Reduced withholding tax rate on bond interest

1.       Bond is defined as debt securities, State debt securities and regional government bond, with a term of more than 12 months, issued by government and non-government, including debt securities issued by using sharia principles (sukuk).

2.       Bond interest is defined as a return that is received or earned by the bond holder in the form of interest, ujrah/ fee, profit sharing, margin, other similar returns and/ or discount.

3.       Bond interest received or earned by resident taxpayers[1] and PE is subject to final income tax at the rate of 10% of the income tax base.

4.       The income tax base for:

a)     interest from interest bearing bond is the gross interest in the bond holding period;

b)     Discount from interest bearing bond is the difference between the sale price or nominal value over the acquisition price of the bond, not including accrued interest; and

c)     Discount from non-interest bearing bond is the difference between the sale price or nominal value over the acquisition price of the bond.

If there is a negative discount or loss at the time the interest-bearing bond is sold, the negative discount or loss can be compensated with the above income tax base on the accrued interest of the bond.

5.       Bond interest received by:

a)     Pension funds whose establishment or formation is authorized by the Minister of Finance or they already obtained licenses from the Financial Service Authorities (OJK) and meet certain conditions under Article 4(3)(h) of the Income Tax Law; and

b)     Indonesian banks or branches of foreign banks in Indonesia,

is subject to normal income tax rate instead of final income tax under GR-91.

6.       The final income tax withholding on bond interest shall be carried out by:

a)      the bond issuer or appointed custodian as the paying agent, on interest and/or discount received by the interest-bearing bond holder at the due date of bond interest; and discount received by non-interest bearing bond holder, at the maturity of the bond;

b)      securities company, dealer, bank, pension fund, or mutual fund as an intermediary agent and/ or a buyer, on interest or discount received by the bond seller at the time of transaction; and/ or

c)      custodian or sub-registry as a party who record the transfer of ownership rights on the interest or discount received by the bond seller, in case the transaction is directly carried out without an agent and the buyer is not the party who is appointed as a tax withholder as stated in point (b).

7.       If the bond interest issued by the Government is administered through Bank Indonesia Scripless Securities Settlement System, the final income tax must be self-assessed and paid by the income receiver.

8.       The income tax withholders as stated in point 6 above and the self-assessed taxpayer must submit a report on the tax withholding and/ or payment of the income tax to the Directorate General of Taxation (DGT). The procedures on the income tax withholding, payment and reporting on the bond interest will be further regulated under a Minister of Finance Regulation.

9.       Transitional provisions:

a)     At the time GR-91 is enacted, all of the implementing regulations of GR-16 as last amended by GR-55 are still valid provided they do not contravene the provisions of GR-91.

b)     At the time GR-91 is enacted, GR-16 as last amended by GR-55 is revoked and no longer valid.

 

 

 

[1] Resident taxpayers consist of individuals, inheritance that has not been divided as a unit that replaces the rightful, and resident corporate taxpayer (including mutual funds and collective investment contracts)