Possible structure to pay less tax in Indonesia

[Mickey]

Friends,

Assume company X with line of business in: Property management, Property sale, Property rental and hospitality.

I need your point of view concerning a possible legal structure to avoid paying high taxes in Indonesia.

What do you think about establishing a company in Singapore, the Singaporean (SIN Holdco) company will establish a PMA in Indonesia and be share holder.

in your point of view, what are the pros and cons of such a structure? or is it better to simply establish a PMA in Indonesia?

thank you

 

[ferdie]

Do you think if you are a subsidiary company from SG the tax office will treated you differently?
Even if you come from Timor Leste, the treatment are the same.
It will only create double cost for you to pay, but I think the SG govt would welcome you with an open arms:devilish:

The only structure that a PMA can use is a PT or Limited Corp, not CV , Firm or any other form.

The way to minimize tax is an art, so it would take more technical knowledge than manipulating numbers or your origin in my opinion.

As a company in Bali, you would be more concern about all the extra and weird expenses, such as : set up fees, immigration stuffs, work permit, retributions, compulsory "donations", agents fees, legal fees, etc

 

[SHoggard]

Friends,
Assume company X with line of business in: Property management, Property sale, Property rental and hospitality.

To my knowledge, this could not be a 100% foreign-owned company - I believe the businesses you mention are 'protected' & require local participation, others might know better

I need your point of view concerning a possible legal structure to avoid paying high taxes in Indonesia.

Point 1: Aren't you putting the cart before the horse? Company taxes are paid on profits - you need to get the business plan in place & actually make profits.

Point 2: Any structure established solely to 'avoid paying taxes' in any country would probably be illegal

What do you think about establishing a company in Singapore, the Singaporean (SIN Holdco) company will establish a PMA in Indonesia and be share holder.in your point of view, what are the pros and cons of such a structure? or is it better to simply establish a PMA in Indonesia?

IMHO its a matter of scale... Mickey, I think you've started this thread as a side-issue to my earlier post (What to look out for when forming a PMA in Bali) if so let me set you right on what is still a matter of investigation.
NB: 1.00 SGD = 7,808.69 IDR

1. I already have a company in Singapore (estd: 1998)
2. Paid-up capital +S$1 million
3. Turnover +S$1.5 million
4. Staff: 4 (Singaporeans) + 1 Indonesian offshore-freelancer in Medan
5. Business activity (as specified in our M&A) NOT Property management, Property sale, Property rental or hospitality
6. The company already does business in Indonesia (some, not a lot, mainly Jakarta, but we have done some in Bali)

So with that in-hand, I looked into the potential advantages of establishing a subsidiary PMA both to further grow our Indonesian business AND possibly set up a branch in Bali, which may own property. EG property/hospitality etc is not the core business objective.

On inquiring, I discovered that in our particular 'registered business activity' foreign companies would be allowed to own 100% of a PMA.... so far so good.

Whether this would work for a start-up remains to be seen.

Here are some rough guidelines (numbers rough guess, in our case having been going since '98 & witht long-term agreements in place we don't pay nearly these prices):

1. All Singaporean companies require 1 local resident director (Singaporean or foreigner with residency permit) if you don't have one, a lawyer can hold the post, Minimum Cost: S$1k/month
2. All Singaporean companies require Company Secretary: Min Cost: S$3-500/month
3. All Singaporean companies must have minimum paid-up capital (I think its): S$100,000
4. All Singaporean companies must be audited annually (whether it actually generates income in Sg or not) : Min Cost: S$6k

So up-front investment in 1st year will be around: S$124,000
(of course S$100k of that is working-capital)

Of course there IS an advantage that revenue generated overseas is Zero tax: BUT that means no revenue from inside Sg, if there is (eg: A Singaproean books a room) then that's treated as a separate a/c & is taxed @ 12% (on company profit)

THEN there are the Indonesian regulations to deal with:

1. IF your Singaporean company is lucky to genuinely do non-restricted business - then you may get 100% ownership .... not confirmed, I haven't tried-tested it.
2. You have to submit your Singapore Company M&A, recent audited a/c, and a director's resolution to the effect that an Indonesian subsidiary has been approved by the board.
3. Pay da money & get registered
4. Then I guess, the PMA is allowed to do business....

As a 'local entity' the PMA may own property but if the plan is to run any sort of hospitality business, as you seem to want, then you'd need a Pondok Wisata - we've already established elsewhere that a PMA can't get one of those - so the whole exercise is a waste of time IF that's the only business the PMA intends to do.

Regarding avoiding Indonesian TAX:
Well obviously the PMA has to file tax returns (monthly, I believe) and assuming it generates revenue inside Indonesia & makes a profit it will be taxed at the going Indonesian rate - there's no special exemption for foreign companies:
IF you're a major property developer or multi-national investing squillions, there may be an advantage.
If you earn/generate income IN a country you pay Taxes (unless you are Starbucks, Amazon, Google... which I assume you're not).


So what was the point again?

 

[Fred2]

A PMA can have title of the land in the company name for xx years not forever. Large companys would use a tax agent to nego with the tax office on the amount of tax to be paid.

 

[Mickey]

To my knowledge, this could not be a 100% foreign-owned company - I believe the businesses you mention are 'protected' & require local participation, others might know better



Point 1: Aren't you putting the cart before the horse? Company taxes are paid on profits - you need to get the business plan in place & actually make profits.

Point 2: Any structure established solely to 'avoid paying taxes' in any country would probably be illegal


IMHO its a matter of scale... Mickey, I think you've started this thread as a side-issue to my earlier post (http://balipod.com/business-bali-f21/what-look-out-forming-pma-t8519.html#post83269 ) if so let me set you right on what is still a matter of investigation.
NB: 1.00 SGD = 7,808.69 IDR

1. I already have a company in Singapore (estd: 1998)
2. Paid-up capital +S$1 million
3. Turnover +S$1.5 million
4. Staff: 4 (Singaporeans) + 1 Indonesian offshore-freelancer in Medan
5. Business activity (as specified in our M&A) NOT Property management, Property sale, Property rental or hospitality
6. The company already does business in Indonesia (some, not a lot, mainly Jakarta, but we have done some in Bali)

So with that in-hand, I looked into the potential advantages of establishing a subsidiary PMA both to further grow our Indonesian business AND possibly set up a branch in Bali, which may own property. EG property/hospitality etc is not the core business objective.

On inquiring, I discovered that in our particular 'registered business activity' foreign companies would be allowed to own 100% of a PMA.... so far so good.

Whether this would work for a start-up remains to be seen.

Here are some rough guidelines (numbers rough guess, in our case having been going since '98 & witht long-term agreements in place we don't pay nearly these prices):
1. All Singaporean companies require 1 local resident director (Singaporean or foreigner with residency permit) if you don't have one, a lawyer can hold the post, Minimum Cost: S$1k/month
2. All Singaporean companies require Company Secretary: Min Cost: S$3-500/month
3. All Singaporean companies must have minimum paid-up capital (I think its): S$100,000
3. All Singaporean companies must be audited annually (whether it actually generates income in Sg or not) : Min Cost: S$6k
So up-front investment in 1st year will be around: S$124,000
(of course S$100k of that is working-capital)

Of course there IS an advantage that revenue generated overseas is Zero tax: BUT that means no revenue from inside Sg, if there is (eg: A Singaproean books a room) then that's treated as a separate a/c & is taxed @ 12% (on company profit)

THEN there are the Indonesian regulations to deal with:
1. IF your Singaporean company is lucky to genuinely do non-restricted business - then you may get 100% ownership .... not confirmed, I haven't tried-tested it.
2. You have to submit your Singapore Company M&A, recent audited a/c, and a director's resolution to the effect that an Indonesian subsidiary has been approved by the board.
3. Pay da money & get registered
4. Then I guess, the PMA is allowed to do business....

As a 'local entity' the PMA may own property but if the plan is to run any sort of hospitality business, as you seem to want, then you'd need a Pondok Wisata - we've already established elsewhere that a PMA can't get one of those - so the whole exercise is a waste of time IF that's the only business the PMA intends to do.

Regarding avoiding Indonesian TAX:
Well obviously the PMA has to file tax returns (monthly, I believe) and assuming it generates revenue inside Indonesia & makes a profit it will be taxed at the going Indonesian rate - there's no special exemption for foreign companies:
IF you're a major property developer or multi-national investing squillions, there may be an advantage.
If you earn/generate income IN a country you pay Taxes (unless you are Starbucks, Amazon, Google... which I assume you're not).


So what was the point again?

Point 1: Aren't you putting the cart before the horse? Company taxes are paid on profits - you need to get the business plan in place & actually make profits.

Yes my dear, i'm anticipating the events and putting two carts before a pony, as i would like to understand what is the best structure to put in place before i proceed with any decision and end up later with more issues that i will need to solve.

Any structure established solely to 'avoid paying taxes' in any country would probably be illegal

i don't agree with you but that is a different topic

1. All Singaporean companies require 1 local resident director (Singaporean or foreigner with residency permit) if you don't have one, a lawyer can hold the post, Minimum Cost: S$1k/month
2. All Singaporean companies require Company Secretary: Min Cost: S$3-500/month
3. All Singaporean companies must have minimum paid-up capital (I think its): S$100,000
3. All Singaporean companies must be audited annually (whether it actually generates income in Sg or not) : Min Cost: S$6k
So up-front investment in 1st year will be around: S$124,000
(of course S$100k of that is working-capital)

All of the above are correct except number 3. Minimum paid-up capital of 1.00S$
here is a price package: 3288S$ --> source Singapore Company Registration with Employment Pass Package
Source:

Of course there IS an advantage that revenue generated overseas is Zero tax: BUT that means no revenue from inside Sg, if there is (eg: A Singaproean books a room) then that's treated as a separate a/c & is taxed @ 12% (on company profit)

What about a dormant company?

Here are the tax rates for Singapore:

Income Tax Rate
Tax rate on corporate profits for up to 300,000 SGD --> 8.5%
Tax rate on corporate profits above 300,000 SGD --> 17%
Tax rate on capital gains accrued by the company --> 0%
Tax rate on dividend distribution to shareholders --> 0%
Tax rate on foreign-sourced income not brought into Singapore --> 0%
Tax rate on foreign-sourced income brought into Singapore --> 0 – 17% subject to conditions

THEN there are the Indonesian regulations to deal with:
1. IF your Singaporean company is lucky to genuinely do non-restricted business - then you may get 100% ownership .... not confirmed, I haven't tried-tested it.
2. You have to submit your Singapore Company M&A, recent audited a/c, and a director's resolution to the effect that an Indonesian subsidiary has been approved by the board.
3. Pay da money & get registered
4. Then I guess, the PMA is allowed to do business....

I still have to investigate this part

For the rest,i have found this document (http://www.iras.gov.sg/irasHome/uploadedFiles/Quick_Links/singaporeindonesiadta.pdf) which describes the definition and rules of DTA (Double Taxation Agreement) with Indonesia.

Concerning the PMA and Pandok Wissata, the Pandok Wissata will be requested by the Indonesian share holder of the PMA, and at the same time he will resign and the PMA can still control the Pandok Wissata.

For the time being all is investigation...

 

[SHoggard]

You can prove the earth is made of green cheese if you search the internet long enough.

I've taken the time to share, at length, my 22 years experience of living and running businesses in Singapore, but you don't seem to want to believe it

Yes my dear, I'm anticipating the events and putting two carts before a pony, as i would like to understand what is the best structure to put in place before i proceed with any decision and end up later with more issues that i will need to solve.
i don't agree with you but that is a different topic

1. I'm not 'your dear'
2. I think 'tax avoidance' its very much the topic of the thread

All of the above are correct except number 3. Minimum paid-up capital of 1.00S$
here is a price package: 3288S$ --> source Singapore Company Registration with Employment Pass Package

That's actually complete and utter garbage. Believe me, last year we took a European associate through the process - its $100k
$1 - well actually $2 ($1 per shareholder) paid-up at the time of document submission +
$99,998 upon finalisation of approvals (well they give 2-3 months) otherwise the company gets struck off


Even if it were possible, do you seriously think the Indonesian company registrar is going to approve a $1 company opening a subsidiary in Indonesia - credit them with some sense.

What about a dormant company?

WTF??? Now you're clutching at straws.
1. Q: What's a 'dormant company'? A: One that does no business (there's a whole bunch of regulations governing the requirements to prove a company is dormant)

B. How can a 'dormant company' set up a subsidiary in Indonesia - its ferkin dormant for f*ck's sake

C. Dormant or not, it still has to: Have a resident director (If you're not resident then you have ot pay one), have a company secretary, file audited annual returns ($000 in every column is acceptable, providing the audit shows there have been no bank transactions for the year - still need an auditor)

Here are the tax rates for Singapore:

Irrelevant, dormant companies have no income

For the rest,i have found this document (http://www.iras.gov.sg/irasHome/uploadedFiles/Quick_Links/singaporeindonesiadta.pdf) which describes the definition and rules of DTA (Double Taxation Agreement) with Indonesia.

What's the point of looking at that - Yes there is a DTA between Sg & Indonesia - but Sg has DTAs with most countries - you can look at the 'law' all you like but how is it implemented - especially if the Sg company is a $1 'dormant' company

Concerning the PMA and Pandok Wissata, the Pandok Wissata will be requested by the Indonesian share holder of the PMA, and at the same time he will resign and the PMA can still control the Pandok Wissata.

I really think you're wasting everyone's time (especially your own) if that's how you think the game is played.... the local shareholder resigns after you get your Pondok Wisata...? That would void the terms of the PMA requiring Indonesian shareholders & the PMA would be in breach & liable to be struck off.

Space-cadet thinking

Why not save some brain-power, fly to Singapore and Jakarta, pay some lawyers and accountants for advice that might stand up in court

 

[ferdie]

Concerning the PMA and Pandok Wissata, the Pandok Wissata will be requested by the Indonesian share holder of the PMA, and at the same time he will resign and the PMA can still control the Pandok Wissata.

A friendly reminder for you on how the business world works:icon_lol:

I assume the business is built for the longer term?

If you have a local partner it will be recorded on the notary when the business is registered and he can only be dormant but he should be present for every annual shareholder meeting and I will assume that you want him to sign every tax report to the finance department? Also for the renewal for the pondok wisata license and so on

The day when the local shareholder quits or bought out on his/her share, the business will have legal problems, and if he or any of your competition want to kick you out, they just need to call the authority and you have a mess because you don't comply with the investment law.

Be a better businessman, get yourself a proper local partner, maybe instead of buying property you can give him the local share required for maybe a 1 star hotel and arrange a profit sharing scheme?
He gives you land and/or building so he get 49% and you guys get the 51% for the cash that you guys bring?
This way he will have more incentives to help everything out and you could just give the money that you want to spend in SG for him:icon_lol:

As I stated before, your vision needs to be fixed first, and the tax is not the first step you need to tackle

FYI: no matter how the DTA's you will need to pay the tax here, I could give you a good tax consultant in Bali who used to do my office's tax returns and stuff, he speaks good english and the last I heard, he is the chairman for Bali's tax consultant association

 

[joji gulapetis]

A PMA can have title of the land in the company name for xx years not forever. Large companys would use a tax agent to nego with the tax office on the amount of tax to be paid.

Maybe I have been misinformed, but I was told the days of "negotiating" with the tax office (using a tax consultant) concerning the amount of tax you pay are long gone. Ferdie, have you any info on this? There were times, yes, when you could "negotiate" directly with the tax man, bypassing the consultant, and the tax man would do your tax return himself, to make sure it was "accurate". But with computerization, and the high profile KPK tax fraud cases, this has become a very very risky pastime. Also, your friendly taxman, if caught, will dob you in to get a lighter sentence.

But a word to the wise. If you are caught doing this in Indonesia now, be prepared to lose everything you have invested, as well as a jail term, and then deportation and being blacklisted.

Anyone still interested in tax evasion? :topsy_turvy:

 

[ferdie]

Maybe I have been misinformed, but I was told the days of "negotiating" with the tax office (using a tax consultant) concerning the amount of tax you pay are long gone. Ferdie, have you any info on this? There were times, yes, when you could "negotiate" directly with the tax man, bypassing the consultant, and the tax man would do your tax return himself, to make sure it was "accurate". But with computerization, and the high profile KPK tax fraud cases, this has become a very very risky pastime. Also, your friendly taxman, if caught, will dob you in to get a lighter sentence.

But a word to the wise. If you are caught doing this in Indonesia now, be prepared to lose everything you have invested, as well as a jail term, and then deportation and being blacklisted.

Anyone still interested in tax evasion? :topsy_turvy:

The truth is, its a work in progress, there are still opportunities to bribe the officials and other ways to do it, but you can prevent yourself from that kind of practice by tax planning and using the right knowledge and common sense.

For example every tax office is given a target of an amount of tax collected in a period of time, or they will not get promoted. So it is in their best interest to facilitate someone whose asking for a tax penalty discount for his long overdue tax. They will be better of receiving less than receiving nothing at all.

Joji was right when he stated that being a foreigner makes you more vulnerable than the locals, but everyone has their own considerations.

Sometime the short term numbers can led someone to the fastest way to solve the tax problem, but once you play the game, you'll pay more and more, because greedy official didn't have limits when they smell available money for their gain:biggrin:

 

[gilbert de jong]

PMA with a pondok wisata....:beaten:

but regarding the question of the OP :
maybe it's just me but, why over-complicate things by setting up shop in SG and then have them opening up shop in ID ? Taxes???

 

[Mickey]

@ ferdie, great advice and smart way to do business indeed. Thank you

i have called a law firm in Singapore today and they have explained that, for the line of business mentioned above in this topic, such a structure won't be much of a benefit. it's better to just start the Foreign Direct Investment in Indonesia. BUT! if we were planning to do CONSULTANCY then it is really worth it to go with a SG company and open a subsidiary in Indonesia as invoicing can be done from SG. but since we are not interested in consultancy we will stick to the PMA structure.

TOPIC RESOLVED..thanks for your comments.

i have as well double checked concerning the Pandok Wisata, they informed me that this licence will be on the PMA name so even if the nominee resigns or a new shareholder comes in, the PMA can still keep the licence and renew.

 

[Roswen]

@ ferdie, great advice and smart way to do business indeed. Thank you

i have called a law firm in Singapore today and they have explained that, for the line of business mentioned above in this topic, such a structure won't be much of a benefit. it's better to just start the Foreign Direct Investment in Indonesia. BUT! if we were planning to do CONSULTANCY then it is really worth it to go with a SG company and open a subsidiary in Indonesia as invoicing can be done from SG. but since we are not interested in consultancy we will stick to the PMA structure.

TOPIC RESOLVED..thanks for your comments.

i have as well double checked concerning the Pandok Wisata, they informed me that this licence will be on the PMA name so even if the nominee resigns or a new shareholder comes in, the PMA can still keep the licence and renew.

If you want to look trustable nominee, you may need to consult with local lawyer and let them find it for you.

I have several nominee contact in Indonesia who usually they are jobless or etc, or sometimes one of my lawyer's associates, lol. And the benefit is the nominee person is free of charge, which include in the first service fees.

Sometime you need to look after possible ways in doing business in Indonesia.

 

[SHoggard]

Mickey, Roswen's idea sounds like a really really good solution for you.

 

[davita]

I suggest a read of today's Jakpost Business Post P 15.
It appears the S'pore Government are worried they will lose their financial status because of tax frauds. They plan to change the law to comply with OECD regs and make bank deposits more easily transparent.
I would think this will make some Indonesians squirm.

 

[SHoggard]

Quite right davita, but it's not a 'plan' - it's a done-&-dusted deal - they don't mess about when it comes to implementing new financial regulations!
Particularly when the Deputy Prime Minister & Minister of Finance, Tharman Shanmugaratnam, is former Chief Executive of Monetary Authority of Singapore, (th central bank and integrated financial regulator).... AND.... Chairman of the IMF'sl Monetary and Financial Committee.

I think somehow they must have read this thread!


Singapore joins effort against tax evasion

 

[joji gulapetis]

Quite right davita, but it's not a 'plan' - it's a done-&-dusted deal - they don't mess about when it comes to implementing new financial regulations!
Particularly when the Deputy Prime Minister & Minister of Finance, Tharman Shanmugaratnam, is former Chief Executive of Monetary Authority of Singapore, (th central bank and integrated financial regulator).... AND.... Chairman of the IMF'sl Monetary and Financial Committee.

I think somehow they must have read this thread!


Singapore joins effort against tax evasion

what a bunch of hypocrites the singapore govt is. they knowingly accept dirty money from indonesian corruption, and welcome and protect the corruptors and then paint themselves "snow white".

Singapore, with healthy surpluses, shares similar concerns about the need for greater transparency in the financial sector, particularly to ensure that what is parked at or flows through the banks here are not undeclared assets or ill-gotten funds. It has come up with a no-holds-barred four-pronged approach to combat financial fraud.

 

[Jack Rossi]

i think a HongKong structure would be able to do the same with much lower costs, isn't it?

 

[SHoggard]

Not really:
In an DTA situation, taxes must first be paid in Indonesia then when the funds are transferred offshore the tax you've paid in Indon is offset against whatever liability you'd have in Sg or HK or wherever.

Unless you're talking PROFITS of a few million USD annually there's no real point!

 

[Jack Rossi]

Not really:
In an DTA situation, taxes must first be paid in Indonesia then when the funds are transferred offshore the tax you've paid in Indon is offset against whatever liability you'd have in Sg or HK or wherever.

Unless you're talking PROFITS of a few million USD annually there's no real point!

100% true i was just saying that, if you want to do it, HK is cheaper.