Recently the Ministry of Finance issued Regulation number 107/PMK.03/2017 on the Determination of the Moment of Acquisition of Dividends and the Basis for Their Calculation by Domestic Taxpayers for Capital Participation in Overseas Non-Listed Companies (New Regulation). Previously these matter were regulated under the Ministry of Finance Regulation number No. 256/PMK.03/2008 and the Minister of Finance Decision number 164/KMK.03/2002 (Old Regulations). The New Regulation focuses on income tax which is levied on dividends from controlled, non-listed foreign companies.
Non-listed Foreign Companies
Non-listed Foreign Companies (Foreign Companies) are companies whose shares are not publicly traded via a stock exchange. The New Regulation distinguishes two types of Foreign Companies:
- Foreign Companies which are directly controlled (Directly Controlled Companies):
- An Indonesian tax payer must own 50% or more of the issued shares or shares with voting rights (Shares); or
- Multiple Indonesian tax payers must own 50% or more of the Shares
- Foreign Companies which are indirectly controlled (Indirectly Controlled Companies:
- The Directly Controlled Companies own 50% or more of the Shares
- Certain other shareholder compositions where Directly Controlled Companies and Indirectly Controlled Companies own 50% or more of the Shares
So called “Deemed Dividend” is dividend which is deemed to have been received by the Indonesian Tax Payer. The Deemed dividend is calculated based on the % of share ownership in the Foreign Companies and the net commercial profits of the Foreign Companies. The New Regulation provides technical guidance in how to calculate the Deemed Dividend.
The New Regulation now allows to offset the Deemed Dividend against the actual received dividends from Directly Controlled Companies over the past five consecutive years. However, in case the actual received dividends are higher that the Deemed Dividend, the Indonesian Tax Payer will need to pay income tax over the extra amount of dividends.
The New Regulation has been in force since July 27, 2017 and revokes and replaces the Old Regulation.
This column is provided by PNB Law Firm Jakarta