New Zealand to lift almost all COVID-19 restrictions

New Zealand Prime Minister Jacinda Ardern announced Monday that New Zealand will lift almost all COVID-19 restrictions on Tuesday.

New Zealand has no active cases currently, and no one has tested positive in the past 17 days. Further, no one has been hospitalized for COVID-19 in 12 days. It has been 40 days since the last community transmission.

Ardern also noted that elimination of COVID-19 is a sustained effort. She stated:

We almost certainly will see cases here again, and I do want to say that again—we will almost certainly see cases here again. And that is not a sign that we have failed; it is a reality of this virus. But if, and when, that occurs, we have to make sure—and we are—that we are prepared.

Travelers entering New Zealand must quarantine for 14 days upon entry, and Ardern continues to encourage social distancing. Further, Arden encouraged businesses to post QR codes so citizens are able to track where they have been with New Zealand’s COVID Tracer app.

The New Zealand government is now turning their focus to jobs and economic recovery.

 

Denmark Post-COVID

Denmark is gradually gaining control over the novel Coronavirus. However, its consequences will have a huge impact on the country’s political economy in the coming years. Here are five issues to follow closely.

Support for the Government

The popularity of the current Social Democratic government has skyrocketed in recent months, with the Social Democrats now polling 15% above their nearest rivals. This is predictable – almost all governments have experienced a “rally round the flag” effect during the pandemic; even those with imperfect responses like the United Kingdom and Italy. Factor in Mette Frederiksen’s calm and forthright approach, so impressive as to be praised by opposition politicians, and the popularity is no surprise.

In normal times, the government would be tempted to call an election so they would no longer be reliant on the Social Liberals. This is not a practical option during a pandemic, so the question is how long the popularity will last. It may be more fragile than it looks – Commerce Minister Simon Kollerup found its limits the hard way when he had to track back on IKEA opening. There are also sundry examples abroad about the rallying effect waning gradually – George H W Bush lost his re-election even though he skilfully held a fragile coalition together in the Gulf War, as did Norway’s Jens Stoltenberg despite a dignified response to the Utøya tragedy. The Social Democrats are aware of this, and well proceed carefully regardless of their current popularity.

Budgetary Cuts

Like every country in the Western world, the current crisis is hugely expensive for Denmark. The pandemic is costing tens of billions of Kroner a month in extra health expenditure, lower revenues, and multiple compensation packages. Denmark is better positioned than most countries to deal with it; it had a budget surplus and one of the lowest debt/GDP ratios in the Western world.

This gives Denmark a bit of wiggle room, but the government will need to grapple with the same issue as every country. How long can the current support last, and how quickly can it be phased out. This is complicated by the fact that Denmark, as an export orientated economy is vulnerable to the performance of larger foreign countries. Even if Denmark stabilises, if large export countries like Germany, the US and the UK remain fragile, any recovery is likely to be slow.

The EU Issue won’t go Away

The EU has enjoyed relative tranquillity until recently, particularly compared to hapless British governments. Ironically, Brexit made the EU more popular, as the UK struggled to square the circle of the referendum; in the process the dysfunction of the EU was papered over by a united front.

This calm has now ended, as the Coronavirus has brought dormant issues back to the fore. Italy is (understandably) upset that its frantic pleas for help feel largely on deaf ears. Whilst it is not unreasonable for countries to prioritise their own citizens in a crisis, the lack of prompt help contrasts sharply to EU visions of continental solidarity.

This has soured Italian public sentiment, a dangerous point given the current discussions about mutualisation of debt. Italy, backed with varying degrees of enthusiasm by Spain and France, insist this well help the country out of its deep economic hole; Northern Europeans, led by the Dutch, insist they should not be given huge grants.

Denmark unsurprisingly backs the Dutch position. Although not part of the Eurozone, the single currency distinction is mattering less and less; with the UK now gone, the EU is dominated by Eurozone economies, and the two are becoming increasingly synonymous. This means that the issue is real and the key question is simple: is the EU a glorified free trade area, or is it much closer to a federal state? Brexit may be over, but the fundamental question the referendum posed, is still something Europeans can’t agree on.

Climate Change

Before the Coronavirus broke out, climate change dominated the political discourse. The Government set ambitious CO2 targets, and businesses were planning how to meet them. Not everyone agrees that climate change is an existential threat though. The older generation are particularly ambivalent, embodied by the Danish Queen, whose recent controversial comments were both poorly argued and a clear breach of protocol.

Nobody should expect Her Majesty to hit the barricades, but it is likely that other climate sceptics will form an informal alliance with Corona-hit businesses. A certain logic dictates that the easiest way out of a crisis is to tone down ambitious targets and allow a period of stability. Climate activists will argue that the virus doesn’t mean that climate change is any less pressing, and a delay of a couple of years could be critical. Climate entrepreneurs will argue that governments should embrace the zeitgeist of the crisis by supporting the establishment of climate friendly businesses. The Government has the unenviable task of squaring this circle.

Supply Chains

The crisis has forced every country to assess its supply chain and whether they can cope with an emergency. Denmark has muddled through the current crisis, although there have issues regarding protective equipment. It is likely though to reassess how much manufacturing is outsourced outside of Europe

Added to this issue, is the broader geopolitics, with the Trump administration seemingly keen on provoking a global outcry against China. Whether this is because of genuine concern or simply a smokescreen for the administration’s own failings, it risks creating a dynamic where globalisation is sharply reversed. Managing this process would be tricky for a small, open country which has performed well in recent decades.

KPMG Law in Denmark Adds Tax Partner from DLA Piper

KPMG Law Advokatfirma has hired a partner partner from DLA Piper, adding to the Danish firm’s roster of tax experts in its Copenhagen office.

Indonesia Issues Guidance for Online Licensing Service

The Indonesian Investment Coordinating Board (“BKPM”) on April 1, 2020, issued BKPM Regulation No. 1 of 2020 regarding Guidelines for the Implementation of Electronic Integrated Licensing Services (“BKPM Reg. 1/2020”).

The BKPM issued this regulation as part of its authority to provide guidance on business licensing services through the Online Single Submission System (the “OSS System”) under Article 94(1) of Government Regulation No. 24 of 2018 regarding Electronic Integrated Business Licensing Services (“GR 24/2018”) and Presidential Instruction No. 7 of 2019 regarding Acceleration of Ease of Doing Business.

With the issuance of BKPM Reg. 1/2020, the BKPM has set the norms, standards, procedures and criteria for the business licensing framework through the OSS System, as presently governed under BKPM Regulation No. 6 of 2018 regarding Guidelines and Procedures for Capital Investment Licensing and Facilities, and its amendment, BKPM Regulation No. 5 of 2019. BKPM Reg. 1/2020 does not revoke or amend any past BKPM regulations.

Scope of New Regulation

BKPM Reg. 1/2020 covers:

a. Services relating to:

i. access right to the OSS System;
ii. issuance of Business Registration Number (Nomor Induk Berusaha or “NIB”);
iii. business license;
iv. issuance of licenses related to business infrastructure;
v. representative offices; and
vi. other services relevant to business licensing.

b. Supervision of business licensing compliance.

Noteworthy Provisions

With 69 articles, BKPM Reg. 1/2020 provides technical guidance on the application for and the issuance of business licenses through the OSS System and a legal basis for new features implemented in OSS System version 1.1.

BKPM Reg. 1/2020 contains provisions applicable to all businesses, foreign and domestic, individuals or entities. However, we will limit our discussion here to provisions relevant to foreign investment. In that context, below are some of the more noteworthy provisions in BKPM Reg. 1/2020.

  • a. Minimum total investment value. In general, the BKPM requires a minimum total investment value of more than IDR 10 billion (excluding land and buildings) for each line of business per project location as determined by the five digits of its Indonesian Standard Business Classification (Klasifikasi Baku Lapangan Usaha Indonesia or “KBLI”) number.This means that if a foreign investment company, typically referred to as a PT PMA, intends to engage in the mining services business under KBLI No. 09900 and wholesale trading of office and industrial machinery, spare parts and paraphernalia, which falls under KBLI No. 46591, the total investment value of that company must be more than IDR 20 billion. Or if a PT PMA operates as a data center service provider under KBLI No. 63112, but does so in Jakarta, Surabaya, and Medan, the total investment value of that company must be more than IDR 30 billion because it has three separate project locations.

    This has long been an unwritten policy of the BKPM, albeit with inconsistent enforcement, and has now been made an express requirement under this new regulation.

    The BKPM provides the following exceptions for wholesale trading, food and beverages, and construction business activities:

1. For wholesale trading, the BKPM requires an additional minimum total investment value of more than IDR 10 billion if a PT PMA engages in wholesale trade activities under KBLI classification numbers whose first two digits are different. For example, if a PT PMA engages in wholesale trading of office and industrial machinery, spare parts and paraphernalia under KBLI No. 46591, and wholesale trading of new cars under KBLI No. 45101, the PT PMA will be required to have a minimum total investment value of more than IDR 20 billion because the first two digits of the KBLI numbers are different. In contrast, if a PT PMA engages in wholesale trading of bread products under KBLI No. 46332 and wholesale trading of confectionary items under KBLI No. 46331, the PT PMA will not be required to have a minimum total investment value of more than IDR 20 billion.

2. For food and beverage services that are open to foreign investment, the BKPM requires an additional minimum total investment value of more than IDR 10 billion only for project locations that are not in the same regency or city.

3. For construction services that are open to foreign investment, the BKPM requires an additional minimum total investment value of more than IDR 10 billion only if the business activity is not part of one activity. BKPM Reg. 1/2020 does not offer an explanation as to what constitutes one activity. However, in our discussions with a BKPM official, we were informed that this means an additional total investment value of more than IDR 10 billion would be required for each construction project/work. We note, however, that this view is far from official policy and is subject to change as the BKPM begins to put this regulation into actual practice.

Interestingly, the above total investment value requirement is being imposed on PT PMAs that obtained their license on or after the effective date of GR 24/2018, which was June 21, 2018, not after the effective date of BKPM Reg. 1/2020 itself. A possible explanation for this is that the BKPM intended to expressly impose this investment value requirement with the introduction of the OSS System by GR 24/2018, but the system was not yet capable of such implementation and now the BKPM is playing catch up with the rollout of the upgraded OSS System version 1.1.

  • b. NIB can be revoked. BKPM Regulation No. 7 of 2018 regarding Procedure and Guidance for the Supervision of Investment Implementation discusses the revocation of business licenses as one of the administrative actions the BKPM can take in its supervisory role, but it does not contemplate the revocation of NIBs.Under BKPM Reg. 1/2020, the BKPM can revoke a PT PMA’s NIB if it finds that the company has conducted business activities that are inconsistent with its NIB or has violated any provisions of prevailing laws and regulations, or if the PT PMA’s NIB is declared voided or invalid based on a binding court decision and/or the PT PMA requests the revocation of its NIB.
  • c. Main project and supporting project. Under OSS System version 1.1 and BKPM Reg. 1/2020, a PT PMA can now separate business activities into main project and supporting project. A business activity is considered to be a supporting project if it:1. falls under a different KBLI number than the main project;
    2. is intended only to support the main project;
    3. is not utilized to generate revenue; and
    4. is carried out in accordance with the applicable laws and regulations.

    A PT PMA is required to fulfill the commitments under both the main project and supporting project, although only the main project is used to determine the minimum total investment value.

  • d. Business licenses and commercial or operational licenses. BKPM Reg. 1/2020 addresses business licenses and commercial or operational licenses at length, particularly the technical details of fulfilling commitments related to the licenses. BKPM Reg. 1/2020 divides business licenses and commercial or operational licenses into four categories, depending on the commitments the PT PMA must fulfill to effectuate the relevant license. BKPM Reg. 1/2020 also changes the format of business licenses and commercial or operational licenses issued under BKPM Reg. 1/2020.BKPM Reg. 1/2020 also specifies measures to be taken by the BKPM in the event of incompliance by a PT PMA.

    e. BKPM to issue registration and licenses as well as NIB for representative offices. The BKPM now issues registration and licenses for all types of representative offices – foreign company representative office (KPPA), foreign trade company representative office (KP3A), foreign construction company representative office (BUJKA), foreign franchisor and foreign futures traders. A representative office is also required to obtain an NIB, in addition to the appropriate registration or licenses.

    Conclusion

    Through the issuance of BKPM Reg. 1/2020, it appears the BKPM is trying to minimize uncertainty in the licensing process. It remains to be seen, however, whether OSS System 1.1 itself and the enforcement in the field will raise more questions than BKPM Reg. 1/2020 can answer.

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user’s own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.

Thailand Postpones Effective Date of Data Privacy Law

Background

The Thai Cabinet, on May 19, 2020, approved a Royal Decree on Organizations and Businesses which shall be exempted from compliance with the Personal Data Protection Act B.E. 2562 (2019) (“Royal Decree“) to delay the enforcement date of the Personal Data Protection Act B.E. 2562 (2019) (“PDPA“). The Royal Decree has been published in the Royal Gazette on May 21, 2020 and will be effective from May 27,2020 to May 31, 2021. It provides exemptions to data controllers listed under the Royal Decree to certain chapters and section under the PDPA which include:

–          Chapter 2 (data controllers’ obligations relating to the use, collection, and disclosure of personal data, privacy notices, consent requirements, exemptions and cross-border of data privacy);

–          Chapter 3 (data subject rights, data protection officer and record of processing);

–          Chapter 5 (complaints and administrative punishments);

–          Chapter 6 (civil penalties and punitive damages);

–          Chapter 7 (criminal liabilities and administrative punishments); and

–          Section 95 (transitional matter).

Data controllers who shall obtain the exemptions under the Royal Decree are as follows:

1)      Government authorities;

2)      Foreign public authorities and international organizations;

3)      Foundations, associations, religious organizations, and non-profit organizations;

4)      Agricultural businesses;

5)      Industrial businesses;

6)      Commercial businesses;

7)      Medical and public health businesses;

8)      Energy, steam, water and waste disposal businesses, including their related business;

9)      Construction businesses;

10)  Repair and maintenance businesses;

11)  Transportation, logistic, and warehouse business;

12)  Tourist businesses;

13)  Communication, telecommunication, computer, and digital businesses;

14)  Financial, banking and insurance business;

15)  Real estate businesses;

16)  Professional businesses;

17)  Management and support services business;

18)  Scientific and technological, academic social welfare and artistic businesses;

19)  Educational businesses;

20)  Entertainment and recreational businesses;

21)  Security business; and

22)  Household and community enterprise businesses whose activities cannot be clearly classified.

If there is any question as to whether particular organizations or businesses are fallen under the above list, the Personal Data Protection Committee (PDPC) shall consider and render its final decision at its sole discretion.

The main reason as specified in the Royal Decree is to provide more time for the business operators, which shall be regarded as data controllers by the PDPA, to prepare themselves to be fully compliant with the PDPA. The Royal Decree further specifies that business operators, including private and government sectors, are not ready to be in compliance with the PDPA. This was mainly due to requests from the private sector filed with the government indicating problems with the economy and within their organizations, such as the economic impact and other restrictions due to Covid-19 situation.

The extension is not to be interpreted that the Government of Thailand is relaxing its readiness to implement the PDPA. An essential action by the Thai government is that the PDPC committee has been appointed and will start the process of formulating regulations and an enforcement culture surrounding the PDPA.  The list of the PDPC members approved by the Cabinet as announced by the government’s spokesperson on 19 May 2020 are as follows (note that this list is not official until published in The Government Gazette):

1)      The Chairman: Mr. Thienchai Na Nakorn

Professor of faculty of law, Sukhothai Thammatirat Open University

Former Constitution Drafting Committee (CDC)

Former senior member of various committees (e.g. Committee of Official Information Commission, Committee of National Institute of Educational Testing Service (NIETS) and secretary-general of Political Development Council).

2)      Senior committee (personal data protection): Mr. Nawanan Theera-Ampornpunt

Technocrat on health informatics;

Deputy dean on practitioner level of faculty of medicine, Ramathibodi Hospital.

3)      Senior committee (consumer protection): Pol.Lt.Col Thienrath Vichiensan

Senior committee of Official Information Commission;

Former chief of inspector of Prime Minister Office;

Director of the Official Information Commission.

4)      Senior Committee (Information and communication technology): Mr. Pansak Siriruchatapong

Former Vice Minister of Ministry of Digital Economy and Society;

Former director of National Electronics and Computer Technology Center (NECTEC)

5)      Senior committee (social science): Asst. Prof. Tossapon Tassanakunlapan

Professor and researcher of faculty of law, Chiang Mai University

6)      Senior committee (legal): Ms. Thitirat Thipsamritkul

Teacher of faculty of law, Thammasat University

7)      Senior committee (legal): Prof. Supalak Pinitpuvadol

Professor of faculty of law, Chulalongkorn University

8)      Senior committee (health): Prof. Prasit Watanapa

Dean of faculty of medicine, Siriraj Hospital

9)      Senior Committee (finance): Ms. Ruenvadee Suwanmongkol

Secretary-general of the Securities and Exchange Commission

10)  Senior Committee (Government Information Management): Mrs. Methinee Thepmanee

Former secretary-general, Office of the Civil Service Commission (OCSC);

Former permanent secretary, Ministry of Information and Communication Technology (ICT).

In addition to the abovementioned members, please note that the PDPA requires that the PDPC must appoint permanent secretary of the MDES as the vice-president of the PDPC, together with 5 additional board members which include (i) the permanent secretary of the Prime Minister Office, (ii) the secretary-general of the juridical council, (iii) the secretary-general of the office of consumer protection board, (iv) the director-general of the Rights and Liberties Protection Department, and (v) the attorney-general. Please note that as of the writing of this article 27 May 2020, the official list of the PDPC members are not yet published in The Government Gazette.

The above is for general information purposes only and should not be relied upon as legal advice.

Corporation Tax: Setting Up In The UK

The responsibility for correctly calculating the UK corporation tax liability falls on business directors, irrespective of whether they are based in the UK or overseas. 

Corporation tax is an amount that limited companies must pay to HMRC on all taxable trading profits. It could be referred to as income tax. It is also known as a CT600. It is set at a flat rate of 19% for most UK company’s. All limited companies and non-profit organisations that are trading in the UK must pay corporation tax on all forms of taxable income. 

“The tax credit system in the UK is far superior to the Australian system and is much more dare I say understanding and/or forgiving. For example, we recently reopened a client’s 2018 corporate tax return. They had commissioned a third party to produce an R&D report and that third party had charged them a percentage of their refund. We found a few errors in it so we revised up their claim and £25,000 is currently being returned to them. £25,000 to start any sort of business off in the UK is obviously phenomenal, that’s someone’s salary but the client was very happy. We charged her an hourly rate for that and didn’t charge a percentage. 

A UK company tax return is typically made up of a number of items: 

  • Form CT600 which must be signed by an authorised signatory; director, company secretary or authorised tax representative 
  • The Company accounts, known as statutory accounts. These are the accounts the company must prepare for its members under the Companies Act, including directors’ reports and, if applicable, auditor’s reports 
  • Separate computations and/or calculations showing how figures on the CT600 have produced 
  • Supplementary pages to the CT600 where required. 

Companies can also benefit from the Enterprise Investment Scheme (EIS) and/or  Seed Enterprise Investment Scheme (SEIS), which aims to boost investment in smallstart-upsby offering income tax relief on the shares bought through crowdfunding websites.If companies have this certificate then you can promote this on certain crowdfunding websites which makes you more attractive for local investment in the UK. Paul mentions, “there are websites such as Crowd Key, for example, where you take a look at the website, it’ll have different companies it’s funding, how long the funding run is going for and it will specify whether they are SEIS or EIS compliant. 

We can help to minimise corporate tax exposure and relieve the administrative burden of compliance with the current tax legislation. Please do  get in touch to discuss in more detail.

2020 Global Awards are now LIVE

We have presented these prestigious Leaders in Law – 2020 Global Awards to our selected winners in recognition of both their excellent service & expertise in their field.

We have undertaken detailed research using our independent team to enable us to create a shortlist of up to 5 potential winners in each category. The shortlisted parties have been carefully scrutinized. We focus on service range, service type, geographical location, geographical location, how the business operates and the expertise each expert or firm can offer to companies that either trade or may want to trade in their chosen jurisdiction.

An independent awards panel in each country then reviews the shortlisted experts/firms and then chooses the eventual winner in each category.

To view the Leaders in Law 2020 Global Awards and Winners, please view the “Leaders in Law 2020 Global Awards” publication on the AWARDS page.

Law Firms in SE Asia inching back to the office

The COVID-19 outbreak has severely disrupted normal life in Southeast Asia, forcing a big chunk of the region’s workforce to work from home, lawyers not exempted. But as the number of cases subsides in certain countries, and governments attempt to bring economies back on track, offices are beginning to reopen.

However, law firms say that given the potential for another spike in cases of this highly contagious disease, no reopening approach can be too cautious.

Patrick Ang, managing partner of Rajah & Tann Singapore, says that the firm has a slew of social distancing measures in place, which were enhanced during the circuit-breaker (Singapore’s term to describe its lockdown) period

.“We are maintaining a two-team segregation system, so that even if a lawyer needs to go to the office, he should only be in the office according to the schedule. In addition, we have temperature checks, health declarations, staggered hours, seating one metre apart, and a maximum number of people in the office at any one time,” Ang says.

Voicing similar thoughts is Indonesia’s Assegaf Hamzah & Partners (AHP) which plans on reopening the office around mid-June.Bono Daru Adji, AHP’s managing partner, says that the firm will be implementing social restriction measures in the office including “dividing our lawyers and business professionals into two segregated teams based on their current seating arrangement to ensure that there is a minimum of one-meter distance between each person.”

“We will also be limiting the number of people inside common areas. Further, a staff member will measure the body temperature of each person attending the office and those using public transport must bring a pair of spare clothes to change into before entering the office,” Adji adds.

Vietnam’s Automobile Industry and Opportunities for EU Investors

Vietnam’s automobile industry has grown significantly in recent years. The average growth rate of domestically assembled vehicles was approximately 10 percent per year in the 2015-2018 period. With major manufacturers such as Toyota, Honda, Ford, Nissan, and Kia in the Vietnamese market, the number of spare parts suppliers have also invested in the industry giving the sector a much-needed boost.

The motorbike is ubiquitous to Vietnam, but with the country’s fast-growing middle class, car ownership is steadily rising. This growth, however, is likely to be stunted in the short term due to the COVID-19 pandemic but expected to resume in the long run as Vietnam reopens its economy.

Vietnam’s Industrial Policy and Strategy Institute predicts 750,000 to 800,000 vehicles will be sold annually by 2025 up from 288,683 in 2018.

The automotive industry is a major contributor to the GDP of many countries in the world:

Auto industry GDP

As displayed above, with such a high share in Vietnam’s GDP, the automotive industry has always received special attention from the government. There are currently many large automotive assembly and production projects in Vietnam with the aim of not only meeting domestic demand but also tapping into the regional market.

Local conglomerate Vingroup officially inaugurated its Vinfast factory on June 14, 2019, making it the first domestic automobile factory in Vietnam. The factory is not only state-of-the-art but also in line with Industry 4.0 standards.

However, the Vietnamese automotive industry faces stiff competition. Part of the reason for this is the zero-tariff policy between ASEAN countries that Vietnam is part of. Thus imports are cheaper than domestically produced vehicles.

Although Vietnam is one of the four largest automobile manufacturers in Southeast Asia, it has one of the lowest average localization rate in this region (only around 10-15 percent, and is still far behind Thailand, Indonesia and Malaysia).

In addition, the local automobile industry has not been able to invest in core and high technology products such as engine production and transmission systems. Localized parts are mostly of low technology products such as tires, seats, mirrors, glasses, cable harnesses, batteries, and plastic products.

About 80-90 percent of the main raw materials used to manufacture components are still imported. As a result, companies are required to import approximately US$2 billion to US$3.5 billion in components and parts for vehicle manufacturing, assembly, and repair each year.

For this reason, domestic automobile production costs are 10-20 percent higher than in other countries in Southeast Asia. As a result, the cost of cars produced domestically are at a disadvantage compared to completely build units (CBUs) that are imported.

Increasing car ownership

Vietnam imported more than 109,000 CBUs in the first nine months of 2019 with a turnover of US$2.4 billion as per official statistics. Compared to the same period in 2018, imported cars increased by 267 percent in volume and 257 percent in value.

Cars with less than nine seats led imports – with about 75,848 vehicles valued at US$1.5 billion. This shows the increasing purchasing power and the changing demands of customers. In addition, the vehicles imported from the EU mainly come from Germany. As per the General Department of Vietnam Customs in 2018, 1,197 imported cars from Germany were registered in Vietnam. Germany’s ZF Friedrichshafen inaugurated its first plant producing chassis modules for cars in Haiphong in November 2019.

[Read more]

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.

Indonesia Targets Taxation of Tech Companies to Boost Economy

Indonesia is set to tax tech companies that may or may not have a legal presence in the country, as electronic transactions and the use of streaming services and online telecom apps have increased notably during the COVID-19 pandemic.

The legal basis for this measure is the recently enacted emergency bill Government Regulation in Lieu of Law No. 1 of 2020 regarding State Financial Policy and Financial System Stability for the Management of the Coronavirus or COVID-19 Pandemic and/or in Facing Threats to the National Economy and/or Financial System Stability (“GR 1/2020”).

Collection of VAT

Article 6 of GR 1/2020 states that the government will collect value-added tax (“VAT”) for intangible taxable goods and/or taxable services from outside Indonesia which are utilized in the country through electronic system trade activities, in accordance with Law No. 8 of 1983 regarding Value-Added Tax for Goods and Services and Sales Tax on Luxury Goods, as lastly amended by Law No. 42 of 2009. This VAT will be collected, deposited and reported by foreign traders, foreign service providers, foreign electronic trading system providers and/or domestic electronic trading system providers appointed by the Minister of Finance. These parties can appoint representatives domiciled in Indonesia to collect, deposit and report the VAT.

Procedures for the appointment of representatives and for the collection, deposit and reporting of the VAT are further regulated under Minister of Finance Regulation No. 48/PMK.03/2020 regarding Procedures for the Appointment of Collectors and for the Collection, Deposit and Reporting of VAT for the Use Inside the Customs Area of Intangible Taxable Goods and/or Taxable Services from Outside the Customs Area through Electronic System Trade Activities (“MOF Reg. 48/2020”).

Collection of Income Tax

The government will also collect income tax from foreign traders, foreign service providers and/or foreign electronic trading system providers that have a significant economic presence in Indonesia. The determination of “significant economic presence” is based on the consolidated gross turnover of the business group, sales in Indonesia, and number of active users on digital media in Indonesia. The threshold for these criteria are to be further regulated in a Minister of Finance regulation. A party that meets the threshold for a significant economic presence in Indonesia will be treated as a permanent establishment and subject to income tax.

If foreign traders, foreign service providers or foreign electronic trading system providers are determined to have a significant economic presence in Indonesia but cannot be treated as permanent establishments due to the application of agreements with other governments in the context of avoiding double taxation and the prevention of tax evasion, they will be subject to an electronic transaction tax.

Such income tax or electronic transaction tax is to be paid and reported by the foreign traders, foreign service providers and foreign electronic trading system providers. Similar to the VAT payment, parties are allowed to appoint representatives domiciled in Indonesia to fulfil their income tax or electronic transaction tax obligations.

The rate for the income tax or electronic transaction tax, its calculation, the procedures for tax payment and reporting, and the procedures for the appointment of representatives to fulfil tax obligations are to be further regulated by Minister of Finance regulation.

Sanctions

Foreign companies that do not comply with the above provisions are subject to administrative sanctions and could also have access to their apps blocked by the Minister of Communication and Informatics.

As the government implements large-scale social distancing restrictions and businesses apply work from home policies, the number of users of streaming services and online meeting apps has increased markedly.

The government has for years been aiming to collect taxes from foreign tech companies that enjoy significant revenue from Indonesia, but to no avail. It has been a struggle because of these companies’ lack of a physical presence in Indonesia, with prevailing tax regulations only covering companies domiciled in the country or those that can be considered permanent establishments.

This is a loophole in the era of the cross-border digital economy that GR 1/2020 tries to address. As noted by Indonesian Finance Minister Sri Mulyani Indrawati, under the new regulation a permanent establishment would no longer be defined solely on physical presence. Consequently, even if foreign tech companies do not open an office in Indonesia, they would still have tax obligations if they established a significant economic presence in the country.

For example, it has been reported that, pursuant to MOF Regulation 48/2020, the government will impose a 10% tax on subscription fees for streaming apps starting July 1, 2020.

Status of GR 1/2020 

It appears that these efforts to tax foreign tech companies will continue after the COVID-19 pandemic ends. Pursuant to Law No. 12 of 2011 regarding the Formulation of Laws and Regulations, as amended by Law No. 15 of 2019, an emergency bill must be submitted to the House of Representatives for approval. If it is approved by the House it will then become a law, and if it is rejected, the emergency bill will be revoked.

In this regard, the House has approved the adoption of GR 1/2020 as a law, resulting in the promulgation of Law No. 2 of 2020 regarding Stipulation of GR 1/2020 regarding State Financial Policy and Financial System Stability for the Management of the Coronavirus or COVID-19 Pandemic and/or in Facing Threats to the National Economy and/or Financial System Stability, This new law is effective as of May 18, 2020. (May 20, 2020)

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