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TIME TEST PERIOD

REGARDING THE FOREIGN TAXPAYER TRANSACTION


CREATE BY FERDY GAFURI
LEGAL BASIS
INDIVIDUAL FOREIGN TAXPAYER :
Article 2 paragraph 3a Income tax law No.36 year 2008 :
“Resident tax subject shall be :
Any individual who resides in Indonesia, Individual who lives in Indonesia for more than 183
(one hundred eighty three) days in a period of 12 (twelve) month, or any Individual who in one
fiscal year lives in Indonesia and has the intention to reside in Indonesia.”
Article 14 paragraph 1 Tax Treaty Indonesia-China:
“Income derived by a resident of a contracting State in respect of professional services or
other activities of an independent character shall be taxable only in that Contracting State
except in one of the following circumstances, when such income may also be taxed in the
other Contracting State:
a) if he has a fixed base regularly available to him in the other Contracting State for the
purpose of performing his activities; in that case, only so much of the income as is
attributable to that fixed base may be taxed in that other Contracting State; or
b) if he is present in that other Contracting State for a period or periods exceeding in the
aggregate 183 days within any twelve month period; in that case, only so much of the
income as is derived from his activities performed in that other Contracting State during the
aforesaid period or periods may be taxed in that other Contracting State.”
LEGAL BASIS
CORPORATE FOREIGN TAXPAYER-PERMANENT ESTABLISHMENT (part 1):
Article 2 paragraph 5 Income tax law No.36 year 2008 :
“Permanent establishment shall be a business form that is used by Individual who does
not reside in Indonesia, Individual who lives in Indonesia for not more than 183 (one
hundred eighty three) days in period of 12 (twelve) months and entity that is not
established and has no domicile in Indonesia to carry on business or conduct activity in
Indonesia, that can be in the form of :
a. Domicile of management
b. Branch of company
c. Representative office
d. Office building
e. Factory
f. Workshop
g. Warehouse
h. Space for promotion and sale
LEGAL BASIS
CORPORATE TAXPAYER-PERMANENT ESTABLISHMENT (part 2):
Article 2 paragraph 5 Income tax law No.36 year 2008 :
i. Mining and quarrying of natural resources
j. Working area of natural oil and gas mining
k. Fisheries, animal husbandry, agriculture, plantation, of forestry
l. Construction project, installation, or assembling project
m. Furnishing of service in any form by an employee of any other persons, as long as
conducted more than 60 (sixty) days in period of 12 (twelve) month
n. Person or entity that act as agent with dependent position
o. Agent or employee of insurance company that is not established and no domicile in
Indonesia that received insurance premium or cover risk in Inodnesia
p. Computer, electronic agent, or automatic equipment that is owned, leased, or used
by operator of electronic transaction to conduct business activities by internet.”
LEGAL BASIS
CORPORATE TAXPAYER (PERMANENT ESTABLISHMENT) (part 3):
Article 5 paragraph 2 and 3 Tax Treaty Indonesia-China:
“2. The term "permanent establishment" includes especially :
a) a place of management,
b) a branch;
c) an office;
d) a factory;
e) a workshop;
f) a warehouse in relation to a person providing storage facilities for others;
g) premises used as sales outlet,
h) a farm or plantation;
i) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.
3. The term "permanent establishment" likewise encompasses :
a) a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only where such site,
project or activities continue in a Contracting State for a period of more than six months;
b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise
for such purpose, but only where activities of that nature continue (for the same or a connected project) within the country for a period or
periods aggregating more than six months within any twelve-month period;
c) [a] drilling rig or working ship used for exploration or exploitation of natural resources which exists or continues for more than six months. ”
SPECIFIC TABLE FOR TIME TEST BASED ON TAX TREATY
Construction Construction
No Country Construction Instalation Assembly Other Services No Country Construction Instalation Assembly Other Services
supervision supervision
1 Afrika Selatan 6 Month 6 Month 6 Month 6 Month 120 Days/12 Month 31 Saudi Arabia 183 Days 183 Days 183 Days 183 Days 183 Days/12 Month
2 Australia 120 Days 120 Days 120 Days 120 Days 120 Days/12 Month 32 Selandia Baru 6 Month 6 Month 6 Month 6 Month/12 Month 3 Month/12 Month
3 Austria 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month 33 Seychelles 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month
4 Belanda 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month 34 Slowakia 6 Month 6 Month 6 Month 6 Month 91 Days/12 Month
Belgia 6 Month 6 Month 6 Month 6 Month 183 Days/12 Month 35 Singapura 183 Days 183 Days 183 Days 6 Month 90 Days
5
Renegosiasi* 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month 36 Spanyol 183 Days 183 Days 183 Days 183 Days 3 Month/12 Month
6 Brunei Darussalam 183 Days 3 Month 3 Month 183 Days 3 Month/12 Month 37 Srilangka 90 Days 90 Days 90 Days 90 Days 90 Days
7 Bulgaria 6 Month 6 Month 6 Month 6 Month 120 Days/12 Month 38 Swedia 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month
8 Ceko 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month 39 Swiss 183 Days 183 Days 183 Days 183 Days 5%
9 Denmark 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month 40 Suriah 6 Month 6 Month 6 Month 6 Month 183 Days/12 Month
10 Egypt* 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month 41 Sudan 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month
11 Finlandia 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month 42 Taiwan 6 Month 6 Month 6 Month 6 Month 120 Days/12 Month
12 Hungaria 3 Month 3 Month 3 Month 3 Month 4 Month/12 Month 43 Thailand 6 Month 6 Month 6 Month 6 Month 183 Days
13 India 183 Days 183 Days 183 Days 183 Days 91 Days/12 Month 44 Tunisia 3 Month 3 Month 3 Month 3 Month 3 Month/12 Month
14 Italia 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month 45 Turki 6 Month 6 Month 6 Month 6 Month 183 Days/12 Month
15 Jepang 6 Month 6 Month -- 6 Month -- 46 Ukraina 6 Month 6 Month 6 Month 6 Month 4 Month/12 Month
16 Jerman 6 Month 6 Month -- -- 7,50% 47 United Kingdom 183 Days 183 Days 183 Days 183 Days 91 Days/12 Month
17 Kanada 120 Days 120 Days 120 Days 120 Days 120 Days/12 Month 48 USA 120 Days 120 Days 120 Days 120 Days 120 Days/12 Month
18 Kuwait 3 Month 3 Month 3 Month 3 Month 3 Month/12 Month 49 Uzbekistan 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month
19 Luxemburg 5 Month 5 Month 5 Month 5 Month 10% 50 Uni Emirat Arab 6 Month 6 Month 6 Month 6 Month 6 Month
20 Malaysia 6 Month 6 Month 6 Month -- 183 Days/12 Month 51 Venezuela 6 Month 6 Month 6 Month 6 Month 10%
21 Mauritius 6 Month 6 Month 6 Month 6 Month 4 Month/12 Month 52 Vietnam 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month
22 Mongolia 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month 53 Yordania 6 Month 6 Month 6 Month 6 Month 1 Month/12 Month
23 Norwegia 6 Month 6 Month 6 Month 6 Month 3 Month/12 Month
24 Pakistan 3 Month 3 Month 3 Month 3 Month 15%
183 Days/12
25 Perancis 6 Month -- 6 Month 183 Days/12 Month
Month
26 Philippina 6 Month 3 Month 3 Month 6 Month/12 Month 183 Days/12 Month
27 Polandia 183 Days 183 Days 183 Days 183 Days 120 Days/12 Month
28 Republik Korea 6 Month 6 Month 6 Month 3 Month 3 Month/12 Month
29 Romania 6 Month 6 Month 6 Month 6 Month 4 Month/12 Month
30 Russia * 3 Month 3 Month 3 Month 3 Month ---1)

*P3B Have not prevailed but have been ratified by the central government of indonesia
1) To constitute a permanent establishment, no time test is required
Source : http://www.pajakonline.com/engine/learning/view.php?id=369
TAX IMPLICATION FOR PASSING THROUGH THE TIME TEST
Within time test period the foreign tax payer which have an Income as mentioned below must be withhold by Income
tax art 26 (Income tax law No. 36 year 2008) with 20% rate;
 dividend;
 Interest including premiums, discounts and rewards in connection with debt repayment guarantees;
 royalties, rent and other income related to the use of assets;
 rewards in connection with services, jobs and activities;
 prizes and awards;
 pension and other periodic payments;
 swap premiums and other hedging transactions; and / or
 profit due to debt relief.
 For income from the sale or transfer of property in Indonesia, except as provided for in Article 4 paragraph (2),
which is received or obtained by a foreign taxpayer other than a permanent establishment in Indonesia, and
insurance premiums paid to foreign insurance companies are deducted by 20% tax (twenty percent) of the
estimated net income.
 The income from the sale or transfer of shares as referred to in Article 18 paragraph (3c) is deducted by a tax of 20%
(twenty percent) of the estimated net income.
Furthermore regarding to the tax treaty agreement this 20% rate can be deduct to maximum 0% (as stipulate in Tax
Treaty agreement) if the foreign tax payer can provide the DGT1 form or COR/COD as mentioned in DGT’s regulation
No. PER-62/PJ/2009 as changed last time in DGT’s regulation No. PER - 25/PJ/2018,
TAX IMPLICATION FOR PASSING THROUGH THE TIME TEST
When the time test period has exceeded time test period the foreign tax payer
must be registered as permanent establish, this means all of Tax Treatment will
be treated same as local tax payer.
The tax liabilities such as :
Annual Tax Liabilities :
 Paid and Reporting the Annual Income Tax Return
Monthly tax liabilities :
 Withhold income tax return art 21 for salary paid to employee
 Withhold income tax return art 23 for Interest/royalty, services and rent
 Withhold income tax return art 25 for Annual income tax return installment
 Withhold income tax return art 26 for income or salary paid to foreign tax
payer
 withhold income tax return art 4(2) for Final tax such as land or building,
construction service etc.
TAX IMPLICATION FOR PASSING THROUGH THE TIME TEST
When the tax payer refuse to be registered as Local Tax Payer :
Tax Risk on consumer side :
1. If the vendor was independent party, The tax auditor may do
the correction with the withholding tax art 26 if the rate was
following the tax treaty facility (for example 0%). The tax auditor
will claimed that the transaction must be imposed by local
withholding tax rate (for example art 23 service with 4% rate or
art 4(2) 4% or 6% rate for construction services).
2. If the vendor was related party, the tax auditor may claimed
that the subsidiary in Indonesia must burden all of complex Tax
Liabilities which must be paid by related party.
TAX IMPLICATION FOR PASSING THROUGH THE TIME TEST
When the tax payer refuse to be registered as Local Tax Payer :
Tax Risk on vendor side :
1. If the vendor was independent party, the tax auditor may
blacklist the vendor as foreign tax payer. This mean the tax
treaty facility rate cannot be applied to this vendor.
2. If the vendor was related party, the consolidated income from
subsidiary Indonesia will be decrease due to the non deductible
tax expense burden by subsidiary in Indonesia.

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