Income Tax on Construction Services

In an effort to drive increased collection of income taxes and increasing levels of compliance by tax payers the government has issued Government Regulation No. 51 of 2008. The purpose of the Regulation is to not only facilitate the ease of collection of income taxes it is also to reduce the administrative burdens on tax payers.

The legal framework for the Regulation is Article 4(2) of Law No. 7 of 1983 on Income Tax as amended finally by Law No. 17 of 2000. The Regulation defines construction services as all consultation, planning, implementation (including work), and supervision.

The Regulation sets out the income tax rates for implementation of construction at 2% for small-scale enterprises and 4% for those classified as construction businesses. For those companies that do not fall within either of these categories then the rate is 3%.

For planning and supervision construction services the tax rates for those classified as businesses and non-businesses are 4% and 6%, respectively.

For construction services contracts signed before 1 January 2008:

-                 The period of the contract up to 31 December 2008 will be taxed according to Government Regulation No. 140 of 2000;

-                 The period of the contract after 31 December 2008 will be taxed at the rates noted in this Regulation.

The Regulation was confirmed on 20 July 2008. It was enacted on 23 July 2008. However, the provisions of the Regulation apply retroactively to 1 January 2008.