0% MSME Final Income Tax Scheme in Gov. Reg. 12/2023

JAKARTA, DDTCNews - 0% final Income Tax on income from certain business gross turnover MSMEs is one of the incentives granted in respect of investments in Nusantara Capital (Ibu Kota Nusantara, hereinafter referred to as IKN).

Pursuant to Article 56 paragraph (1) of Gov. Reg. 12/2023, resident taxpayers, excluding permanent establishments (PEs), performing investments in IKN with a value of less than IDR10 billion and fulfil certain requirements may be subject to final Income Tax at a rate of 0%.

“Final Income Tax … is imposed on income from gross business turnover of up to IDR50 billion in 1 tax year received or accrued at the business location in the IKN territory.”

The income from business turnover excludes, first, income received or accrued by individual taxpayers from services in respect of independent personal services.

Second, income received or accrued by corporate taxpayers in the form of limited partnerships or firms established by individual Taxpayers with special expertise supplying services similar to services in respect of independent personal services.

Third, income from services performed other than in the IKN territory and/or utilised by service users residing or domiciled other than in the IKN territory.

Fourth, income that has been subject to final Income Tax pursuant to statutory tax provisions, except for business income subject to final Income Tax as referred to in the Gov. Reg. stipulating Income Tax on the business income received or accrued by taxpayers with a certain gross turnover (Gov. Reg. 55/2022).

Fifth, income excluded from Income Tax objects.

Pursuant to Article 56 paragraph (3) of  Gov. Reg. 12/2023, certain requirements that must be fulfiled by taxpayers include, first, residing or domiciled and/or having a branch in the IKN territory. Second, conducting business in the IKN territory.

Third, registered as taxpayers at a tax office whose working area covers the IKN territory. In addition, the requirements must be fulfiled if the taxpayers have tax identification at the place of business in the IKN territory.

Fourth, having performed investments in the IKN territory as well as having MSME qualifications issued by the competent authority. Fifth, having applied to utilise the final Income Tax incentives no later than 3 months since the investments and obtained approval for the granting of the incentives.

If a taxpayer has more than 1 place of business or branch in the IKN territory, the threshold of the value of investments of IDR10 billion and the threshold of the gross turnover of up to IDR50 billion shall be determined based on the consolidation of the places of business or branches.

“Final Income Tax … is granted starting from the approval for the granting of the incentives … until 2035,” reads a fragment of Article 56 paragraph (5) of Gov. Reg. 12/2023.

On the other hand, Gov. Reg. 12/2023 also contains provisions on the imposition of Income Tax pursuant to statutory tax provisions. The imposition applies to business income that fulfils 3 conditions (non-accumulative).

First, business income excluded from the imposition of final Income Tax. Second, received or accrued at a place of business other than in the IKN territory. Third, income received or accrued at a place of business in the IKN territory sourced from gross turnover that exceeds the threshold of IDR50 billion.

Pursuant to the provisions under Article 56 paragraph (7), taxpayers that utilise final Income Tax incentives must maintain bookkeeping separately (for Taxpayers required to maintain bookkeeping) or maintain recording separately (for taxpayers not required to maintain bookkeeping).

The separate bookkeeping or recording between income eligible for the final Income Tax incentives referred to in this Gov. Reg. and income not eligible for the said incentives.

In the event of inseparable joint costs in the context of calculating the amount of taxable income, they shall be expensed proportionally.

Provisions on the application and procedures for the submission of the application, issuance, cancellation or revocation of the approval letter and reporting of the 0% final Income Tax will be stipulated in a minister of finance regulation (MoF Reg.). (kaw)