Finance Minister Sri Mulyani Indrawati on Thursday shared the government’s planned tax reforms, which includes relaxing income tax for Indonesian and foreign expatriates as well as eliminating dividend tax in addition to reduced corporate income tax and a new digital economy tax.

Sri Mulyani said that the sweeping reforms, intended to boost investment and stoke growth in the the sluggish economy, would be part of the omnibus law that the government was currently finalizing.

Find out more about the Omnibus Law of Indonesia

Relaxation of ‘expatriate’ income tax

The planned reforms would change the Indonesian tax regime into a territorial tax system, so foreign residents and overseas Indonesians would no longer be taxed on income earned outside the country’s borders.

Foreigners who work in Indonesia for more than 183 days will be taxed on only the income they earn in Indonesia, while Indonesians who work abroad will be exempt from paying income tax in Indonesia.

“We will revise [the regulation] that expatriates need to pay tax on their incomes [earned both] in Indonesia and abroad,” Sri Mulyani told a business forum on Wednesday in Jakarta.

Under the prevailing 2008 Income Tax Law, every individual (including foreign nationals) who has resided in Indonesia for more than 183 days within a 12-month period, or has resided in Indonesia for a full tax year and intends to remain in Indonesia, is considered a domestic taxpayer. Otherwise, the individual is considered a foreign taxpayer and is not obliged to pay income tax in Indonesia.

Elimination of dividend tax, lower tax penalty

The government, Sri Mulyani continued, would also eliminate dividend tax for companies with an ownership stake of less than 25 percent.

“We will eliminate the dividend tax. If the [attendants] here are the real CEOs and owners, you should be happy,” she told the forum.

“Normally, we don’t tax companies with more than 25 percent share ownership, especially the dividends of companies outside the country. If you invest overseas, you will be taxed under the existing [regulation],” she said. “Now we want to make it equal, no [overseas dividends] will be taxed,” she said, adding that the details of the regulation were still under review.

Sri Mulyani said that the omnibus law would also revise tax penalties.

“We will also reduce the [interest] penalty from 2 percent per month [after the tax due date] by adjusting the penalty to the interest rate,” she said.

“Now it will be fair. The penalty will be as much as [market] interest rate, which is currently low. But if the underpayment is criminal and deliberate, there will be an additional 5 percent to 10 percent charge. Quite fair.”

Reduced corporate income tax, digital economy tax

“We will also gradually reduce the corporate income tax from 25 percent to 20 percent, as we are planning to impose [a corporate income tax of] 22 percent in 2021 and then 20 percent in 2023,” said Sri Mulyani. The plan included an additional 3 percent reduction on corporate income tax for companies that went public.

“If your company goes public […], then we will offer a three percent tax incentive for five years, [so] our stock exchange will develop further,” she said.

The government would also tax digital companies, including Netflix, Spotify and Amazon, said Sri Mulyani: “They have an economic presence in Indonesia, although they have no physical presence. We will ask that they [pay taxes] in Indonesia,” she said.

The new regulation on digital companies will use the Permanent Establishment (BUT) designation for digital multinationals that do not have physical presence or employees in Indonesia, but benefits financially from the Inodnesian market.