On February 2nd, 2023, Taxprime, in partnership with TheTitan.asia, hosted the Indonesia Tax Outlook 2023 Panel Discussion, providing insights on the new fiscal landscapes for entrepreneurs to keep in mind. The discussion began by examining global landscapes, such as the implementation of Single Identity Numbers (SIN) in countries such as the US, Singapore, India, and Sweden. Indonesia will also adopt this system, integrating its Resident Identification Number (NIK) and Tax Identification Number (NPWP) as a platform that integrates personal information, income level, and tax information. According to UU Harmonisasi Peraturan Perpajakan, this integration is set to finish by the start of 2024.

Globally, there is a movement towards financial transparency, with the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes pushing for Automated Exchange of Information (AEoI) between countries. This change could greatly impact high-wealth individuals, as the Directorate General of Taxes recently announced that 1,119 Indonesians will be subject to a 35% income tax, a new tax layer established by the UU Harmonisasi Peraturan Perpajakan. Despite this, some individuals in the highest income tax bracket have used various methods to evade taxes since the past.

“From the Panama, Pandora and Paradise Papers releases combined, there are 4.000 Indonesians with 42.000 offshore entities in tax havens. This would mean that on average, each of these individuals would have 10-11 entities off the shore.” Senior Advisor of TheTitan Asia Muhamad Fajar Putranto said.

Although the fiscal law does not directly oppose the establishment of offshore structures, these practices could pose threats to assets and business processes in the era of increasing transparency and data exchange. Business and Legal Advisor of TheTitan.asia, Nadia Ambar Shofiya, notes that “the world is moving towards transparency, with SIN making it easier to integrate income and tax information and AEoI allowing for data exchange between government, financial, and private institutions across jurisdictions. These efforts aim to combat tax avoidance, evasion, and terrorist financing.”

Indonesia is also contributing to these efforts. Maisya Sabhira, Business and Legal Advisor of TheTitan.asia, adds that “the Indonesian Minister of Finance stated the two pillars of international taxation: taxation in the digital sector and global minimum taxation. This affects taxpayers transferring assets outside of Indonesia, as data on taxpayer assets, beneficial owners, and income streams are more accessible and accurate for the authority.”

From this point of view, there are several approaches that the high-wealth taxpayers could use in planning their taxes while complying with the multi-jurisdiction fiscal regulations. When it comes to tax planning, Suharno, Senior Advisor of TheTitan.asia, emphasizes the importance of first considering the business purpose and thoroughly examining the Functions, Assets, and Risks (FAR) of a company before planning taxes and mapping out an entity structure. This will help to identify potential risks in business processes.

Given Indonesia’s abundant natural resources, Industrial Downstreaming is one of the priorities of the Government’s plan to strengthen the economy as stated by President Joko Widodo during the 2023 Indonesia Economy Outlook. The nation comes with abundant natural and human resources, and vast opportunities that investors shall not miss. With the renewed fiscal regulations, Indonesia also offers several benefits for high-wealth individuals, including a corporate income tax rate of 22% for 2023, chance to get tax-free dividends, and tax deductions and facilities. 

However, with 95% of businesses in Indonesia owned by individuals and families, Fajar highlights that tax savings should not be the primary focus. Instead, finding the purpose of the business and making the structure align with that purpose should come first, while tax implications follow as a result. This approach can help mitigate compliance risks and avoid potential burdens for both the business and the owner’s family.

For instance, if a billionaire with multiple business structures and valuable assets were to pass away, their children could potentially be overwhelmed by the tax burdens of these assets. “Imagine a billionaire’s child applying for a statement of impoverishment,” Fajar said. This is where the importance of a family office comes into play. A family office provides guidance to private entities in structuring their assets to support both their families and businesses for the long term.

The family office offers comprehensive services, including governance planning, succession planning, and more, backed by a team of experts in various fields such as business, legal, tax, internal control, audit, and administration. They ensure that private entities comply with fiscal regulations and help ensure the sustainability of the business even after the founder’s passing.

As former President of the United States, Benjamin Franklin, once said, “nothing can be said to be certain… except death and taxes.” A family office can help private entities navigate the complexities of both death and taxes to ensure their families and businesses remain secure and sustainable for the long term.

Find out more about family office solutions in thetitan.asia/services/