Indonesia is one of the 68 territories that participated in the formal Multilateral Instrument (MLI) signing that took place on 7 June 2017. Indonesia ratified the MLI on 12 November 2019 and deposited it to the Organisation for Economic Co-operation and Development (OECD) (as the depositary of the MLI) on 28 April 2020 resulting in entry into force on 1 August 2020. Indonesia submitted notification to the OECD to confirm the completion of internal procedures for the tax treaty on 26 November 2020. The Directorate General of Taxation (DGT) issued Circulars to announce the entry into force and entry into effect dates, as well as implement the synthesised text to the relevant tax treaty articles for 21 countries on 18 February 2021. The DGT Circulars also confirmed that it entered into effect on 1 January 2021 for WHT and 1 January 2022 for other taxes.
The commercial trade transactions conducted through electronic devices and procedures by foreign players (foreign e-commerce) will be subject to income tax/electronic transaction tax (ETT) and VAT. Foreign e-commerce players with a 'significant economic presence' in Indonesia can be deemed as having a permanent establishment (PE) in Indonesia. If a PE cannot be deemed under the existing rules of an applicable tax treaty, affected e-commerce players will be subject to an ETT. ETT will be imposed on direct sales or sales through the marketplace. The implementation of this income tax/ETT is still awaiting the regulations from the tax authority.
VAT on e-commerce will be applied in cases where certain foreign intangible goods or services are provided and used in Indonesia through an e-commerce system. The Ministry of Finance (MoF) has released a regulation to regulate the VAT on foreign e-commerce, which is applicable starting 1 July 2020. Foreign sellers, foreign service providers, or foreign e-commerce marketplaces and domestic e-commerce marketplaces will be appointed as VAT collectors if their activity in the Indonesian market meets either of the following thresholds:
- transaction value with customers in Indonesia exceeding 600 million rupiah (IDR) in a year or IDR 50 million in a month, or
- access to their e-commerce platform from Indonesia exceeds 12,000 users in 12 months or 1,000 users in one month.
On 2 November 2020, the government issued the awaited ‘Omnibus’ Law No. 11 Year 2020. The Omnibus Law consists of various clusters, including, but not limited to, the amendment of General Tax Provisions and Procedures Law, the Income Tax Law, the VAT Law, the Regional Tax and Retribution Law, and the Customs Law. Some of the important changes to these laws include relaxation of sanctions on taxpayers, exempting certain types of income from tax (including some dividends and offshore income), introduction of a limited territorial taxation concept for expatriates, and also several changes in the VAT rules that offer a more fair and reasonable outcome for taxpayers. On February 2021, the implementing regulations are issued in the form of Government Regulation and MoF Regulation.
Noting the increase of large-scale projects in Indonesia, the government has updated tax allowance incentives to be simpler and more attractive for investors. The government also provides 'super deduction' tax incentives consisting of facility for labour-intensive industries, facility for human resources development in certain competencies, as well as facility for certain research and development (R&D) activities in Indonesia.