Tax Treatment of Foreign Trading Company That Have Trade

Representative Offices in Indonesia

(Safira Annisa, M Gabril Asade, Muhammad Iqbal)

Introduction

The name for a foreign trading company that has a trade representative office in
Indonesia usually is the Representative Office (Rep Off) or Liaison Office. The definition of
trade representation is not explicitly stated in law number 7 of 1983 that concerning income
tax as last amanded by law number 36 of 2008, but the provisions of tax object for foreign
trading companies that have trade representative in Indonesia are regulated in article 4
paragraph 1 and article 15 PPH law.

In general, income from business received or obtained by a Foreign Tax Subject from
the source country can be taxed by the source country if the income from the business is carried
out through the Permanent Establishment (BUT) in the source country. The Income Tax Law
has provided taxation arrangements for income received or obtained by Foreign Tax Subjects
who conduct business or conduct activities through BUT in Indonesia.

Basic of law

1. In general, taxation uses general tariffs as referred to in Article 17 paragraph (1) and
paragraph (2a) of the Income Tax Law, but there are also those whose taxation uses final
special rates including taxation for Foreign Trading Companies that have Representative
Offices Trade in Indonesia.

2. Article 15 of Foreign Trade Companies that have further Office of Trade

Representatives in Indonesia is stipulated in Decree of the Minister of Finance (KMK) Number
634 / KMK.04 / 1994 concerning Special Calculation of Net Income for Foreign Taxpayers
who Have a Trade Representative Office in Indonesia.

3. As for the implementation, it is further regulated by the Director General of Taxes

Decree Number KEP-667 / PJ. / 2001 concerning the Norm of Special Calculation of Net
Income for Foreign Taxpayers who Have a Trade Representative Office in Indonesia.
Tax subject

The tax subject of this Article 15 Income Tax is a foreign tax obligation (WPLN) that
has a trade representative office (representative office / liaison office) in Indonesia originating
from a country that does not have a Double Tax Avoidance Agreement (P3B) with Indonesia.

Tax Object

The provisions of the Tax Object for Foreign Trade Companies that have an Office of
a Trade Representative in Indonesia are regulated in Article 4 paragraph (1) and Article 15 of
the PPh Law. Provisions of Article 4 paragraph (1) of the Income Tax Law regulates the
definition of income which is a general tax object. The net income for a Foreign Trading
Company that has an Office of a Trade Representative in Indonesia is regulated in Article 15
of the Income Tax Law, where the net income is calculated by the Special Calculation Norm.
The formulation of the provisions of Article 15 of the Income Tax Law is as follows: "Special
Calculation Norms to calculate the net income of certain Taxpayers that cannot be calculated
based on the provisions of Article 16 paragraph (1) or paragraph (3) are determined by the
Minister of Finance."

Tax Tariff

1. Net income from a Foreign Taxpayer who has an Office of a Trade Representative
in Indonesia is set at 1% (one percent) of the gross export value.

2. Repayment of Income Tax for Foreign Taxpayers who have a Trade Representative
Office in Indonesia is 0.44% of the gross export value and is final.

3. The definition of gross export value is all replacement or compensation values

received or obtained by a Foreign Taxpayer who has an Office of a Trade Representative in
Indonesia from the delivery of goods to an individual or entity that is located or domiciled in
Indonesia.
The Calculation of Tax rates

1. The tax rate for WPLN which has a Trade Representative Office in Indonesia is
0.44% of the gross export value and is final.

The basis for calculating 0.44% is as follows:

Income tax on taxable income is payable 30% x 1% = 0.30%

Taxable income after deducting tax from a BUT

(Branch Profit Tax) (20% rate) 20% x (1-0.3)% = 0.14% (Total = 0.44%)

2. For the Office of the Trade Representative of P3B partner countries with Indonesia,
the amount of the tax rate payable is adjusted to the Branch Profit Tax rate of the BUT as
referred to in the related P3B.

Example: Calculation for the Office of the Trade Representative from Spain.

The tariff for Branch Profit Tax in Indonesia and Spain's Tax Treaty is 10%. Thus the tax rate
owed is as follows:

Income tax on taxable income is payable 30% x 1% = 0.30%

Taxable income after deducting tax from a BUT

(Branch Profit Tax) (10% rate) 10% x (1-0.3)% = 0.07% - Total = 0.37%

Procedures for Withholding, Depositing and Reporting

1. WPLN which has an Office of a Trade Representative in Indonesia must pay the
income tax payable in a tax period to a perception bank or Post and Giro Office no later than
the 15th of the following month after the month has been received or earned, using a Tax
Payment Letter Final;

2. WPLN which has an Office of a Trade Representative in Indonesia must report PPh
payments made to the Tax Service Office no later than the 20th of the following month after
the month has been received or obtained income, using the form in accordance with Annex I
KEP-667 / PJ. enclosed with the 3rd sheet of the Final SSP.