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On 10th November 2015, the Minister of Finance issued Regulation No. 200/PMK.03/2015 on the Tax Treatment of Taxpayers and Taxable Entrepreneurs That Use a Certain Collective Investment Contracts Scheme for the Finance Sector ("MOF Regulation 200"). The regulation became effective on the same day.
Under this regulation, the Minister of Finance provides several tax facilities to Real Estate Investment Funds (commonly known as Real Estate Investment Trusts/"REIT").
Previously, investors were reluctant to invest in Indonesia under REIT schemes. This was because REIT, especially REIT with special purpose companies, were subject to double taxation. A REIT was subject to tax when its special purpose companies received income from transfers of assets or rent (a transfer of land and buildings is subject to 5% income tax of the gross transaction value, and income from rental of land and buildings is subject to 10% income tax of the gross rental fee). A REIT was also subject to tax when its special purpose companies distribute dividends to the REIT.
Under MOF Regulation 200, from 10th November 2015, the double taxation is eliminated. This will mean a significant reduction of tax costs for investors under REIT schemes in Indonesia.
Under MOF Regulation 200, REIT is defined as a vehicle to collect funds from investors for subsequent investment in real estate and real estate-related assets, and cash or cash equivalents. A special purpose company is defined as a limited liability company whose shares are 99.9% owned by a REIT that is established in the form of a collective investment contract here whereby the special purpose company is incorporated solely for the purpose of administering the REIT.
The first facility provided in the regulation is that dividends received by investors under a REIT from special purpose companies are no longer subject to tax. This is because special purpose companies established to administer a REIT are treated as an integral and inseparable component of the REIT.
There are certain administrative requirements for a REIT in Indonesia to be entitled to the exemption from tax on dividends. The REIT must attach the following documents to the corporate income tax return for the fiscal year when the dividend is received:
Under normal circumstances, a transfer of land and buildings will be subject to 5% final income tax. A transfer of real estate to a special purpose company under a REIT scheme is not considered to be subject to 5% final withholding tax but any gain from the transfer of the real estate to the REIT would be subject to the normal income tax calculation.
The last facility under MOF Regulation 200 is that a special purpose company under a REIT scheme can be considered as a low-risk taxable entrepreneur, which means it can obtain a pre-audit VAT refund.
To be considered as a low-risk taxable entrepreneur, the REIT must apply to the Director General of Tax, and attach the following documents:
If a REIT has obtained a decision as a low-risk taxable entrepreneur, it is entitled to apply for pre-audit VAT refunds, for which certain procedures must be followed.
Before applying for the facilities, investors should ensure that they have got all the administrative documents.
Before requesting a pre-audit VAT refund, the REIT has to consider the pros and cons of a pre-audit VAT refund. If after the refund the tax authority conducts an audit and finds that there is an underpayment, the taxpayer would be subject to a surcharge of 100% of the underpaid amount.
Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 2015
Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)
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