Navigating the Impact of the Harmonization of Tax Regulations Law (UU HPP) for PMA Companies in Indonesia

The enactment of the Harmonization of Tax Regulations Law (UU HPP) in 2021 marked a significant transformation in Indonesia's taxation landscape. These changes also have implications for Foreign Investment Companies (PMAs) operating in the country.

Key Impacts of UU HPP on PMA Companies:

• Increase in Value-Added Tax (VAT) Rate: The VAT rate has been gradually increased from 10% to 11% in 2022 and 12% in 2023. This means PMAs will shoulder a higher VAT burden on goods and services they purchase.

• Reduction in Corporate Income Tax (PPh Badan) Rate: The PPh Badan rate is being phased down from 28% to 20% over five years. This can be positive news for PMAs as it can potentially enhance their profitability.

• Elimination of Dividend Tax: Dividend Tax has been eliminated for dividends paid to both domestic and foreign shareholders. This can encourage investments in Indonesia.

• Increase in Non-Individual Income Tax (PPh Orang Pribadi) Taxable Income Threshold: The Non-Individual Income Tax (PPh Orang Pribadi) Taxable Income Threshold has been increased from Rp 54 million per year to Rp 60 million per year. This can benefit PMA employees with lower incomes.

Tips for PMA Companies to Navigate UU HPP:

• Recalculate tax expenses: PMAs should recalculate their tax expenses based on the latest UU HPP provisions.

• Utilize tax incentives: PMAs can take advantage of various tax incentives offered under UU HPP to alleviate their tax burden.

• Consult with tax consultants: PMAs are advised to consult with experienced tax consultants to seek guidance and advice regarding UU HPP.

UU HPP introduces significant changes to Indonesia's taxation system that impact PMA Companies. PMAs need to understand the implications of these changes and take necessary steps to comply with UU HPP provisions and leverage available tax incentives.

Contact Dana Consultants for assistance in understanding and complying with UU HPP. Our team of experienced tax consultants can help you optimize your tax burden.

Connect with us in email : askcfo@dana-consultants.com or phone number +62 811 2742 314

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