DGT Reminds Terms and Conditions for Tax-Exempt Dividends

JAKARTA, DDTCNews – The Directorate General of Taxes (DGT) reminds taxpayers of the provisions on the exclusion from income tax if taxpayers receive dividends, both domestically and overseas.

The Ministry of Finance has issued the Minister of Finance Regulation (MoF Reg.) No. 18/2021 which constitutes a derivative regulation of the Job Creation Law. The regulation stipulates the exclusion of dividends from income tax objects.

“Domestically-sourced dividends are currently excluded from the imposition of income tax, but there are terms and conditions. For foreign-sourced dividends, the withholding or collecting agent must first be considered,” said the Large Taxpayer Office One through its social media account on Tuesday (08/11/2022).

Pursuant to Article 15 paragraph (1) of MoF Reg. 18/2021, domestically-sourced dividends received or accrued by resident individual taxpayers are excluded from income tax objects under two requirements. First, must be invested in the territory of the Unitary State of the Republic of Indonesia within a minimum period of 3 years.

Second, the dividends are distributed based on the General Meeting of Shareholders or interim dividends pursuant to applicable statutory provisions.

The same provisions also apply to dividends received by corporate taxpayers. However, there are no investment requirements as applicable to resident individual taxpayers.

On the other hand, foreign-sourced dividends are excluded from the imposition of income tax under certain requirements. First,  the foreign-sourced dividends from listed offshore companies are excluded from income tax objects in the amount of dividends invested in the territory of Indonesia.

Second, for non-listed offshore companies, the dividends must be invested in the territory of Indonesia by a minimum of 30% of the income after tax.

Dividends must be invested before the Director General of Taxes issues a notice of tax assessment. Otherwise, dividends cannot be excluded from income tax objects.

Article 35 and Article 36 of MoF Reg. 18/2021 outline types of financial and non-financial investment instruments that can be utilised by taxpayers to invest, ranging from sharia bonds, shares, securities in the form of assets, time deposits, savings, to checking/current accounts.

Non-financial investment instruments that can be utilised include real sector investments, direct investments in companies and investments in property. (Fikri/rig)