In Indonesia, all corporation, including Foreign Direct Investment (“FDI”) Company shall maintain bookkeeping. The common bookkeeping spans from January 1st to December 31st, where at the end of December of each year, the company completes their book entry settlement (“Bookkeeping Period”).
One day a FDI Company (or “PMA”) want to amend its financial year from previously January- December into October –September. The aim of this change is to synchronize the PMA’s Financial Year with its Parent Company in country origin. Is it possible to apply that change? The answer is YES.
In general every amendment that happen to a company and/or PMA can be done by amending its Articles of Association and request an approval from Indonesia Investment Coordinating Board (“BKPM”) and Ministry of Law and Human Rights (“MOLHR”). However, since the change of Financial Year will give an impact to the PMA’s tax burden, the most crucial process is how to get an approval from Directorate of Taxation first.
The Directorate of Taxation regulates the amendment of Financial Year through its Circular Letter Number Se-14/PJ.313/1991 concerning Technical Instruction for Issuance of Approval/Rejection to Application of Amendments to Financial Year (“Taxation Circular Letter”).
Based the Taxation Circular Letter, an amendment of Financial Year is permitted as long as the company and/or FDI Company/PMA meets the following criteria:
- The amendments of Financial Year is required by the Company Shareholders, Creditors, Business Partners, Government Authorities or other parties, in which if such amendment is not executed, will cause the company loss;
- The application to amend the Financial Year is submitted for the first time, and there are no plans to apply for another amendment in the following years;
- No deliberate intent from the company to utilize the amendment of their Financial Year for tax evasion purposes.
All the reasons mentioned above must be conveyed wittingly to the Head of Tax Office in which the Company located.
Further, the PMA also needs to fulfill some requirements, which consist of:
- Submitted/reported its latest Annual Tax Return; and
- Fulfilled all tax payables.
Once the PMA meets the aforementioned requirements. The Directorate of Taxation will issue its approval decree. Please understand that the Directorate General of Taxation has the full authority to accept or reject of the amendments to Financial Year. After getting that approval, the PMA should request an approval from the MoHLR by conducting a General Meeting of Shareholders.
HOW CAN SMART LEGAL CONSULTING HELP YOU?
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