The government determines the terms and instruments of investment to accommodate dividends or other income from overseas received by domestic corporate and individual taxpayers, to be invested domestically, or repatriation.
This determination was made to follow up provisions regarding dividend income from overseas and other income that is exempted from Income Tax objects. What is meant by other income in the form of after-tax income from a permanent establishment (BUT) abroad and income from abroad is not a Permanent Establishment (BUT).
Previously, the provision was regulated in Law Number 11 of 2022 on Job Creation and its derivative regulations, namely Minister of Finance Regulation (PMK) Number 18/PMK.03/2021 and finally regulated again in Law Number 7 of 2021 on the Harmonization of Tax Regulations (HPP) of the income tax cluster.
To follow up, in order to provide certainty, the government issued Government Regulation (PP) Number 55 of 2022 concerning Adjustment of Regulations in the Income Tax Sector.
Read: Dividend Tax Exemption and Bond Interest Tax Cut Officially Apply
Investment Instruments
In the regulation that has been in effect since 12 December 2022, specifically Articles 9 to 11, the government stipulates the form and type of investment instruments to accommodate dividend income from within and outside the country as well as other income from overseas.
It is included after-tax income from foreign Permanent Establishment (PE) or not through PE. So, here are 12 investment criteria to accommodate the dividend income or other foreign income received by taxpayers:
| No | Investment Criteria |
| 1 | Government Bond and State Sharia Bond |
| 2 | State-Owned Enterprise (SOE) Bonds and Sukuk whose trading is supervised by Financial Service Authority (OJK) |
| 3 | Government-owned Financing Institution Bonds and Sukuk whose trading is supervised by the OJK |
| 4 | Financial investment in perception banks including Islamic banks |
| 5 | Bonds or sukuk from private companies whose trading is supervised by OJK |
| 6 | Infrastructure investment through government cooperation with business entities |
| 7 | Real Sector Investment |
| 8 | Capital participation in a newly established company domiciled in Indonesia |
| 9 | Capital participation of existing companies |
| 10 | Collaboration with investment management institutions |
| 11 | Distribution of loans to MSMEs in accordance with the law in the field of micro, small and medium enterprises |
| 12 | Other investments in accordance with the law |
As for investment instruments, the government divides them into two groups. The first group of instruments that can be used by taxpayers if they choose investment criteria number 1 to 5 and number 12, are as follows:
| No | Investment Instruments |
| 1 | Debt Securities |
| 2 | Sukuk |
| 3 | Shares |
| 4 | Units of mutual fund participation |
| 5 | Asset-backed securities |
| 6 | Units of real estate investment funds |
| 7 | Deposits |
| 8 | Savings |
| 9 | Current account |
| 10 | Futures contracts traded on futures exchanges in Indonesia |
| 11 | Other financial market investment instruments include investment-linked insurance products, finance companies, pension funds, or venture capital that have obtained OJK approval. |
| No | Investment Instruments |
| 1 | Public-Private Partnership Infrastructure Project |
| 2 | The real sector based on priorities determined by the government |
| 3 | Property in the form of land and/or buildings |
| 4 | Direct investment in companies in the Republic of Indonesia |
| 5 | Gold Bars or bullion |
| 6 | Collaboration with investment management institutions |
| 7 | MSME loan disbursement |
For the record, investment in the real sector and direct investment in companies in Indonesia can be done through the mechanism of capital participation of companies in the form of limited liability companies.
The government priority sectors in question must be in accordance with the National Medium-Term Development Plan (RPJMN).
Meanwhile, investment activities in the property sector in this policy are those that do not receive subsidies from the government. Then, if you choose a precious metal as an investment instrument, it must be gold bars or bullion with a purity level of 99.99%.
The gold bars must be produced in Indonesia and obtain accreditation and certificates from the National Standardization Agency or the London Bullion Market Association.
The government also emphasized that taxpayers cannot divert into other forms of investment other than those stipulated.
Holding Period of 3 Years
The dividend exemption facility as an income tax object can be benefited as long as it is invested at least or fulfills a holding period of three tax years since the income is received or earned.
Regarding the timing of investment realization, the deadline for individual taxpayers is at the end of the third month after the dividend tax year or other income is received or earned.
Meanwhile for corporate taxpayers, the investment deadline is at the end of the fourth month after the dividend tax year or other income are received or earned.
If until the time limit the taxpayer fails to realize the investment, the income from dividends or other income from overseas that has been received is subject to Income Tax.
Investment Value
As for investment activities from dividend income and other income from overseas, the following provisions apply:
First, dividends and other income can come from overseas companies whose shares are traded on the stock exchange or not traded on the stock exchange.
Second, for dividends and other income from companies whose shares are not traded on the stock exchange, a minimum of 30% of the profits after tax or before the issuance of a Tax Assessment Letter (SKP) for the dividends from the Directorate General of Taxes (DGT) must be invested.
However, even if what is invested is less or lower than 30% profit after tax, dividends that have been invested are still excluded from income tax. Meanwhile, the difference of 30% profit after tax minus dividends invested is subject to Income Tax.
Third, the dividends received must be based on the General Meeting of Shareholders (GMS) or interim dividends. Including similar meetings and the mechanism for distributing similar shares.
Fourth, for dividends received from overseas companies whose shares are traded on the stock exchange, there is no limit to the investment value.
Income tax exemptions are given for all dividends invested. Meanwhile, the difference between the dividends invested and those received is still subject to Income Tax.
Active Business Activities
Meanwhile, regarding income after tax that does not go through foreign PE, exceptions only apply to income tax if the overseas business entity conducts active business activities.
In addition, the taxpayer receiving income is not the owner of the business entity.
Not Chargeable
The government also stressed that if the tax on income received abroad has been deducted it cannot be calculated with the income tax payable by the DGT.
On the other hand, taxpayers also cannot claim it as a burden or expense that can reduce income.
In addition, taxpayers also cannot file a refund for overpaid taxes. Except, if the taxpayer does not or fails to invest, the income is not exempted from the Income Tax imposition, so that taxes paid abroad can be credited, according to Article 24 of the Income Tax Law. (ASP/KEN)
