Foreign trading companies with representative offices in Indonesia must be familiar with the term representative office (Rep Off) or Liaison Office. In general, the task of the Rep Off is to ensure that the transaction process runs smoothly and by established procedures. The Rep Off is led by a Foreign Citizen (WNI) or Indonesian Citizen (WNI), a foreign company appoints its representative in Indonesia. If it's only a representative office, will it be subject to income tax in (PPh) Indonesia?
Income Tax Article (PPh) 15 for Representative Office
Based on Law No. 36 of 2008 on the Fourth Amendment to Law No. 7 of 1983 on Income Tax, all branch offices or Rep Offs will be registered as Permanent Establishments (Badan Usaha Tetap-BUT). Per Article 5 of the Income Tax Law, all BUT are tax objects, so that the Rep Off will be subject to Corporate Income Tax.
In general, the tax to be imposed is under Article 17 paragraph (1) and paragraph (2a) of the Income Tax Law. However, some activities will be subject to special tariffs that are final, such as foreign trading companies that have representative trade offices in Indonesia. The tariff referred to is Income Tax Article 15, regulated in the Decree of the Minister of Finance (KMK) Number 634/KMK.04/1994 concerning the Norms for the Special Calculation of Net Income for Overseas Taxpayers Who Have a Trade Representative Office in Indonesia. All export activities integrate with Indonesia's tax system, so they will automatically be recorded and will be subject to PPh 15.
Tax Subject and Object of PPh 15
The tax subject for PPh 15 is a foreign taxpayer (WLPN) who has a representative office in Indonesia (Rep Off) and does not come from a country that has a Double Taxation Avoidance Agreement (P3B) with Indonesia.
While the object of the PPh 15 tax is gross export value, namely the replacement value or compensation received by WPLNs who have representative offices in Indonesia.
Tax Rate of PPh 15
The amount of the PPh 15 rate is 0.44% of the export value and is final. Export value is all replacement value or compensation received by WLPN that has a Rep Off from delivering goods to individuals or entities in Indonesia. While final means that there is no return from the payment of PPh 15 tax.
Procedures of Payment and Reporting Income PPh 15
Each Rep Off must pay PPh 15 no later than the 15th of the following month and report it no later than the 20th. PPh 15 payments can be made through banks or post offices and checking accounts using Tax Billing ID.
Late Payment Penalty of PPh 15
Late payment of PPh 15 will be subject to a penalty of 2% per month. However, as of October 2020 through Law No. 11 of 2020 (UU Job Creation), a new regulation changes the penalty, referring to the reference interest rate set by the Ministry of Finance (Article 113 paragraph 5a). For example, the rate of administrative sanctions in the form of interest per month:
For the Period 01 Sept - 30 June 2021, it is 0.94%
For the period 01 Oct - 31 Oct is 0.93%
The rate of this tax penalty varies every month, adjusted to the reference interest rate issued by the ministry of finance. The basis for calculating the potential penalty due to unpaid taxes is based on unpaid taxes then multiplied by the penalty rate. This tax penalty rate applies to all types of taxes.
In several cases, the Rep Off is often not aware of PPh 15 that needs to be paid for each export transaction. Therefore, the Rep Off must actively ensure that all taxes have been paid to avoid penalties. For more precise information regarding PPh 15 for Rep Off, see the following video with a case study of a Japanese company that has a representative trade office in Indonesia:
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