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N E W S L E T T E R
INDIVIDUAL INCOME TAX ON
OFFSHORE INCOME - ARE YOU
READY TO PAY THE INCOME TAX? TABLE OF
In order to increase tax revenue, tax officers shift their CONTENTS
main focus from corporate taxpayers to individual

taxpayers. Several hidden offshore assets have now been

exposed; leading the tax office to see these as new Main Article • P. 1-4
sources of income, which translates to new sources of tax

revenue.

Do You Know • P. 4-5

One of the ways used by the Directorate General of Taxes

(DGT) to ensure that Indonesia receives tax revenues from

offshore assets is through the Controlled Foreign JAKARTA OFFICE

Menara Imperium, 27th Fl.
Corporation (CFC) rules. In 2017, Tax Regulation No. PMK
Jl. HR Rasuna Said Kav. 1, 12980
107/PMK.03/2017 was issued to enforce the application of
Ph. +62 21 8356363 | Fx. +62 21 83793939

the CFC rules. The CFC rules are not based on a new contact@pbtaxand.com

regulation (as it was previously regulated under KMK

SURABAYA OFFICE
256/KMK.03/2008); however, under the 2017 regulation,
Graha Bukopin, 9th Fl.
Indonesia will consider profits after income tax is
Jl. Panglima Sudirman 10-18, 60271

distributed as dividend to the shareholders. This is what Ph. +62 31 5319598 | Fx. +62 31 5319599

we called a deemed dividend.  surabaya@pbtaxand.com  

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C O N T I N U E D F R O M P A G E 1

CFC Rules

The main definition of the CFC rules describes them as non listed foreign entities that are owned, by

at least 50% directly or indirectly, by:

    1. An Indonesian taxpayer

    2. A group of Indonesian taxpayers

The deemed dividend is considered as available to the shareholders upon:

    a. The fourth month after the deadline of income tax return submission, for entities that are       

        obligated to submit an income tax return.

    b. The seventh month after end of the fiscal year, for entities that do not have the obligation to

        submit an income tax return.

The shareholder will include the deemed dividend as part of offshore income and then pay tax on it.

Taxes paid on deemed dividend become tax credit with a validity period of 5 years. The tax credit

can be used to offset taxes payable when real dividend is distributed. If real dividend is distributed

in the sixth year, there is a potential of double taxation.

Application of CFC rules on a Trust

The new development in these rules refers to the acknowledgement of Trust as an individual asset.

In Trust we acknowledge several terms as follows:

    a. Settlor, a person who establish the Trust and transfer his assets into a Trust.

    b. Trustee, a person or body who act as an owner of the assets and has obligation to manage the

        assets for the benefit of the beneficiary.

    c. Beneficiary is an individual or group of individuals for whom a Trust is created for.

CFC rules clearly states that, assets put on a Trust,

although the legal ownership has been transferred to

CFC RULES CLEARLY
Trustee, Indonesian tax office consider the assets to be in
STATES THAT, ASSETS PUT
the ownership of the Settlor. When the assets in a Trust
ON A TRUST, ALTHOUGH
generates income, the income will be considered as
THE LEGAL OWNERSHIP HAS
deemed dividend for the Settlor. Thus the Trust is
BEEN TRANSFERRED TO
considered as a pass through equity.    
TRUSTEE, INDONESIAN TAX
OFFICE CONSIDER THE
read more... ASSETS TO BE IN THE
OWNERSHIP OF THE
SETTLOR.
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C O N T I N U E D F R O M P A G E   2

For example, an Indonesian Individual Taxpayer who owns a 100% of BVI company and puts it under a

Trust, for the fiscal year ended on December 2017, will be considered to receive deemed dividends

on the profits after tax of the BVI company on July 2018. In their 2018 Individual Income Tax Return,

they should acknowledge the deemed dividend income in their Individual Income Tax Return and pay

a 30% tax on it.

In addition to the CFC rules in 2017, the tax office has issued another regulation, specifically No.

PMK 192/PMK. 03/2018 (“PMK 192/2018”), about Foreign Tax Credit in December 2018. The previous

tax regulation regarding foreign tax credit was issued 10 years ago, under KMK 164/KMK.03/2002.

Except for dividend income which is regulated by CFC rules, the acknowledgment of foreign tax

credit on offshore income is regulated under this regulation.

What’s New, What has Changed, and What Remains the Same in PMK 192/2018?  

What’s New?
    1. Taxes paid under the Trust level are acknowledged as tax credit by the Settlor.

    2. Maximum foreign tax credits allowed are also limited by the withholding tax rate, as allowed by

        the Tax Treaty; given that there is tax treaty between Indonesia and the respective country.

        The maximum limit is the lowest amount amongst the following:

        a. Formula for the maximum limit of foreign tax credits, based on a country-per-country

            calculation. The formula is as follows:

__________________
            Overseas Net Income per Country x Income Tax Payable

                          Taxable Income

        b. Actual income tax paid overseas

        c. Withholding tax rate allowed in the tax treaty

What has Changed?

The previous PMK 164/KMK.03/2002 only allowed the acknowledgement of foreign tax credit if the

taxpayer is able to provide an overseas tax return. Upon the recent change, PMK 192/2018 allows

any documents to be used as foreign tax credit as long as the documents can prove the overseas tax

payment.

What Remains the Same?

Foreign loss per country remains unallowable to be offset against onshore and offshore profit.  

read more...
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Other Offshore Income

Taxation on other offshore income such as interest, coupon, capital gain, rental income and other

income remains the same. When an individual receives interest, coupons, capital gain or other

income from his/her offshore accounts, such income will be subject to income tax at the highest rate

of 30%. The individual taxpayer will need to combine offshore income with onshore income on a self-

assessment basis and recalculate their income tax. All taxes payable should be settled before the

submission of their tax return.

1. The DGT has launched an application for the Status Confirmation of

DO    Taxpayers (iKSWP), which may be accessed through the DGT website or

YOU     https://djponline.pajak.go.id. The iKSWP is equipped with 3 services,

   namely, the Status Confirmation of the Taxpayer; in obtaining Tax

KNOW     Clearance Certificates (SKF); and in obtaining Certificates of Domicile

   (SKD) as per the SPDN (Press Release of the DGT SP-08 of 2019 dated

   February 11, 2019).

2. A Tax Clearance Certificate (SKF) is the information provided by the DGT regarding the

    Taxpayer’s compliance throughout a certain period, which may be used to fulfil the conditions in

    receiving services, or in order to carry out certain activities. The SKF may now be obtained online

    through the iSKWP application in DGT Online. The Taxpayer eligible to request for an SKF is the   

    Taxpayer’s Head Office. The conditions – among others – include the Taxpayer’s compliance to

    the submission of the Annual Income Tax Return for the last 2 Fiscal Years and Periodic VAT

    Return for the last 3 Tax Periods; the Taxpayer should not be in the midst of an audit process,

    investigation, or prosecution; and the Taxpayer should not have any tax debts in the Tax Offices

    in which the Taxpayer’s Head Office or Branch are registered. (Read more from Regulation of the

    Director General of Taxes No. PER-03/PJ/2019 dated February 4, 2019 jo Circulation Letter of

    the Director General of Taxes No. SE-03/PJ./2019 dated February 12, 2019).

3. Starting from 2019, Corporate Taxpayers are required to submit their Periodic Tax Return via e-

    filing. Annual Tax Returns are also required to be submitted via e-filing for Taxpayers who are

    registered in Medium Tax Offices, Tax Offices in area of the Jakarta Special Regional Office and

    Tax Offices in the area of the DGT Regional Tax Office of Large Taxpayers (Kanwil DJP WP

    Besar). Taxpayers who have previously submitted their Annual Tax Return/Periodic Tax Return in

    the form of an electronic document are also required to submit their succeeding Tax Returns via

    e-filing. (Read more from Director General of Taxes Regulation No. No. PER-02/PJ./2019 dated

    January 23, 2019 jo Circulation Letter of the Director General of Taxes No. SE-04/PJ./2019

    dated February 13, 2019).

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DO YOU KNOW
C O N T I N U E D F R O M P A G E   4

4. The calculations of Foreign Tax Credit for spouses, who are fulfilling their tax obligations

    separately, are therefore determined separately for both husband and wife. The required

    documents only include the proof of payment or foreign tax withholding receipt. There are no

    requirements to attach the aforementioned documents in the Annual Income Tax Return (Read

    more from the Press Release of the DGT No. SP-03 Tahun 2019 dated January 9, 2019). 

PBTaxand

@pbtaxand

@pbtaxand.id

www.pbtaxand.id

DISCLAIMER
The information contained in this document is intended only to be a guide. It must not be relied on in, or applied to,

specific situation without previously seeking proper professional advice. Even if all reasonable care has been taken in

its preparation, PB Taxand do not accept any liability for any errors that it may contain or lack of update before being

published, whether caused by negligence or otherwise, or for any losses, however caused, or sustained by any person.

Description of, or reference or access to, other publication within publication do not imply endorsement of them.