Indonesia Legal Update: Income Tax Relief For Foreign Export Proceeds Deriving From Natural Resources

The Indonesian government has issued a new regulation that will, among other things, provide some tax relief for income from the placement of foreign export proceeds deriving from natural resources into the Indonesian financial system.

Government Regulation No. 22 of 2024 (“GR 22/2024”) came into force on May 20, 2024. It amends Government Regulation No. 131 of 2000 on Income Tax on the Interest from Time Deposits and Savings, as well as Discount Rates for Bank Indonesia Certificates, as amended by Government Regulation No. 123 of 2015.

The main point of GR 22/2024 is a special policy for income tax on the placement of foreign export proceeds (devisa hasil ekspor or “DHE”) deriving from natural resources (sumber daya alam or “SDA”) into the Indonesian financial system, through certain monetary and financial instruments (the “Instruments”).

It also regulates the tax subjects and objects that may receive special treatment in the form of relief for the imposition of final income tax as well as the final income tax withholding mechanism.

This article looks at key provisions introduced by GR 22/2024, specifically as they relate to the following:

1. List of placement instruments;
2. Income tax relief and terms of placement; and
3. Income tax withholding mechanism.

List of Placement Instruments

Pursuant to Article 2 of GR 22/2024, any income received or obtained by exporters (individuals, institutions or business entities) from the placement of DHE SDA into Instruments in Indonesia will be subject to final income tax.

However, final income tax shall only be imposed if the Instruments meet the following criteria:

1. is a banking instrument in Indonesia, a financial instrument issued by the Indonesian Export Funding Agency (Lembaga Pembiayaan Ekspor Indonesia or “LPEI”), or a monetary instrument issued by Bank Indonesia;
2. the funds derive from DHE SDA;
3. have a placement period of at least one month; and
4. not traded on the secondary market.

The Instruments subject to the imposition of final income tax in relation to deposited DHE SDA are as follows:

1. deposits issued by a bank whose source of funds derive from a DHE SDA special account at the same bank;
2. term deposits for conventional open-market operations in foreign currencies at Bank Indonesia placed through an open-market operation participant and the source of funds derive from a DHE SDA special account at the same open-market operation participant;
3. promissory notes issued by the LPEI which fund resources derive from a DHE SDA special account at the LPEI; and
4. other monetary instruments or other financial instruments determined by the Minister of Finance in coordination with the Governor of Bank Indonesia.

Relief of Income Tax Rates and Terms of Placement

GR 22/2024 provides relief on final income tax received or obtained by exporters from placing DHE SDA in Instruments in Indonesia. The final income tax will be calculated by multiplying the final income tax rate by the tax base.

GR 22/2024 provides the applicable income tax rates and terms of placement based on the currencies utilized through Instruments for the placement of DHE SDA.

The applicable income tax rates and their terms of placement for exporters who place DHE SDA in both foreign currencies and rupiah are as follows:

It should be noted that the above income tax rates also apply to replacement DHE SDA funds in Instruments after the maturity dates of said Instruments have elapsed. The basis of income tax imposition in the table above is the gross amount of income received by exporters from the placement of the DHE SDA in the Instruments.

Income Tax Withholding Mechanism

The final income tax shall be paid through the income tax withholding mechanism and will be carried out when such income is paid to the exporters. The procedure for the payment and reporting of the income tax itself will be carried out in accordance with the provisions of tax laws and regulations.

Therefore, with the issuance of GR 22/2024, the Indonesian government provides lower income tax rates for the placement of DHE SDA in the Instruments than previously regulated. This would seem to indicate an effort by the government to align and harmonize this policy with the policies outlined in the laws and regulations on foreign exchange export proceeds from business activities, management and/or the processing of natural resources.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.