A. Legal Basis

The legal sources underlying these tax guidelines are as follows:

(i)

Law Number 6 of 1983 concerning Income Tax as amended several times, last amended by Law Number 6 of 2023 (ITL);

(ii)

Minister of Finance Decree Number 416/KMK.04/1996 concerning Deemed Profit for Domestic Shipping Company Taxpayers (MoF Decree 416/1996);

(iii)

Minister of Finance Decree Number 417/KMK.04/1996 concerning Deemed Profit for Foreign Shipping and/or Airline Company Taxpayers (MoF Decree 417/1996);

(iv)

Director General of Taxes Circular Letter Number SE-10/PJ.43/1999 concerning Final Withholding Tax Receipts for Foreign Shipping and/or Airline Services Using the Q.Q System (SE-10/PJ.43/1999);

(v)

Director General of Taxes Circular Letter Number SE-28/PJ.43/1998 concerning Article 22 Income Tax on Imports of Goods for Activities/Services Whose Remunerations Are Solely Subject to Final Income Tax (SE-28/PJ.43/1998);

(vi)

Director General of Taxes Circular Letter Number SE-32/PJ.43/1998 concerning the Affirmation of SE-28/PJ.43/1998 (SE-32/PJ.43/1998);

(vii)

Director General of Taxes Circular Letter Number SE-29/PJ.4/1996 Income Tax on Domestic Shipping Company Taxpayers (SE-29/PJ.4/1996);

(viii)

Director General of Taxes Circular Letter Number SE-32/PJ.4/1996 concerning Deemed Profit for Taxpayers Engaged in Overseas Shipping and/or Airline Business (SE-32/PJ.4/1996).

B. Background

Indonesia is an archipelagic country united by a vast body of water. The waterways are a sea transportation route whose existence is crucial for the state. This is because waterways may support economic growth in trade transactions.

The existence of trade traffic results in Indonesia being a state that is inseparable from shipping service companies. Shipping service companies generally offer transport services for people and goods, both for domestic shipping and shipping on international routes. In the context of taxation, the Indonesian government has provided legal certainty that stipulates taxation of shipping companies, both domestically and overseas.

C. Definitions

Referring to SE-29/PJ.4/1996, a domestic shipping company taxpayer is a person residing or an entity established and domiciled in Indonesia that conducts shipping business with ships registered either in Indonesia or overseas or with ships of other parties.

Further, SE-32/PJ.4/1996 elucidates that non-resident shipping taxpayers are shipping company taxpayers domiciled overseas that conduct business through permanent establishments (PEs or Bentuk Usaha Tetap/BUT in Indonesian) in Indonesia.

D. Tax Treatment

D.1

Tax Treatment of Domestic Shipping Companies

The tax subjects of Article 15 Income Tax are persons residing or entities incorporated and domiciled in Indonesia that implement business activities in the shipping sectors using registered ships, either in Indonesia or overseas or with other parties' ships.

SE-29/PJ.4/1996 elucidates that the Article 15 Income Tax object on domestic shipping is the income received or accrued by shipping company taxpayers derived from the transportation of people or goods as well as the charter of ships conducted from:

(i)

ports in Indonesia to ports outside Indonesia;

(ii)

ports in Indonesia to other ports in Indonesia;

(iii)

ports outside Indonesia to ports in Indonesia; and

(iv)

ports outside Indonesia to other ports outside Indonesia.

D.1.1

The Calculation of Article 15 Income Tax of Domestic Shipping Companies

Pursuant to MoF Decree 416/1996, the net income for resident shipping company taxpayers is set at 4% of gross turnover.

The gross turnover is all remuneration or consideration value in the form of money or value in money received or accrued by a resident shipping company taxpayer from the transportation of people and/or goods loaded from one port to another port in Indonesia and/or from a port in Indonesia to a port overseas and/or vice versa.

To facilitate the calculation, the effective rate applicable to resident shipping company taxpayers is 1.2%. The income tax imposed on resident shipping companies is final. The following is the calculation method of Article 15 Income Tax:

D.1.2

Procedures for the Remittance and Filing of Article 15 Income Tax on Domestic Shipping

In the event that income is accrued or received under a rental or charter agreement with a withholding agent:

(i)

The party that pays or is liable for the proceeds is required to withhold tax payable at the time of payment or the remuneration or consideration value becomes payable.

(ii)

Further, the withholding agent prepares a withholding receipt and provides a withholding tax receipt for income that has been subject to the withholding tax to the party receiving the income.

(iii)

The withholding agent is required to remit the withholding tax to the state treasury through a tax payment bank or post office. The remittance may be conducted no later than the 10^th of the following month after the month of payment ends. The tax may be paid using a tax payment slip (Surat Setoran Pajak/SSP in Indonesian).

(iv)

The withholding agent performs the remittance no later than the 20th of the following month after the month income is received or accrued.

If income is accrued other than from withholding agents, the party withholding, remitting and filing Article 15 Income Tax is the resident shipping company taxpayer with the following provisions:

(i)

The tax may be remitted no later than the 15^th of the following month after the month income is received or accrued. The remittance may be conducted using a tax payment slip.

(ii)

Further, the taxpayer files the tax that has been remitted no later than the 20^th of the following month after the month income is received or accrued.

D.1.3

Special Provisions on Domestic Shipping

In the event that a shipping company rents an unmanned ship, the imposition of tax payable is subject to Article 23 Income Tax. This is stipulated under Article 23 paragraph (1) subparagraph c of the ITL. The rate imposed on these services is 2%, with the following calculation:

Further, referring to SE-29/PJ.4/1996, imports of goods used for activities/services whose remunerations are subject to final income tax are not subject to Article 22 Income Tax. The exemption from the imposition of Article 22 Income Tax is granted through the issuance of an import Article 22 Income Tax exemption certificate (Surat Keterangan Bebas/SKB in Indonesian).

D.2

The Tax Treatment of Non-Resident Shipping Companies

In the taxation of shipping companies, Article 15 Income Tax subjects are shipping companies domiciled overseas that conduct business activities through PEs.

Further, the taxable object is the income derived from the transportation of people and/or goods received by non-resident shipping company taxpayers that conduct business through PEs.

D.2.1

Procedures for the Calculation of Article 15 Income Tax on Overseas Shipping

Pursuant to MoF Decree 417/1996, the net income for non-resident shipping company taxpayers is set at 6% of gross turnover.

The gross turnover concerned is the consideration value in the form of money or the value in money derived from the transportation of people and/or goods. The details of the transaction of transporting people and/or goods are as follows:

Based on the gross turnover criteria, all gross turnovers may be accumulated pursuant to the provisions under SE-32/PJ.4/1996. Furthermore, to facilitate the calculation, the effective rate applicable to non-resident shipping company taxpayers is 2.64% of gross turnover. The income tax on foreign shipping is final. The following is the calculation method:

The time Article 15 Income Tax becomes payable can be differentiated based on the existence or absence of a charter agreement. If income is derived based on a charter agreement, Article 15 Income Tax is payable at the time of payment or the remuneration/consideration value becomes payable. However, in the event that income is derived not based on a charter agreement, Article 15 Income Tax is payable at the time the income is received or accrued.

D.2.2

Procedures for the Remittance and Filing of Article 15 Income Tax on Overseas Shipping

In the event that income is derived based on a rental or charter agreement, the payor or charterer is required to:

(i)

Perform Article 15 Withholding Tax at the time of payment or the time the remuneration/consideration value becomes payable.

(ii)

Provide final withholding tax receipts for the income of the overseas shipping company to the shipping company that receives the income.

(iii)

Remit the tax to the state treasury. The tax may be remitted no later than the 10th of the following month, using a tax payment slip.

(iv)

File the tax no later than the 20^th of the following month after the month of payment or the remuneration becomes payable.

Please note that if the income derived is not sourced from the charter agreement, the non-resident shipping company taxpayer is required to:

(i)

remit Article 15 Income Tax that is payable no later than the 15^th of the following month after the month income is received or accrued. The remittance may be conducted through tax payment banks or post offices.

(ii)

File on the 20^th of the following month after the month of payment or payable rewards.

D.2.3

Special Provisions on Foreign Shipping

In the event that a shipping taxpayer does not conduct business in the form of a PE, the income received is not subject to Article 15 Income Tax but must take into account the provisions on Article 26 Income Tax. Further, if the shipping taxpayer is a resident of a tax treaty (Persetujuan Penghindaran Pajak Berganda/P3B in Indonesian) partner, the income tax rate needs to take into account the provisions under the tax treaty.

Further, if overseas shipping services are conducted using the q.q system, the proof final withholding tax receipt for the transactions conducted by the overseas shipping companies uses the name of the q.q agent of the shipping company and must include the address of the shipping company.

SE-10/PJ.43/1999 elucidates that there are requirements that must be fulfilled for overseas shipping services that use the q.q system. These requirements include:

(i)

The income provider is the party that charters the ship;

(ii)

The beneficiary is the non-resident shipping company taxpayer that accrues the remuneration or consideration value in connection with the transportation of persons and/or goods under a charter agreement (including crew members);

(iii)

The agent is the party that receives the payment in the event that the agent only acts as an intermediary, by deriving a remuneration in the form of a commission from the shipping company. This must be clearly stated in the contract.

E. Case Illustration

Case I

PT Laut Dalam is a shipping company for the transportation of goods. PT Layar charters a ship owned by PT Laut Dalam for IDR250,000,000. PT Layar is a withholding agent. In this case, calculate the amount of Article 15 Income Tax payable and state the tax obligations must be conducted by PT Layar for the transaction.

Answer:

Known facts

PT Layar is a withholding agent, thereby, in this case, the party required to perform withholding tax is PT Layar.

The following is the calculation of Article 15 Income Tax

Article 15 Income Tax	=	1.2% x IDR250,000,000
	=	IDR3,000,000

Based on this calculation, PT Layar will perform withholding tax on the payment by IDR3,000,000. Further, PT Layar must prepare the Article 15 Withholding Tax receipt in 3 (three) copies with the following details:

(i)

The 1^st copy is for the lessor. In this case, the lessor is PT Laut Dalam.

(ii)

The 2^nd copy is for the Tax Office (Kantor Pelayanan Pajak/KPP in Indonesian), attached to the periodic Article 15 Income Tax returns.

(iii)

The 3^rd copy is for the lessee. In this case, the lessee is PT Layar.

In addition, after carrying out Article 15 Withholding Tax, PT Layar has an obligation to make remittances and file taxes that have been collected. PT Layar is required to make a remittance no later than the 10th of the following month after the taxable period ends and a filing no later than the 20^th of the following month after the taxable period ends.

If PT Layar is not the withholding agent, the party required to perform Article 15 Withholding Tax is PT Laut Dalam. Further, PT Laut Dalam is required to remit the tax no later than the 15^th of the following month and file the tax no later than the 20th of the following month after the taxable period ends.

Case II

PT Karang charters a ship from Grey Airlines which is a cargo shipping airline. It is known that Grey Airlines has a PE in Indonesia. The charter fee that must be paid by PT Karang is IDR250,000,000. Calculate the tax payable!

Answer:

Known facts

Taxpayers conducting business in the form of PEs will be subject to Article 15 Income Tax.

Article 15 Income Tax Payable	=	2.64% x IDR250,000,000
	=	IDR6,600,000

Based on this calculation, PT Karang prepares an Article 15 Withholding Tax receipt in the amount of IDR6,600,000 and submits the withholding receipt to the lessor, namely Grey Airlines.

Further, PT Karang is required to remit the withholding tax no later than the 10th of the following month and file the tax no later than the 20th of the following month.

Income Tax on Shipping Services