On 31 December 2019, the Government published tax reform 2020 through Law of Simplicity and Tax Progressivity (Law No. SAN-2019-1270) in the Official Gazette. The Law effects from 1 January 2020. Some of the key provisions are given below:
Corporate tax rate
The Law introduces new provisional corporate income tax rates. Companies with gross income more than USD 1 million in the 2018 fiscal year are subject to this provisional rates for the year 2020, 2021 and 2022.
| Taxable Income (USD) | Provisional Corporate income tax rate (in %) |
| 1 million to 5 million | 0.10 |
| 5,000,000.01 to 10 million | 0.15% |
| More than 10 million | 0.20% |
Accordingly, the mandatory advance income tax payment obligations was made optional by the Law.
Incentives on micro-enterprises
According to the Law, a 2% single flat rate on gross income was introduced for micro-enterprises.
Withholding tax rate on dividend
In accordance with the Act, a 25% income tax (resulting in an effective tax rate of 10% on the gross payment) must be withheld on the taxable portion where dividends are distributed by resident companies to nonresident companies.
Restriction on interest deduction
Under the Act, the restriction on the deduction of interest on related party foreign loans granted for banks, insurance companies and financial sector entities remains at 300% of equity. For other companies and self-employed individuals or entrepreneurs, the restriction is changed to 20% of the business’s profit before employee profit-sharing, plus interest, corporate income tax, depreciation and amortization.
