How to Reinvest Dividends to Be Excluded from Taxable Objects

As of the enactment of the Job Creation Law, dividends may be excluded from Income Tax objects. However, dividends may be excluded from Income Tax objects if the dividends are reinvested within a certain period.

DDTCNews will outline how to reinvest dividends, thereby, they may be excluded from Income Tax objects. Please note that dividends that may be excluded from Income Tax objects are domestic-sourced or foreign-sourced dividends received by resident taxpayers.

If part of the dividends is reinvested and part of the dividends is not, only the reinvested dividends are excluded from Income Tax objects. In particular, for dividends originating from companies that are not listed on the stock exchange, reinvestment must be a minimum of 30% of the received dividends.

As stipulated under the Minister of Finance Regulation No. 18/2021, the dividends are to be reinvested for 3 years and may be placed in financial market instruments and outside the financial market. There are at least 12 criteria for this form of reinvestment.

In further detail, reinvestment in the financial market may be performed in the following instruments.

• debt securities (including medium-term notes);
• debt securities (including medium-term notes);
• sharia bonds;
• shares;
• participation units of mutual funds;
• asset-backed securities;
• participation units of real estate investment funds;
• time deposits;
• savings;
• checking/current accounts;
• futures contracts traded on futures exchanges in Indonesia; and/or
• other financial market investment instruments, including insurance products linked to investments, financing companies, pension funds or venture capital, which are approved by the Financial Services Authority.

Next, reinvestment outside the financial market may be performed in the following instruments.

• Infrastructure investments through government cooperation with business entities;
• Real sector investment based on priorities determined by the government;
• Investments in property in the form of land and/or buildings erected thereon;
• Direct investments in companies in the territory of the Unitary State of the Republic of Indonesia;
• Investments in precious metals in the form of gold bars or bullion with a purity of 99.99% produced in Indonesia and accredited and certified by the Indonesian National Standard (SNI) and/or the London Bullion Market Association (LBMI);
• Cooperation with investment management institutions;
• Used to support other businesses in the form of loans to micro and small businesses within the territory of the Unitary State of the Republic of Indonesia pursuant to statutory provisions in the field of MSMEs; and/or
• Other legitimate forms of investments outside the financial market pursuant to statutory provisions.

Please note that there is a deadline for reinvestment. After the tax year the dividends are received ends, reinvestment should be performed no later than the end of the third month for individual taxpayers or the end of the fourth month for corporate taxpayers.

Although not constituting Income Tax objects, dividends that are excluded from Income Tax objects are to be filed on the Annual Tax Return. Dividend filing can be recorded in the Income Not Included as Taxable Objects in Other Income Posts Not Included as Taxable Objects section.

In addition to filing the Annual Tax Return, every year, taxpayers must also report the investment realisation on DJP Online. More information on how to report the realisation of reinvestment can be read at this link. The process is completed. We hope the information is useful. (Vallen/Rig)