Many things have been put on hold as the world has locked itself down, gripped by fear.
While Indonesia has chosen not to go to the same extremes as some other countries, it has imposed a policy of large-scale social restrictions (PSBB) across the country in attempts to combat COVID-19.
And in these unprecedented times, the government has decided to delay, at least for the time being, the deliberations of the much-anticipated Omnibus Law. Remember that hot potato?
For some business groups, the proposed job creation aspects of the Omnibus Law are a cause for concern, while for others, they support the drive to develop the economy and the ease of doing business, especially in attracting more Foreign Direct Investment. This, in turn, is expected to boost Indonesia’s entrepreneurial opportunities.
Partners in Growth
At Seven Stones Indonesia, we believe every cloud has a silver lining. We believe in helping our clients, partners, employees, and communities to create a better world and to focus on what matters most to them by doing business in Indonesia more simply.
We deliver peace of mind and help businesses grow, which is why we encourage our partners to use these extraordinary times to determine what can be done more efficiently and to best prepare for the future, especially when it comes to making the most out of the Omnibus Bills.
Cutting Through the Red-Tape
Just prior to PSBB, we saw sizeable international investment companies (and the press) express optimism towards Indonesia and its ongoing process to develop the economy. The consensus was (and still is) that it is certainly worth investing in Indonesia.
The country’s potential across many industries and on many levels has been largely untapped for a variety of reasons. Reels of red-tape for visas and business licensing as well as often conflicting rules and outdated regulations have clearly undermined both domestic and foreign investment confidence, and that in turn has had a negative impact on the ease of doing business.
The Jakarta Post published an interesting (and useful) analysis recently, claiming there are more than 43,500 central government regulations and that doesn’t include ministerial, agency, and regional rules. No wonder investors have erred on the side of caution.
Attracting More Investment
But if many of these rules and regulations are about to be lifted or revised and streamlined then it’s worth paying attention to what opportunities the passing of the Omnibus Law could lead to.
It’s important to note here, that there has also been opposition to the proposed new laws and regulations as workers’ rights may be under question and there is the perceived threat of a much stronger centralised government, which could lead to the possible abuse of power.
Whether you’re pro or contra, however, there’s no doubt that when the House of Representatives reconvenes to finalise the more than 1,000 pages of the Omnibus Law, Indonesia’s business environment will radically change, especially when it comes to taxes.
Death and Taxes
Benjamin Franklin is credited with saying that
“nothing is certain in this world, except death and taxes.”
So, when there are initiatives to reduce the amount of tax expatriates pay in Indonesia, we think they’re worth looking at. And now might just be the right time to revisit some of the proposed changes.
Finance Minister, Sri Mulyani, who by the way, was the first female Managing Director of the World Bank from 2010 to 2016, is on record as saying the government’s planned tax reforms would include relaxing income tax for expatriates, eliminate dividend tax, reduce corporate income tax, and introduce a new digital economy tax.
Reports would suggest the government is looking to change Indonesia’s tax regime into a territorial system. The primary benefit of this would be that both expatriates in Indonesia and Indonesian’s abroad would no longer be taxed on income earned outside of Indonesia’s borders.
Expats and Taxes
Expatriates who work for more than six months a year in the country will only be taxed on the income they earn in Indonesia, while Indonesian nationals abroad for more than six months will be exempt from paying income tax at home.
Currently, expatriates are required to pay tax on incomes earned in Indonesia and abroad as all, including foreigners, who live in Indonesia for more than six months a year are considered domestic taxpayers.
It also looks like Dividend Tax could be on the way out if you have less than 25 percent shares in a company; corporate or individual shareholders won’t have to pay tax on dividends they receive from local companies; tax penalties could be reduced to a benchmark interest rate unless underpayment has been fraudulent or criminal and Corporate Income Tax is being reduced.
Netflix Law and Digital Businesses
Digital businesses, however, will no longer be able to hide below the radar and avoid paying their fair share of taxes.
Indonesia’s current tax code means only those companies domiciled in Indonesia are obliged to pay taxes on money earned in the country. While most would assume this will impact digital giants like Amazon, Netflix, Spotify, Google, Facebook and Twitter, smaller digital companies registered offshore are also likely to feel the sharp edge of something being branded as The Netflix Law.
The government hopes to generate a significant amount of revenue from this. Mulyani told local news wires that companies benefitting financially from Indonesia’s enormous market potential will be liable, even if they have no physical presence in the country. Singapore and Australia have already implemented Netflix Laws and Indonesia looks to be following suit.
The bottom line is that if you earn money from Indonesia’s market, you’re going to have to pay your fair share of taxes. Maybe Ben Franklin was right after all.
Send an email to [email protected] if you’d like advice on consolidating your business or if you’re interested in investing in Indonesia. We’d love to hear from you and help your business grow!
Sources: Garda World, DW, Gapura Bali, The Jakarta Post, Jakarta Globe