In brief

On 5 October, the Indonesian House of Representatives (DPR) approved job creation law (RUU Cipta Kerja) - commonly known as the "Omnibus Law", with the aim of creating more jobs by increasing the ease of doing business. One of the aspects addressed in the Omnibus Law is tax. Initially, the Government proposed two separate Omnibus Laws, the job creation Omnibus Law focusing on the ease of doing business, and a taxation Omnibus Law. However, a part of what was to be in the taxation Omnibus Law is already included in Government Regulation in Lieu of Law (Peraturan Pemerintah Pengganti Undang-Undang) No. 1 of 2020 ("Perppu 1/2020"), which has been passed as Law No. 2 of 2020, and the Government and the parliament agreed to include the content of the taxation Omnibus Law that had not been included in Perppu1/2020 in the Omnibus Law.

The changes to tax law under the Omnibus Law consist of changes in the Income Tax Law, the VAT Law and the General Tax Provisions and Procedures Law ("KUP Law").


  1. Changes in the Income Tax Law
  2. Changes in the VAT Law
  3. Changes in KUP Law
  4. Actions to Consider

Changes in the Income Tax Law

Changes in the Income Tax Law include:

  • Provision on the tax treatment for individual taxpayers, i.e.:
    • An Indonesian taxpayer who resides outside Indonesia for more than 183 days will be treated as a non-resident taxpayer with several conditions.
    • Individual non-resident taxpayers with certain special skills will be granted an exemption from the worldwide income rule for four years from when they arrive in Indonesia. During that period the income that is subject to tax in Indonesia will be limited to the income that originates in Indonesia. 
  • Tax exemption for dividends received by resident taxpayer that originate from both domestic and foreign sources that are re-invested in Indonesia.
  • Possibility (with the issuance of a government regulation) to reduce the withholding tax rate on interest paid to non-resident taxpayers (currently 20%).

Changes in the VAT Law

Changes in VAT Law include:

  • Exclusion of delivery on consignment from the definition of "deliveries" that are subject to VAT.
  • Exclusion of delivery of coal from the definition of delivery of natural resources that is not subject to VAT.
  • Exclusion of delivery of goods for the purpose of capital injection, as long as the party who deliver the goods and the recipient of the goods are taxable entrepreneur.
  • Relaxation in claiming input tax credit, i.e.,:
    • Entrepreneurs that have not started their commercial operation will be allowed to claim their input tax credit (previously they could only claim input tax credit related to capital goods). However, similar to the current provision, if a taxpayer fails to commence its commercial operation within three years after the input VAT is claimed, the taxpayer must return the amount of VAT claimed to the government. For certain industries, the timeline to start the commercial operation may be extended by Minister of Finance regulation.
    • Entrepreneurs will be allowed to claim input tax credit before they are registered as taxable entrepreneurs (a maximum 80% of the relevant output VAT).
    • If input tax credit that has not been reported in a tax return is found during a tax audit, entrepreneurs will be allowed to claim that input tax credit.
    • Entrepreneurs will be allowed to claim input tax credit that is collected through a tax assessment letter, as long as the amount in the tax assessment letter has been paid and the entrepreneur has not filed an objection or any other legal proceeding against the tax assessment letter.
  • Inclusion of some provisions on the issuance of tax invoices that were previously stated in an implementing regulation.

Changes in KUP Law

Changes in KUP Law include:

  • Changes in the provision on the interest sanction on late payment of tax. In general the provisions on interest penalties are:
    • The penalty is no longer 2% per month, but it will follow the reference interest rate determined by the Minister of Finance, which is likely to be much less than 2% per month.
    • The penalty is capped at a maximum of 24 months, for both a voluntary payment by a taxpayer and payments based on a tax assessment letter.
    • The penalty for late issuance or failure to issue a tax invoice, which was previously imposed at 2% of the VAT base, is reduced to 1% of the VAT base.
  • Changes in the provision related to interest compensation. In general the provisions of the interest penalty are:
    • The interest compensation is no longer 2% per month, but it will follow the reference interest rate determined by the Minister of Finance, which is likely to be much less than 2% per month.
    • The interest compensation is capped at a maximum of 24 months.
    • In a case of a tax objection, appeal or civil review that is granted in a favor of a taxpayer, the interest compensation can be granted if the result of the favorable decision shows a tax overpayment. This provision basically is the same as the current provision, but the current provision was regulated in a government regulation and not in a law.

Actions to Consider

Some of the tax provisions in the Omnibus Law may need an implementing regulation to be implemented. Further consultation may be required to fully understand the impact of this Omnibus Law on your business.