Regulation Update

The Government Issues Technical Regulations of Super Deductible Tax for R&D Activities of 300%

The government has released technical regulations of Super Deductible Tax for companies conducting Research and Development (R&D) activities through the Minister of Finance Regulation (PMK) number 153/PMK.010/2020, which is a derivative of Government Regulation (PP) number 49 the Year 2019. This regulation also complements the provisions on Super Deductible Tax that have been issued previously for vocational activities. 

With the Super Deductible Tax, companies can reduce costs incurred for R&D activities, either those carried out alone or in collaboration with research institutes and universities, to gross income up to 300%. 
 
The deduction consists of a reduction of 100% of the total costs incurred for R&D activities as well as an additional reduction of 200% of the accumulated costs incurred during the five tax years, which includes: 

1. An additional 50% if the R&D produces an intellectual property such as patents or Plant Variety Protection (PVP) Rights registered domestically 
2. An additional 25% if the patent and PVP are registered overseas
3. An additional 100% if the R&D reaches the commercialization stage 
4. An additional 25% if the patented research is commercialized through cooperation with government R&D institutes or universities in Indonesia. 

Additional deductible costs apply only to those relating to the cost of assets other than land and buildings, costs of goods and materials, fees paid to employees, researchers and/or engineers employed, fees for patent and PVP management, and fees paid to higher education institutions in Indonesia or R&D institutions. 
 
Maximum 40% of Taxable Income 

The amount of gross income reduction is calculated by multiplying the accumulated percentage of additional cost reduction by the total costs incurred for five years, since the registration of intellectual property rights or since the commercialization stage, depending on which stage was first carried out. 
 
However, the government limits the amount of fees that can be deducted, which is a maximum of 40% of taxable income (PKP) per year. This means that if it turns out that the cost calculation results are more than 40% of the PKP, the excess cannot be used as a deduction from gross income. 

This facility will be provided to taxpayers who meet the following criteria: 

1. Conduct R&D activities to obtain new invention 
2. Use an original concept or hypothesis 
3. Have uncertain final result of the study  
4. Have plan and budget of research activities  
5. Have the aim of creating something that can be transferred freely or traded on the market 

For Specific Research 

However, this facility is only provided for research activities that suit specific focuses and themes. In this regulation, the government has determined 100 research themes that are divided into 11 focuses, as described in its appendix. (see table)

Exception 
 
Apart from explaining the types of costs that can be an additional gross income deduction, the government also limits certain activities that cannot be claimed in this facility.  Some of these are those related to the production stage for commercial purposes, which include: 
 
1. Initial production costs 
2. Quality control 
3. Damage repair 
4. Quality improvement 
5. Improved capabilities due to customer demands 
6. Periodic design changes of existing products 
7. Routine design of equipment and molds  
8. Construction engineering and equipment 
9. Marketing research 

Procedure for Facility Application 

To obtain this facility, taxpayers can submit an application accompanied by a research proposal and a tax clearance certificate (Surat Keterangan Fiskal), through the Online Single Submission (OSS) system. If the OSS system is constrained, the application can be submitted through the Ministry of Research and Technology (Kemenristek).  
 
The submitted proposal contains at least several information such as the number and the date of the R&D activity proposal, the name and the Taxpayer Identification Number (NPWP), the focus, the theme and the topic of the R&D activity, the target activity achievement, the estimated time for activities, the estimated number of employees involved, and the estimated costs and the year of expenditure. Also, if the R&D activity involves other parties, the proposal must also include the NPWP of the collaborating partners. 
 
Upon the application and proposal submitted, the OSS system or Kemenristek will conduct a research to see the suitability of the theme submitted. If the application is accepted, taxpayers will be notified via OSS or through a written letter copied to the Directorate General of Taxes (DGT). 

After receiving a notification, taxpayers must submit a report on R&D costs every fiscal year to the DGT and the Ministry of Research and Technology through OSS. The report should be submitted no later than at the same time as the submission of the Annual Income Tax Return (SPT) and completed with evidence of having registered intellectual property rights or entered the commercialization stage. 
 
The report will then be examined by the government to ensure that the R&D activities carried out are in line with the proposal. If it is appropriate, new taxpayers can take advantage of the facility, namely to reduce the costs incurred against the gross income. 
 
For the use of this incentive, taxpayers must submit a report on the calculation of annual gross income reduction to the DGT through OSS, at a maximum at the same time as the submission of the Annual Corporate Income Tax Return. 
 
If the report is not submitted or the report does not comply with the provisions, the DGT will issue a warning letter instructing to submit the report no later than 14 days after the letter is delivered.