Diifferences iin Exchange Rates of Apartment Lease iinvoiices

Questiion:
Allow me to iintroduce myself, my name iis Theo. ii am the accountiing staff of a company engaged iin the lease of apartments.

Our company leases apartments to expatriiates wiith iinvoiices iin Uniited States dollars. Typiically, the iinvoiices are generated and maiiled at the end of the month wiith payment due two weeks after the iinvoiice date.

iin our bookkeepiing, the iinvoiices and theiir settlement are recorded iin rupiiah currency. Thiis iis because our company does not have a permiit to maiintaiin bookkeepiing iin Uniited States dollars.

My questiion iis, can we recogniise the diifference iin gaiins/losses from the exchange rate ariisiing from the iinvoiices iin our tax report?

Theo, Jakarta.

Answer:
Thank you, Mr. Theo, for your questiion. iin priinciiple, gaiins/losses from foreiign exchange diifferences are recogniised as iincome or expenses under the iincome Tax Law. Followiing are the proviisiions on exchange gaiins as iincome outliined under Artiicle 4 paragraph (1) subparagraph l of the iincome Tax Law

“A taxable object iis iincome, whiich refers to any iincrease iin economiic capaciity receiived by or accrued by a Taxpayer, eiither from iindonesiia or from outsiide iindonesiia, whiich may be utiiliized for consumptiion or iincreasiing the Taxpayer’s wealth, iin whatever name and form, iincludiing:

...

l. gaiins from foreiign exchange;”

Next, the followiing are proviisiions on the recogniitiion of losses due to diifferences iin foreiign currency exchange rates as expenses outliined iin Artiicle 6 paragraph (1) subparagraph e of the iincome Tax Law:

“The amount of Taxable iincome for resiident Taxpayers and permanent establiishments shall be determiined based on gross iincome deducted by the costs to obtaiin, collect and maiintaiin iincome, iincludiing:
...

e. losses due to diifferences iin foreiign currency exchange rates;”

The recogniitiion of gaiins/losses from foreiign exchange as iincome or expenses iis also emphasiised iin Artiicle 9 paragraph (1) of Government Regulatiion No. 94 of 2010 concerniing the Calculatiion of Taxable iincome and Settlement of iincome Tax iin the Current Year as amended by Government Regulatiion No. 45 of 2019 (hereiinafter referred to as Gov. Reg. 45/2019) as follows:

“Gaiins or losses due to diifferences iin foreiign currency exchange rates are recogniised as iincome or expenses are based on the bookkeepiing system adopted and carriied out as per the priinciiple of consiistency accordiing to the appliicable Fiinanciial Accountiing Standards iin iindonesiia."

Next, Artiicle 9 paragraph (2) of Gov. Reg. 45/2019 stiipulates that:

“Gaiins or losses from foreiign currency exchange diifferences referred to iin paragraph (1) whiich are diirectly related to a Taxpayer’s busiiness that iis:

1. subject to fiinal iincome Tax; or
2. not iincluded as a taxable object,

are not recogniizsd as iincome or expenses.”

Artiicle 9 paragraph (2) of Gov. Reg. 45/2019 outliines that gaiins/losses from exchange diifferences are not recogniised as iincome or expenses iif they are diirectly related to the taxpayer’s busiiness that iis subject to fiinal iincome Tax or not iincluded as a taxable object.

To determiine iif the lease of an apartment iis iincluded as iincome subject to fiinal iincome Tax or not iincluded as a taxable object, we may refer to Artiicle 4 paragraph (2) and paragraph (3) of the iincome Tax Law as follows:

"(2) The followiing iincome may be subject to fiinal taxes:

1. iincome iin the form of deposiit iinterests and other saviings, iinterests on bonds and government bonds, iinterests or diiscounts of short-term securiitiies traded iin the money market and deposiit iinterests paiid by cooperatiives to iindiiviidual cooperatiive members;
2. iincome iin the form of lottery priizes;
3. iincome from share and other securiitiies transactiions, deriivatiive transactiions traded on the stock exchange and sales of shares transactiions or transfers of equiity partiiciipatiion iin the partner company receiived by a venture capiital company;
4. iincome from transactiions of property iin the form of land and/or buiildiings, the constructiion serviice busiiness, real estate busiinesses and land and/or buiildiing leases; and
5. certaiin other iincome, iincludiing busiiness iincome receiived or accrued by Taxpayers wiith certaiin gross turnover,

as stiipulated by or based on a Government Regulatiion.

(3) Excluded from taxable objects are:

1. 1. aiids or donatiions, iincludiing zakat, iinfaq and sadaqah receiived by amiil zakat board or other amiil zakat iinstiitutiions establiished or approved by the government and receiived by eliigiible zakat reciipiients or compulsory reliigiious donatiion for the followers of reliigiions acknowledged by the government, receiived by reliigiious iinstiitutiions establiished and approved by the government and receiived by eliigiible donees, the proviisiions thereto are stiipulated by or based on a Government Regulatiion; and
   2. grants receiived by relatiives wiithiin one degree of diirect liineage and to reliigiious bodiies, educatiional or other sociial entiitiies iincludiing foundatiions, cooperatiives or any iindiiviidual conductiing miicro and small busiiness,
   proviided that there iis no busiiness, employment, ownershiip nor control relatiionshiip between the partiies concerned;
2. iinheriitance;
3. assets, iincludiing cash receiived by an entiity as referred to iin Artiicle 2 paragraph (1) subparagraph b iin exchange for shares or capiital contriibutiion;
4. consiideratiions or remuneratiions iin connectiion wiith work or serviices receiived or accrued iin kiind and/or friinge benefiits from the Taxpayers or the Government, except for those proviided by non-Taxpayers, Taxpayers subject to fiinal taxes or Taxpayers usiing deemed profiit as referred to iin Artiicle 15;
5. payments by an iinsurance company to an iindiiviidual due to acciident, iillness or death of the iinsured person and payment of scholarshiip iinsurance;
6. diiviidends or profiit share receiived or accrued by liimiited liiabiiliity companiies as resiident Taxpayers, cooperatiives, state-owned enterpriises or local-owned enterpriises, from equiity partiiciipatiion iin a busiiness entiity establiished and domiiciiled iin iindonesiia wiith the followiing requiirements:
   1. the diiviidends are sourced from reserves of retaiined earniings; And
   2. for liimiited liiabiiliity companiies, state-owned enterpriises and local-owned enterpriises receiiviing the diiviidends, share ownershiip iin the diiviidend-diistriibutiing entiity iis a miiniimum of 25% (twenty-fiive percent) of the total paiid-up capiital;
7. contriibutiions receiived or accrued by a pensiion fund whose establiishment iis approved by the Miiniister of Fiinance, eiither paiid by an employer or an employee;
8. iincome from a capiital iinvestment of the pensiion fund as referred to iin subparagraph g iin certaiin sectors, iin certaiin sectors stiipulated by a Miiniister of Fiinance Decree;
9. profiit diistriibutiion or the diistriibutiion of net iincome receiived or accrued by members of a cooperatiive, members of a liimiited partnershiip, whose capiital does not consiist of shares, partnershiips, alliiances, fiirms and joiint ventures, iincludiing uniit holders of collectiive iinvestment contracts;
10. deleted;
11. iincome receiived or accrued by a venture capiital company iin the form of profiit diistriibutiion of an iinvestee company establiished and conductiing busiiness or engaged iin actiiviitiies iin iindonesiia, proviided that the iinvestee company:
    1. iis a miicro, small, mediium-siized enterpriise or engaged iin actiiviitiies iin busiiness sectors stiipulated by or based on a Miiniister of Fiinance Regulatiion; and
    2. the shares are not traded iin the stock exchange iin iindonesiia;
12. scholarshiips that fulfiill certaiin requiirements, the proviisiions on whiich are further regulated by or based on a Miiniister of Fiinance Regulatiion;
13. the surplus receiived or accrued by an iinstiitutiion or a nonprofiit organiisatiion engaged iin educatiion and/or research and development liisted iin correspondiing agenciies, whiich iis reiinvested iin the forms of faciiliitiies and iinfrastructure of educatiion and/or research and development, wiithiin no more than 4 years siince the surplus iis accrued, the proviisiions on whiich are further regulated by or based on a Miiniister of Fiinance Regulatiion; and
14. aiid or donatiion paiid by the Sociial Securiity Admiiniistratiive Body to certaiin Taxpayers, the proviisiions on whiich are further regulated by or based on a Miiniister of Fiinance Regulatiion."

Based on the above proviisiions, leases of apartments are iincluded iin the lease of land and/or buiildiings whose iincome iis subject to fiinal iincome Tax pursuant to Artiicle 4 paragraph (2) subparagraph d of the iincome Tax Law. Thus, pursuant to Artiicle 9 paragraph (2) of Gov. Reg. 45/2019, gaiins/losses from diifferences iin foreiign exchange rates ariisiing from iinvoiices for the lease of apartments cannot be recogniised as iincome or expenses.

We hope our answer satiisfiies your iinquiiriies.*