Changes of the withholding taxes of construction services

13 Dec 2022

Taxation

Government Regulation No. 9 year 2022 (“PP-9/2022”) dated February 21, 2022, was issued as the second amendment to the Government Regulation No. 51 year 2008 (“PP-51/2008”) pertaining the Taxation on Income from Construction Services. Payments for construction services made post the release of PP-9/2022 are subject to the provisions of PP-9/2022. This is regardless the respective contract was signed and/or the services were delivered prior to the release of PP-9/2022.

The taxation of construction services under PP-9/2022 and PP-51/2008

The following is the summary of the taxation of construction services under PP-9/2022 and the previous treatment under PP-51/2008.

Type of construction service	Business classification of the contractor					PP-9/2022	PP-51/2008(iv)
	Corporate with small business qualification	Individual with work competency certificate	Corporate with no business qualification	Individual with no work competency	Corporate with large or medium business qualification or specialist	Tax rate(iv)	Tax rate(v)
Construction consulting(i)	√	√				3.50%	4.00%
Construction consulting(i)			√	√		6.00%	6.00%
Construction work(ii)	√	√				1.75%	2.00%
			√	√		4.00%	4.00%
					√	2.65%	3.00%
Integrated construction work(iii)	√	N/A		N/A	√	2.65%	Refer to the taxation of construction work
Integrated construction work(iii)		N/A	√	N/A		4.00%	Refer to the taxation of construction work
Note: Construction consultation includes assessment, planning, design, inspection, and management of construction work. Construction work includes the construction, operation, maintenance, dismantling, and re-construction. Integrated construction is the mixture of construction consultation and construction work (e.g., EPC contract). While the tax treatment is the generally the same (except for the integrated construction work), PP-9/2022 specifically differentiates the category of corporate with small business qualification from individual with work competency certificate. The tax rate applies on the gross service fee. Foreign construction service providers operating through a PE is subject to additional Branch Profit Tax.