A company domiciled in Indonesia is making a contract with a shipping company domiciled in Singapore to transport a goods by using tug boat and barge. The shipping company is outside customs area, but the service is rendered inside customs area.
What the taxation and other aspects could be?
1. Withholding tax aspect
a. Regarding to shipping regulation, it is regulated in Income Tax Law No.36 year 2008 article 15 explanation, “this provision regulates the Special Deemed Profit for the group of particular taxpayer, among others are international shipping companies or international airline companies, foreign insurance companies, gas and geothermal drilling companies, foreign trading companies, and companies investing in the form of build, operate and transfer….”
b. Special for international shipping companies tax tariff regulated in Finance Minister Decree No. 417/KMK.04/1996 mentioned:
i. Income Tax Tariff of international shipping and/or airline companies is 2,64% of gross income
ii. The particular Income Tax is classified as Final Tax
c. Further, because of between Indonesia and Singapore there is an agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, therefor in article 8 about shipping and air transport, which mentioned: “income derived by an enterprise of a Contracting State from the operation of ships in international traffic may be taxed in the other Contracting State, but the tax imposed in that other State shall be reduced by an amount equal to 50% thereof.”
d. The conclusion of withholding tax is = 2.64% x 50% x Gross Amount = 1.32% x Gross Amount.
e. Those tariff can be effective if ABC Pte Singapore provides Certificate of Domicile (COD) which legalized by Singapore Tax Authorities before the transactions.
f. COD format required by Indonesia Tax Authorities are as follows:
i. Form-DGT 1 purposes for COD of individual and corporate non-bank & stock exchange
ii. Form-DGT 2 purposes for COD of individual and corporate bank & stock exchange
2. Value added tax (PPN) aspect
a. Regarding to value added tax, it is regulated in Value Added Tax on Goods and Services and Sales Tax on Luxury Goods Law no. 42 year 2009.
b. For the services which provided by foreign companies and rendered in Indonesia area regulated in article 3A explanation paragraph (3): “value added tax payable on utilization of intangible taxable goods and/or utilization of taxable services from outside customs area must be collected by individual person or corporate who utilizes intangible taxable goods and/or taxable services.”
c. PPN tariff of services which provided by foreign companies and rendered in Indonesia area is 10%.
d. PPN is paid by individual or company that utilizes the service in Indonesia area.
e. This PPN should be paid at the latest on 15th of the following month and can be credited for the company in PPN Return.
3. Accounting aspect
Following is the journal provided for accounting ledger if we assume contract amount is $1000 :
Time Charter - TB & Barge Exp. 1,000.00(Dr)
PPN Self Assessment 100.00(Dr)
Tax Payable - PPh Art.15 13.20(Cr)
Tax Payable – PPN 100.00(Cr)
Account Payable - ABC Pte S’pore 986.80(Cr)
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