in the form of royalties comprises three types, namely payment for the use of:

1.     rights over intangible property, such as copyrights in the field of literature, art, or scientific masterpiece, patents, design or model, plans, formulas or secret process, company trade secrets, or intellectual/industrial rights or other similar rights;

2.     rights over tangible property, such as rights over industrial, commercial, and scientific equipment;

3.     Transfer of knowledge or information in the field of scientific, technical, industrial, or commercial;

4.     Additional aids or complement relating to the use or rights to use rights, the use of right to use tools/equipments, or transfer of knowledge or information in the form of:

a)     the acceptance of or the right to receive the recorded image or voice recording, or both, which is distributed to the public via satellite, cable, fiber optics, or similar technology;

b)     the use or right to use the recorded image or voice recording, or both, for television or radio broadcast / emanated through satellite, cable, fiber optics, or similar technology;

c)     the use or right to use some or all of the radio spectrum communication;

5.     the use or right to use picture film (motion picture films), film or video tape for television broadcast, or the soundtrack to the radio broadcast; and

6.     The release all or part of the rights associated with the use or provision of intellectual property / industrial or other rights, as mentioned above.

i.     rents and other income from the use of property;

Rent includes compensation received or obtained in whatever name or form in connection with the use of movable or immovable property, such as rent of a car, rent of an office, rent of a house or rent of a building.

j.     annuities;

Receipts in the form of periodic payments such as alimony or a lifetime allowance paid regularly at certain times.

k.     gains from the discharge of indebtedness up to a certain amount stipulated by Government Regulation;

Discharge of indebtedness by a creditor is considered income to the debtor, while it can be charged as an expense by the creditor. However, as determined by the Government Regulations, discharge of indebtedness for small debtors, such as for Business loan for low income family (Kredit Usaha Keluarga Prasejahtera, Kukesra), Farmer Business Loan (Kredit Usaha Tani, KUT), Loans for small housing, and other small loans up to certain amount, are exempted from Taxable income.

l.     gains from foreign exchange;

Gains from the fluctuation in foreign currency are taxed based on the accounting system adopted by and for which the Taxpayer has complied with consistently congruent with the Financial Accounting Standard which prevails in lndonesia.

m.   gains from revaluation of assets;

Gains from the fluctuation in foreign currency are taxed based on the accounting system adopted by and for which the Taxpayer has complied with consistently congruent with the Financial Accounting Standard which prevails in lndonesia.

n.     insurance premium;

o.    contribution received by or accrued by an association from its members who are taxpayers engaged in business or independent services;

p.    an increase in net wealth from income which has not been taxed;

An increasing in the net wealth is basically the accumulation of income, whether it has already been taxed, or it is not a taxable object, or it has not yet been taxed. If it is found that there is an increase in the net wealth that exceeds the accumulation of income whether it has been taxed or it is not a taxable object, the increase is regarded as income.

q.    income from sharia business;

 Business activities with a Sharia-based platform has a-different philosophy from conventional business. However, the revenue received or earned from a Sharia-based business activityis still considered taxable income according to this Law.

r.     compensation as stipulated by Laws concerning General Provisions and Tax Procedures; and

s.     surplus of Bank of lndonesia. 

sources: idtaxes.wordpress.com 

 

The term “non-resident tax payer” according to income tax law in Indonesia defines as an individual who does not reside in lndonesia, has been present in lndonesia for not more than 183 (one hundred and eighty-three) days within any 12 (twelve) months period, and an entity which is not established and is not domiciled in lndonesia conducting business or carrying out activities through a permanent establishment in lndonesia.

Non-resident Tax payer also means any individual who does not reside in lndonesia, has been present in lndonesia for not more than 183 (one hundred and eighty-three) days within any 12 (twelve) months period, and any entity which is not established and is not domiciled in lndonesia, which may receive or accrue income from lndonesia other than from conducting business or carrying out activities through permanent establishment.

A non-resident taxpayer is an individual or entity residing or domiciled outside lndonesia, who derives income from lndonesia, through or not through a permanent establishment. An individual not residing in lndonesia, but staying in lndonesia for less th an 183 (one hundred and eighty-three) days within a period of 12 (twelve) months, is a Nonresident Taxpayer.

If the income is derived through a permanent establishment, the individual or entity is taxed through the permanent establishment. The said Individual or entity shall maintain the status of Nonresident Taxpayer.

Therefore, the permanent establishment substitutes the individual or entity as non-resident Taxpayer in fulfilling the taxation obligation in lndonesia. In the case that the income is not derived through a permanent establishment, the tax is imposed directly to the non-resident taxpayer.

sources: idtaxes.wordpress.com 

The term “resident Taxpayer”  based on the Income Tax Law of Indonesia, means:

1. Individual who resides in lndonesia, is an individual who has been present in lndonesia for more than 183 (one hundred and eighty-three) days within any 12 (twelve) months period, or an individual who has been residing in lndonesia within a particular taxable year and intends to reside in lndonesia.
2. entity established or domiciled in lndonesia, except part of government bodies which fulfills some criterias;
   1. Its establishment is pursuant to the laws;
   2. financed by State Budget or Local Government Budget;
   3. Its revenues are included in State Budget or Local Government Budget; and
   4. Its book keeping is audited by the government auditor; and
3. Any undivided inheritance as a unit in lieu of beneficiaries.

ln principle, an individual who constitutes a resident taxpayer is an individual residing or staying in lndonesia. Included in the term “individuals residing in lndonesia” are those who have the intention to reside in lndonesia, the determination of which shall be considered is based on the facts and circumstances.

To meet the criterion of “present in lndonesia for more than 183 (one hundred and eighty-three) days”, an individual does not have to be consecutively present. It shall be determined by the total number of days the said individual is in lndonesia within a period of 12 (twelve) months since his/her arrival.

An undivided inheritance inherited by an individual as a resident taxpayer shall be assumed as a Resident Taxpayer under this Law. To meet the taxation obligations thereof, the said undivided inheritance substitutes the obligations of the heirs/heiresses who have the right thereof. If the said undivided inheritance has already been distributed, then the taxation obligation thereof shall be transferred to the heir/heiresses.

An undivided inheritance inherited by an individual as a Non¬resident taxpayer not doing business or conducting activities through a permanent establishment in lndonesia is not assumed as a substitute to the taxpayer because the tax imposed on income derived by the said individual shall be inherent to the object.

sources: idtaxes.wordpress.com

Based on Income Tax Law 36 Years 2008, Tax Subject in Indonesia consists of Resident and Non-resident Taxpayer.

A Resident Taxpayer constitutes a Taxpayer if he/she derives income that exceeds personal exemption.
A resident corporate taxpayer constitutes a taxpayer since it is established, or is domiciled in lndonesia.

Non-resident taxable persons, both individual or as an entity corporate, constitutes a taxpayer because of income they received and/or obtains from lndonesia or because of income shall mean any individual or any entity who/which has already fulfilled its subjective and objective obligation.
With respect to the Taxpayer Indentification Number, an Individual Taxpayer receiving income less than personal exemption is not necessary to register himself or herself to obtain a Taxpayer Indentification Number.

Principal differences between Resident and Nonresident Taxpayers are in the manner that they fulfill their tax obligation, among others are as folIows:

1. A Resident Taxpayer is taxed on his income derived from lndonesia and overseas, whereas a Non-resident Taxpayer is taxed only on the income originating from sources in lndonesia;
2. A Resident Taxpayer is taxed based on the net income with a general rate, whereas a Non¬resident Taxpayer is taxed based on the gross income with an appropriate rate; and
3. A Resident Taxpayer is obliged to submit Annual Return as means for assessing his tax obligation in a taxable year, whereas a Non-resident Taxpayer is not, because his tax obligation are fulfilled through with holding tax, which is final in nature.

Non-resident Taxpayers doing business or conducting activities through permanent establishment in lndonesia are equivalent with Resident Taxpayers in the manner of the fulfillment of their taxation as regulated in this Law and The Law on General Provisions and Tax Procedures.

The determination of an individual’s residence or an entity’s domicile is important to ascertain which Tax District Office shall have the taxation jurisdiction on the income derived by the individual or entity.

Basically, an individual’s residence or an entity’s domicile shall be determined based on the facts and the circumstances. Therefore the determination of a residence or a domicile shall not only be based on formal condition, but shall also on the reality.

Several matters necessarily considered by the Director General of Taxes in determining the residence of an individual or the domicile of an entity among others are the domicile, residential address, residence of the family, the place to conduct the main business, or other essential matters to facilitate the implementation of the tax obligation fulfillment.

sources: idtaxes.wordpress.com 

In Indonesia, income tax subject consist of:

1. Individual and undivided inheritance as a unit in lieu of the beneficiaries;
2. entity; and
3. permanent of establishment

An individual as a tax subject may reside or be present in lndonesia or outside lndonesia. An undivided inheritance as a unity constitutes as a substitute to tax subject, substituting those who have the right thereof, namely the heirs/heiresses. The purpose of designating an undivided inheritance as a substitute tax subject is to allow Tax Authorities to collect tax originating there from.

The term entity is defined as a group of persons and/or capital as a unity whether or not it conducts business or activity which covers limited companies, limited partnerships, other types of companies, state-owned or local-owned enterprises in whatever name and form, firm, kongsi, cooperative, pension fund, partnership, association, foundation, public organization, social-political organization or other similar organization, institution, and other forms of entities including collective investment contracts and permanent establishment.

State-owned and local-owned enterprise are tax subject, regardless of their names and forms, thus any unit of the government body, such as institution, entity, and others, owned by the central government and the local government which conducts business or activities to derive income, constitutes as tax subject.

The term society includes associations, unions, organization, or association of parties who have the same interests.

A permanent establishment is an establishment used by an individual who does not reside in lndonesia, an individual who has been present in lndonesia for not more than 183 (one hundred and eighty-three) days within any period of 12 (twelve) months, and an entity which is established outside lndonesia and is not domiciled in lndonesia conducting business or carrying out activities.

A permanent establishment is a Tax Subject which, for taxation purposes, is treated as a corporate taxpayer.

sources: idtaxes.wordpress.com 

Tax in Indonesia based on Article 23A of 1945 Indonesian Constitution (Undang-Undang Dasar 1945) which states “All taxes and other levies for the needs of the state of a compulsory nature shall be regulated by law.”
There are two types of tax in Indonesia:

• Local Government Tax
• Central Government Tax

This blog will provide information merely on Central Government Tax that consist of:

• Income Tax

• Value Added Tax (named Goods and Services and Sales Tax on Luxury Goods)

• Stamp Duty

• Tax Court Law