Indonesian government obligates global tech titans to obey tax duty

The Indonesian government most recently issued a new tax law outlining the tax duty of overseas companies without a presence in the country

The Indonesian government has most recently issued a new tax law outlining the tax duty of overseas companies without official presence in the country. Accordingly, the companies have to pay 10 per cent value-added tax (VAT) from July 7 when the government listed Netflix and Alphabet. The decision applies to all corporates, including Facebook, Google, and Netflix.

US-based Microsoft and China-based Alibaba Cloud are the two latest names on the new list of 36 companies required to fulfil their tax duties, including GitHub, UCWeb Singapore, To The New, Coda Payments, and Nexmo Inc., following newswire Reuters.

The nation’s tax authority stated that businesses named on the new list will be subject to the VAT from November 1. Pointedly, non-resident foreign firms have earned at least Rp600 million ($41,000) from services and products serving more than 12,000 users in Indonesia. The new law also allows the government to levy tax on goods and transactions through e-commerce platforms, putting Shopee and Lazada into the sight of the Indonesian government.

Similar to Vietnam, Indonesia also faces a lot of troubles in collecting taxes from tech firms because they have no official presence in the market, creating a big gap for their tax avoidance.

On the other hand, US tech companies such as Alphabet (the parent company of Google) and Microsoft have been difficult to be caught with taxes over the years.

In Vietnam, the tech giants mainly pay foreign contractor withholding taxes through their authorised partners in the country. However, with an abundance of transactions between overseas companies and users in Vietnam, contractor withholding taxes are tiny compared to their actual income from the market.

As a result, the Vietnamese government last year issued the Law on Tax Administration. Specifically, Clause 27 of the law allows banks to deduct taxes for cross-border service suppliers on their earnings from Vietnam. That means banks are allowed to take taxes out of the bank accounts of companies which have been making transactions with overseas services suppliers, especially Facebook and Google.

In addition to local authorised partners, the two tech titans have dozens of thousands of advertisers who are mainly small- and medium-sized enterprises and individual online vendors. However, only a few dozens of authorised partners have been paying foreign contractor withholding tax for Facebook and Google at the rate of 5 per cent.

The source also revealed that the giants sign about 10 contracts annually with authorised companies with the value of VND200-300 million ($8,700-13,000) each. Calculated with the 5 per cent foreign contractor withholding tax, these firms pay about $4,350-6,500 a year in total.