The Indonesian tax authority recently announced new procedures for a foreign person to claim a refund on over-withheld tax and revisions to tax treaty anti-abuse regulations. These developments seek to mitigate the unilateral stance undertaken by the Directorate General of Taxation (DGT) in late 2009 and adopt procedures which may be more acceptable by Indonesia’s treaty partners.

Withholding tax refund for foreign taxpayers
Under the new refund procedures, a foreign person is allowed to file a refund claim when the tax withheld is incorrect or excessive under an applicable tax treaty or if the income is not subject to withholding tax under Indonesian domestic tax law. The claim is filed through a tax withholding agent, which will act on behalf of the foreign claimant under a proxy. Supporting documentation must also be submitted at the time of a refund claim. The following are some of such documents:

• Certificate of tax residency; generally the specific Indonesian form is required to be certified by a foreign government but in lieu of the direct certification by the foreign government, the foreign government issued certificate under its own procedure may accompany the form
• Original documents evidencing tax withheld
• Statement from the foreign refund claimant that it has not claimed the withholding tax as either a tax credit or tax deduction in its home country

The refund claim would be rejected in the following circumstances:

• The foreign entity has a permanent establishment in Indonesia
• The withholding tax has not been remitted to the Indonesia tax authority by the withholding tax agent
• The tax in question has been either claimed as a tax credit or deduction by the income recipient or it was borne by the withholding tax agent
• The request is not in accordance with an applicable tax treaty or there is an indication of tax treaty abuse
• The tax is rightfully withheld in accordance with an applicable tax treaty

The DGT would inform its decision either to reject or accept the refund claim within three months of the submission of the refund application. The regulation does not specify the effective date for the refund procedures but it appears to be on a prospective basis.

Further details are available from the Ernst & Young Alert which can be accessed using the link below:

• International Tax Alert: Indonesia announces new procedures for withholding tax refund and revisions to tax treaty anti-abuse rules