5 minute read 11 Apr 2022

Tax Alert regarding Government Regulation No 9/ 2022 (GR-9) on the update of taxation on construction services. GR-9 is a second amendment of GR No 51/2008 (GR-51), which was previously amended by GR No 40/2009 (GR-40). GR-9 is effective on 21 February 2022.

Update on Construction

Update on construction service regulations

Benjamin Koesmoeljana
By Benjamin Koesmoeljana

Partner, International Tax and Transaction Services, PT Ekasurya Yasa Consult

Passionate in serving and delivering value to clients by bringing the best that our global organization can offer. Builder of strong relationship and mentoring others to achieve their full potential.

5 minute read 11 Apr 2022
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On 21 February 2022, the Indonesian Government issued Government Regulation No 9/ 2022 (GR-9) on the taxation of construction services. GR-9 is a second amendment of GR No 51/2008 (GR-51), which was previously amended by GR No 40/2009 (GR-40).  GR-9 is issued to provide certainty of law, and for the construction services climate to remain conducive by simplifying compliance for taxpayers who are deriving income from construction services. GR-9 is effective on the date of issue.

Construction income remains subject to final tax as a percentage of revenue, rather than profits, as would apply under the normal income tax regime.  GR-9 changes the applicable rates of final tax as well as providing details on what is needed to qualify for different rates of tax.

Key aspects of GR-9 are:

  • GR-9 simplifies some of the definitions on the terms regulated by GR-51 to be as follows:

    • Construction Service is construction consulting service and/ or construction work.
    • Service User is an individual or a corporation, including a permanent establishment (“PE” ), as an owner or an employer that uses Construction Service.
    • Service Provider is an individual or a corporation, including a PE, as a Construction Service provider.
    • Construction Service Contract Value is a value stated or supposed to be stated on the whole Construction Service contract. 

  • GR-9 changes the Construction Service classifications to be as follows:

    • General construction consulting service business;
    • Specialist construction consulting service business;
    • General construction work business;
    • Specialist construction work business; and
    • Integrated construction work business.

    The above classifications shall be implemented in accordance with the prevailing laws. 

  • Construction Service business is carried out through activities to provide:

    • Construction consulting service, which covers the whole service or part of activities covering assessment, planning, design, supervisory and construction management of a building;
    • Construction work, which covers activities covering building, operating, maintenance, demolition, and re-building of a building;
    • Integrated construction work, which covers combination of construction work and construction consulting service, including integration of service functions in the planning, procurement, and construction integration model, as well as planning and construction integration model. 

  • GR-9 changes the income tax rates for Construction Service to be as follows:

    a)          1.75% for construction work carried out by a Service Provider that has a small-scale company certificate, or work competency certificate in the case of individuals;

    b)          4% for construction work carried out by a Service Provider that does not have company certificate, or no work competency certificate in the case of individuals;

    c)           2.65% for construction work carried out by a Service Provider other than Service Providers mentioned in (a) and (b) above;

    d)          2.65% for integrated construction work carried out by a Service Provider that has a company certificate;

    e)          4% for integrated construction work carried out by a Service Provider that does not have a company certificate;

    f)           3.5% for construction consulting service carried out by a Service Provider that has a company certificate, or work competency certificate in the case of individuals;

    g)          6% for construction consulting service carried out by a Service Provider that does not have company certificate, or no work competency certificate in the case of individuals.

     

    Final income tax imposition for a Service Provider that does not have certificates as stated in (b), (e) and (g) above, does not negate the obligation to have a certificate in accordance with the prevailing laws in the Construction Service sector. If the Service Provider is a PE, the above final income tax rates do not include the Branch Profit Tax.

    What is meant by company certificate is a certificate issued by:

    • a certification institute formed by an industry association that is accredited by the Ministry of Public Works and Public Housing, and the certificate is registered with the construction service development agency; or
    • a certifying institute accredited by the Ministry of Mines and Energy Resources (“MMER”); or
    • MMER itself.

    In the case of individuals, work competency certificate is a certificate acknowledging construction workforce competency issued by a professional certification body, and the certificate is registered with the construction service development agency.

  • Under GR-9, income tax paid or payable overseas on foreign income derived by the Service Provider overseas can no longer be credited to the domestic tax payable.

  • The new Article 10D of GR-9 regulates that the final income tax treatment for Construction Service shall be evaluated within three years from the enactment of GR-9.

    The evaluation shall be conducted by the Minister of Finance, and based on this evaluation, it is possible that in the future the Construction Service will be subject to normal income tax under Article 17 of the Income Tax Law.

Transitional provisions

 For contract that has been signed before the enactment of GR-9:

  • For the payment of contract, or part of the contract, before the enactment of GR-9, the income tax treatment shall be carried out based on GR-51 as amended by GR-40;
  • For payment of contract, or part of the contract, after GR-9 has been enacted, the income tax treatment shall be carried out based on GR-9.

At the time GR-9 is enacted, all of the implementing regulations of GR-51 as amended by GR-40 remain in force provided they do not contravene the provisions of GR-9. 

Summary

Tax Alert regarding Government Regulation No 9/ 2022 (GR-9) on the update of taxation on construction services. GR-9 is a second amendment of GR No 51/2008 (GR-51), which was previously amended by GR No 40/2009 (GR-40). GR-9 is effective on 21 February 2022.

About this article

Benjamin Koesmoeljana
By Benjamin Koesmoeljana

Partner, International Tax and Transaction Services, PT Ekasurya Yasa Consult

Passionate in serving and delivering value to clients by bringing the best that our global organization can offer. Builder of strong relationship and mentoring others to achieve their full potential.

Related topics Tax
Upvote