Regulation Update
Dividend Tax Exemption and Bond Interest Tax Cut Officially Apply

Wednesday, 24 February 2021

Dividend Tax Exemption and Bond Interest Tax Cut Officially Apply

The government officially issued a derivative regulation of the Job Creation Law, concerning the exemption of taxes on dividends and tax cut on bond interest.

In the form of Government Regulation (PP) Number 9 of 2021, the government confirms that starting on 2 July 2021, the rate of Income Tax Article (ITA) 26 on bond interest received by foreign taxpayers, in addition to the Permanent Establishment is reduced from 20% to 10%.

Bond interest that gets this rate cut consists of bond interest with a coupon equal to the gross amount of interest in accordance with the term of ownership, discount on bonds equal to the difference in selling price or nominal above the acquisition price, and discount on bonds without interest in the amount of the difference in excess of the selling price.

The income tax on the bond interest will be deducted by the issuer or custodian as well as the securities company, dealer or bank as an intermediary or buyer for the interest and discount received by the bond seller during the transaction.

Read: Omnibus Law on Job Creation Relaxes Income Tax Provisions

While related to the provisions of tax on dividends, this regulation states that dividends received by taxpayers from both domestic and foreign companies are exempted from tax objects and will not be deducted by income tax.

Payment Mechanism for Income Tax on Dividend Payable Amended

For dividends from within the country, this provision applies if it is received by both individual taxpayer and domestic corporate taxpayer. While dividends from overseas get an income tax exemption as long as it meets the following conditions.

First, the amount of dividends or income after tax invested is at least 30% of the profit after tax. If it turns out to be less than 30%, the difference is subject to income tax.

Second, the dividend comes from shares of companies that are not traded on the stock exchange invested in Indonesia before the issuance of a Tax Assessment Letter (SKP).

In the regulation, the government has also changed the concept of paying the payable income tax from those collected to self-paid by the taxpayers.

The payment mechanism for income tax on dividend payable will be regulated in more detail through a Minister of Finance Regulation (PMK).

Value Added Tax (VAT) Facility

In addition to affirming amendments to provisions related to income tax, this regulation also includes a number of amendments to provisions in the Value Added Tax (VAT) Law and the Taxation General Provisions and Procedures (KUP) Law and their derivative regulations as set forth in the Job Creation Law.

Some of the amendments include, first, related to the transfer of taxable goods to VAT-Registered Person's (PKP) that serve as capital deposits or as a substitute for shares, not included as taxable goods.

With the record, the transfer was carried out in the context of corporate actions such as a merger acquisition or stock split or spin-off.

Read: Now It's VAT Law Dragged by Omnibus Law on Job Creation

Second, this regulation also removes the provisions on the crediting of input tax on the acquisition or import of capital goods by VAT-Registered Persons who  have not produced yet.

In the previous provisions, the government affirmed that the acquisition or import of capital goods in the form of tangible assets that have benefits for more than one year for all business activities can be credited.

Third, the affirmation of consignment that is no longer the object of taxable goods as stated in the Job Creation Law.

Fourth, this regulation also confirms the use of a National Identity Number (NIK) as a substitute identity for the Taxpayer Identification Number (NPWP) in the tax invoice and input tax crediting.

Taxation Provisions are Adjusted

This regulation also points out that amendments in a number of provisions in the Taxation General Provisions and Procedures (KUP) Law and its derivative regulations have also undergone changes, as set forth in the Job Creation Law.

Among them include changes in the amount of administrative sanctions for the disclosure of incorrect data in the Tax Return (SPT) that has been investigated but has not been submitted to the public prosecutor, from the previous amount of 150% to 100% of the underpayment value.

Read: These General Provisions  on Taxation are Overhauled in the Omnibus Law

Then regarding the determination of the amount of administrative sanctions in the form of interest on the disclosure of incorrect Tax Return as long as the auditor has not informed the results of the audit, from the previous 50% will now be determined by the Minister of Finance. As well as several other provisions related to amendments to the KUP Law.

The government hopes that this regulation can attract more investment to Indonesia. So that it can improve the national economy.

 



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