TIMOR GAP—THE INDONESIAN TAX ISSUES

Abstract

This paper focuses on the Indonesian taxation issues relevant to activities undertaken in Area A of the Zone of Cooperation in the Timor Gap by non-Indonesian (foreign) contractors and service providers. This area is controlled equally by Indonesia and Australia through the Timor Gap Treaty (Treaty) arrangements.

The broad framework of how taxes will be applied to Area A activities to achieve an equal sharing between Australia and Indonesia has been agreed through the Treaty, with the administration being left to the Tax Authorities of each country.

On the Indonesian side, no regulations have yet issued to provide specific guidance on, inter alia:

whether the application of Indonesia taxes to foreign contractors will follow that adopted for the Indonesian oil and gas industry;the tax treatment of foreign service providers operating in Area A; andhow the agreed modifications in the Treaty to reflect shared taxing arrangements will be observed in the application of Indonesia's Taxation Laws.

The absence of any guidance has created much uncertainty among foreign contractors and their service providers undertaking activities in Area A. At the time of writing, we understand from a senior officer within the Indonesian Taxation Office (ITO) that this issue is high on their agenda and regulation(s) will be forthcoming within the near future.