Bonds: Procedures on Income Tax Cut

Minister of Finance Regulation No. 85/PMK.03/2011 of 2011 on Procedures for Income Tax Cut, Deposit, and Report of Income tax from Bond Interest (“Regulation”) has been issued to implement Article 5 of Government Regulation No. 16 of 2009 on Income Taxes from Obligation Interest.

Under Article 2 of the Regulation, taxpayer’s income from bond interest will be subject to income taxes. However, Article 2 (2) excludes pension funds and banks, or branches of foreign banks in Indonesia

Pursuant to Article 3 of the Regulation, the income tax on bond interest from interest bearing debt securities is set at: 15 percent for domestic taxpayers, and 20 percent for foreign taxpayers.

Meanwhile, the article also set the percentage of the income tax on interest or discount (“diskonto”) bonds with interest bearing debt securities. It is set at: 15 percent for domestic taxpayers and 20 percent for foreign taxpayers.

Furthermore, the Regulation set the income tax for mutual fund taxpayers that are registered with the Capital Market and Financial Institution Supervisory Agency. It is set at: zero percent for 2009-2010; 5 percent for 2011-2013; and 15 percent for 2014 and the following years period.

The income tax cut, pursuant to Article 4, will be conducted by an appointed bond issuer or custodian bank; securities company; dealer; bank; pension fund; and mutual fund.

Pursuant to Article 8 of the Regulation, the tax cut and deposit, as stated under Article 2 and 7, should be reported at least 20 days after the tax cut has been conducted.

The Regulation has one appendix that consists of the an example calculation of the income tax cut. The appendix shows several cases that could occur in terms of bond issuing, particularly on how to calculate the tax cut as stated in the Article 3 of the Regulation.

The Regulation repeals and replaces Minister of Finance Decree No. 121/KMK.03/2002 on Procedures for Income Tax Cuts from Diskonto Bonds and Interest.

The Regulation has been in force since 23 May 2011.