• SMEs New Final Tax Rate
Newsletter:

SMEs New Final Tax Rate

17 July 2018

The Indonesian Government has recently issued Government Regulation No. 23/2018 (GR-23) which revokes GR 46/2013 regarding final tax rate for small and medium enterprises (SMEs). GR-23 which stipulates the new final tax rate for SMEs, has been in force since 1 July 2018.

The important points to note from GR-23 are the reduced rate and the limitation periods. GR-23 stipulates that the new final tax rate is reduced to 0.5% from the previous 1%. However, taxpayers can only benefit from this new final tax rate for the new limitation periods as follow:

  • 7 years for individuals;
  • 4 years for cooperatives, limited partnerships, or firms; and
  • 3 years for limited liability companies.

These new limitations periods start from the tax year when the taxpayers are registered for those registered after 1 July 2018 or from 2018 tax year for taxpayers registered prior to 1 July 2018.

According to GR-23, the annual gross income threshold for the taxpayers remains unchanged, that is IDR 4.8 billion. The threshold is based on the previous year’s annual gross income, including annual gross income from branches, but excluding the following income:

  • Fees from delivery of certain freelance services by individuals;
  • Overseas income which has been taxed in the source country;
  • Income subject to final income tax; and
  • Non-taxable income.

If taxpayers have exceeded the gross income threshold during the current year, the taxpayers must apply the normal tax rates based on Article 17 or Article 31E of the Income Tax Law for the following year.

Besides the exclusions based on the type of income, the following taxpayers are also excluded from applying the new final tax rate:

  1. Taxpayers who choose to apply the normal tax rates based on Article 17 or Article 31E of the Income Tax Law;
  2. Taxpayers in the form of limited partnerships or firms established by individuals who deliver services same as freelance services;
  3. Taxpayers who obtain Tax Holiday or Tax Allowance; and
  4. Taxpayers in the form of a permanent establishment.

Taxpayers who qualify under GR-23 should apply to the Directorate General of Taxation (DGT) for a Statement Letter and taxpayers who choose to apply the normal tax rates based on Article 17 or Article 31E of the Income Tax Law should submit a notification to DGT.

Transitional provisions apply to taxpayers who satisfy the conditions under GR-46, but do not qualify under GR-23. In this regard, the applicable tax rate on the monthly gross income received from 1 January to 30 June 2018 is 1% final tax under GR-46, while the applicable tax rate on the monthly gross income received from 1 July to 31 December 2018 is 0.5% final tax under GR-23. Income received from 2019 onwards is subject to normal tax rates.

For more information on how PT BDO Bisnis Solusi Indonesia can help you in planning and navigate these major changes, please contact our expert:

 

IRWAN KUSUMANTO

Managing Director of Tax

ikusumanto@bdo.co.id