Enjoying Reduced Income Tax Rate Facility, Issuers Must Report Share Ownership

Go Public Corporate Taxpayers (WP badan) must submit monthly reports of share ownership and ownership report that have a special relationship to the Directorate General of Taxes (DGT). This provision applies to go public corporations or issuers that take advantage of reduction of Income Tax (PPh) rates.

It is stated in the Minister of Finance Regulation (PMK) number 123 / PMK.03 / 2020, which was issued and effective starting from 2 September 2020. This regulation is a derivative of Government Regulation (PP) Number 30 of 2020, on Stipulation of Government Regulation in Lieu of Law (Perppu) Number 1 of 2020.

In the two regulations that were issued previously, the government has gradually lowered the corporate income tax rate to 20% in three years.  For 2020 and 2021, the income tax rate will be 22% and in 2022 it will be 20%. As for publicly traded companies, whose shares are traded on the stock exchange, the prevailing rate is 3% lower than the government has set.

Monthly reports that must be submitted by corporations that are listed on the stock exchange include share ownership recorded by the issuer as well as a recapitulation of share ownership that has been reported by the stock exchange authority, in this case the Securities Administration Bureau ( Biro Administrasi Efek).

The monthly report is made every tax year by stating identity such as name and taxpayer identification number (NPWP) and mentioning the tax year. In addition, the report must also include documents that prove the company is indeed entitled to use the tax facility.

Furthermore, the report must also be attached together with the submission of the Annual Income Tax Return (SPT).

About The Special Relationships

Shareholder who has a special relationship according to this rule is the controlling shareholder, either directly or indirectly, to the issuer. Another definition of a special relationship is as well as the major shareholder, who owns 20% of the voting rights either directly or indirectly.

The more detailed provisions regarding special relationships have actually been stipulated in the Capital Market Law and Financial Services Authority (OJK) Regulation. 

Eligibility Indicators

The obligation to submit the report is one of the instruments for the authority in assessing whether an issuer is entitled to use the income tax rate reduction facility or not. Because, as described in the previous two rules, not all issuers are entitled to a tariff reduction. 

As stated in Government Regulation number 30 of 2020 the criteria that must be met include, the company must be in the form of a Limited Liability Company (PT) with a minimum number of shares traded on the stock exchange as much as 40% and owned by a minimum of 300 parties. Each of these parties owns a maximum stake of 5% in a minimum period of 183 calendar days.

Meanwhile, issuers that buyback their shares are not entitled to facilities. Although, then the provision regarding the buyback gets an exception, for companies that buy shares back in order to counter the impact of the Corona Virus Disease (Covid-19) pandemic in the economic sector. 

For instance, when stock prices fluctuate and the company is forced to carry out a buyback so that the stock price is stable, as stated in Government Regulation number 29 of 2020.

Other parties, which are not entitled to receive income tax reduction are publicly traded companies whose shares are owned by affiliated parties or have a special relationship, such as the controlling party.