Deemed dividend and calculation base for Indonesian taxpayer’s capital participation in non-listed foreign entity.

On 27 July 2017, the Minister of Finance (“MoF) issued Regulation No. 107/PMK.03/2017 (PMK-107) regarding determination earning of deemed dividend and calculation base for an Indonesian resident taxpayer with capital participation in foreign entities, other than listed companies (“non-listed BULN”). This regulation revokes the previous CFC rules as stipulated under MoF Regulation No. 256/PMK.03/2008 and the provisions on crediting income tax on dividend derived from foreign entities as stipulated under MoF decision No. 164/KMK.03/2002.

This new regulation is effective from 27 July 2017 and applicable starting from the 2017 fiscal year.

The general provisions under PMK-107 are summarized as follows:

1. A resident taxpayer is deemed to have direct control over a nonlisted BULN if the following conditions are met:

1. Direct capital participation at minimum of 50% from the total paid-in capital; or
2. Together with other resident taxpayer(s) having direct capital participation at minimum of 50% from the total paid-in capital.

2. The earning date of deemed dividend of the resident taxpayer having direct control of a non-listed BULN is as follows:

a. At the end of the fourth months after the submission due date of the BULN’s annual corporate income tax return (ACITR).
b. If the BULN has no obligation to submit ACITR or has no deadline for submission of ACITR, the earning date of dividend is at the end of the seventh months after the end of the fiscal year.

3. The deemed dividend is calculated based on percentage of capital participation times the after-tax profit.

4. If the taxpayer has direct and indirect participations in nonlisted BULN, the basis for deemed dividend is as follows:

1. Profits after tax of the directly controlled BULN; and
2. Profits after tax of the indirectly controlled BULN times the percentage of capital participation of the “directly controlled BULN” in the “indirectly controlled BULN”.

5. Indirectly controlled Non-listed BULN is a non-listed BULN controlled by the resident taxpayer via:

a. directly controlled Non-listed BULN; or
b. directly controlled Non-listed BULN and indirectly controlled Non-listed BULN at the previous level of capital participation. with the total participation at a minimum of 50% from the paidin capital in every capital participation level.

6. Indirectly controlled Non-listed BULN includes a Non-listed BULN in which the 50% of the shares are owned by:

1. resident taxpayer and
2. directly controlled Non-listed BULN; and/or

7.  an indirectly controlled Non-listed BULN;

1. a resident taxpayer together with other resident taxpayer(s) through directly controlled Non-listed BULN and/or indirectly controlled Non-listed BULN; or c. Directly controlled Non-listed BULN and/or indirectly controlled Non-listed BULN.
2. The deemed dividend can be offset with the dividend received from the directly controlled Non-listed BULN. The deemed dividend that can be offset is up to 5 years backward from the time the dividend is received.
3. If the dividend received is higher than the deemed dividend, the excess value is taxable in the fiscal year when the dividend is received.

8. The taxpayer can claim the tax paid/withheld on dividend received from the directly controlled Non-listed BULN in the fiscal year when the tax is paid/withheld.