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Recent developments

The Indonesian government recently issued Government Regulation in Lieu of Law, Peraturan Pemerintah Pengganti Undang-Undang, No. 1 of 2020 (“Perppu 1/2020“) to mitigate the economic impact of the outbreak of Coronavirus Disease 2019 (COVID-19). This will allow more state spending and financial relief efforts to help the economy weather the crisis. Perppu 1/2020 explains that it is deemed necessary to introduce extraordinary policies and steps regarding the state’s finances, including in relation to taxes, regional spending, and the finance sector, which need to be immediately taken by the government and relevant institutions in order to deal with pressing matters, ensure vital health care is available, and boost the national economy.


Due to the urgency, Perppu 1/2020, an initiative solely from the government, applies from the date of its promulgation. Nevertheless, the government is still under the supervision of the Parliament. Therefore, Perppu 1/2020, which is equivalent in power to a law, must also be approved by the Parliament, especially when it also introduces a new type of tax, i.e., Electronic Transaction Tax.

Perppu 1/2020 must be presented to the Parliament in the next Parliament hearing period. In the Plenary Session of the hearing period, the Parliament must then decide whether approves Perppu 1/2020. If the Parliament approves it, Perppu 1/2020 will be stipulated as a law. If the Parliament rejects it, Perppu 1/2020 will have to be immediately be revoked.

At this moment, there is no information regarding the exact date of the next Parliament hearing as it is largely depending on how fast this COVID-19 outbreak can be mitigated.

Overview of PERPPU 1/2020 in the context of tax and customs policies

Perppu 1/2020 stipulates a lower Corporate Income Tax rate for corporate taxpayers starting in fiscal year 2020. For fiscal years 2020 and 2021, the Corporate Income Tax rate is 22%, and from fiscal year 2022, the Corporate Income Tax rate will be 20%. There is also an additional Corporate Income Tax reduction for corporate taxpayers that are listed companies and meet certain criteria.

Perppu 1/2020 introduces the new tax treatments for the digital economy business that were previously proposed in the Omnibus Law bill. In general, transactions conducted through an electronic system will be subject to Value Added Tax and Income Tax. In addition, Perppu 1/2020 also introduces a new type of tax, i.e., Electronic Transaction Tax, which will be imposed on foreign companies or individuals.

Perppu 1/2020 also extends the deadline of certain tax administrative procedures in connection to the fulfillment of taxpayer’s rights and obligations. The government also provides customs facilities in the form of an exemption or reduction of Import Duty for certain imported goods.

What PERPPU 1/2020 actually says in more detail

The new tax and customs policies set out in Perppu 1/2020 are as follows:

    1. Lower Corporate Income Tax rate

As mentioned above, Perppu 1/2020 lowers the Corporate Income Tax rate to 22% for fiscal year 2020 and 2021, and 20% starting from fiscal year 2022.

In addition, there will be a further reduction of 3% from the Corporate Income Tax rate for limited liability companies that have at least 40% of their paid-up capital trading on the Indonesia Stock Exchange and that meet certain criteria that will further be stipulated under a Government Regulation.

The reduction of the Corporate Income Tax rate was initially planned to be introduced as part of the Omnibus Law, which has been submitted to the Parliament for discussions and approval, in a bid to improve the business climate in the country and attract more investment.

    1. Taxes on trading activities through electronic system

Under Perppu 1/2020, the applicable taxes for trading activities through electronic systems are as follows:

    1. VAT

Delivery of taxable intangible goods and taxable services from outside Indonesia within Indonesia is subject to VAT. The VAT must be collected, paid and reported by foreign sellers, foreign service providers, foreign Providers of Electronic Systems used for trading activities (PPMSE) and/or Indonesian PPMSE. The Minister of Finance will appoint the parties that are required to collect, pay and report the VAT.

PPMSE is a business operator that provides an electronic telecommunication platform to be used for trading activities.

A foreign seller, a foreign service provider, or a foreign PPMSE that is appointed by the Minister of Finance to collect, pay and report VAT can appoint its representative in Indonesia to fulfill the VAT obligations. Details of the appointment of a representative will be stipulated under a Minister of Finance regulation.

    1. Income Tax

A foreign seller, a foreign service provider or a foreign PPMSE that has a significant economic presence in Indonesia may be deemed as a permanent establishment. A permanent establishment will be subject to tax obligations in Indonesia, including the requirement to pay Income Tax.

In determining whether a party has a significant economic presence, the following factors will be analyzed and considered:

  • Consolidated gross turnover of a business group.
  • Amount of sales in Indonesia.
  • Number of active users of digital media in Indonesia.

Further details of the criteria above will be stipulated under a Minister of Finance regulation.

If under an applicable tax treaty, the foreign seller, the foreign service provider or the foreign PPMSE that has a significant economic presence is not considered to have a permanent establishment in Indonesia, Electronic Transaction Tax will be imposed.

Electronic Transaction Tax is imposed on sales of goods or provision of services through electronic systems to buyers or service recipients located in Indonesia, whether done directly or through a foreign PPMSE.

A foreign seller, a foreign service provider, or a foreign PPMSE can appoint a representative in Indonesia to fulfill the obligations related to Income Tax or Electronic Transaction Tax. Details of the appointment of a representative will be stipulated under a Minister of Finance regulation.

If a party fails to fulfill the tax obligations, it will result in an administrative penalty as stipulated under Law No. 6 of 1983 as lastly amended by Law No. 16 of 2009 on General Tax Provisions and Procedures (“GTP Law“). In addition, after certain warnings, operational access may also be cut off by the Minister of Communication and Informatics based on a request from the Minister of Finance. The government will issue an implementing regulation to set out the details on how the access will be cut off.

    1. Extension of deadline to fulfill several tax rights and obligations

The deadlines to fulfill certain tax rights and obligations are extended, as follows:

    1. The deadline for submission of an objection letter is extended for up to six months.
    2. The deadline for the payment of tax refund to taxpayers is extended for up to a month.
    3. The issuance of the following assessment letters or decision letters by the Director General of Tax is be extended for up to six months:
  • Decision on request for tax overpayment refund.
  • Objection decision.
  • Decision on request as referred to in Article 36 paragraph (1) of the GTP Law.
    1. Customs facilities

Perppu 1/2020 states that further provisions will be stipulated under Minister of Finance regulations. It appears further coordination between relevant authorities is required in order to provide customs facilities.

Article 9 of Perppu 1/2020 stipulates that the Minister of Finance has the authority to give customs facilities in the form of exemption or reduction of Import Duties in order to:

    1. Handle the COVID-19 pandemic.
    2. Handle threats to the national economy.

Upon the issuance of Perppu 1/2020, the Minister of Finance will be authorized to amend lists of goods that are exempted from or given reduction of Import Duty based on their usage purposes as mentioned in Article 25 and Article 26 of Law No. 10 of 1995 on Customs, as amended by Law No. 17 of 2006.

Actions to consider

In general, Perppu 1/2020 is good news for corporate taxpayers, as it brings forward the long-awaited Corporate Income Tax rate reduction, which has been pleaded by business communities in Indonesia. Initially, it was planned to introduce the reduction of the Corporate Income Tax rate in the Omnibus Law, which is still being discussed with the Parliament and will only be in force starting in fiscal year 2021. Along with the other fiscal stimulus that have been issued by the Government recently and the customs facilities introduced by Perppu 1/2020, the fiscal stimulus issued by the government can be worth considering in a bid to improve the business climate in Indonesia and further, attract more investments.

Perppu 1/2020 also brings in several new tax obligations that may be applicable for the digital economy industry, including the introduction of the new Electronic Transaction Tax.

Some tax provisions under Perppu 1/2020 have been stipulated clearly and it should be possible to immediately implement them. However, details of some of the provisions under Perppu 1/2020 are not clear yet as they will be stipulated further in implementing regulations. This is especially so for taxes on trading through electronic systems. Therefore, taxpayers should wait for the implementing regulations to be issued to get a clear understanding of their rights and obligations.

Further consultation may be required to fully understand the details and implications of Perppu 1/2020.

This client alert was issued by HHP Law Firm (Hadiputranto, Hadinoto & Partners), a member firm of Baker McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner or equivalent in such a law firm. Similarly, reference to an “office” means an office of any such law firm. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.


Ponti Partogi is head of the Tax and Trade Practice Group at Hadiputranto, Hadinoto & Partners (HHP Law Firm), a member of Baker & McKenzie International. He has been practicing for more than 20 years, focusing on domestic and international tax and trade issues relating to inbound and outbound investment and cross-border corporate exercises including JVs, M&As, divestitures, spin-offs and takeovers. His combined legal and accounting background allows him to provide comprehensive tax advice on various transactions both from the legal and the accounting perspective.


Riza F. Buditomo is a partner in Hadiputranto, Hadinoto & Partners' Tax & Trade Group in Jakarta. He focuses on corporate commercial and tax, and trade matters including export/import, customs, supply chain, food industry, direct-selling, anti-dumping, and corporate commercial work.


Ria Muhariastuti is a senior tax specialist in the Tax and Customs Practice Group at HHP Law Firm, a member firm of Baker & McKenzie International. She concentrates on domestic and international tax relating to inbound and outbound investment, multinational companies and private banking for individuals. She has also assisted clients on matters relating to wealth management and business restructuring. Ria handles clients from various sectors such as oil and gas, IT/C, consumer goods, logistics and manufacturing. Her extensive experience as well as her tax background allows her to provide comprehensive tax advice on a wide range of transactions.