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Indonesia: Deemed profit repatriation rules clarified for controlled foreign companies (CFCs)

Indonesia: Deemed profit repatriation rules clarified

The Minister of Finance issued guidance (Regulation No.93/PMK.03/2019—PMK-93) to amend earlier guidance (Regulation No.107/PMK.03/2017—PMK-107) and to provide greater clarity regarding the taxation of distributions from controlled foreign corporations (CFCs).

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PMK-93 is also relevant to Indonesian groups with foreign business activities. However, there are several other items of concern to CFCs that have yet to be clarified. For instance, the new guidance did not modify the definition of a CFC (as set out in PMK-107).

The guidance is effective retroactively beginning with fiscal year 2019.


Types of taxable income

PMK-93 modifies PMK-107 by restricting deemed profits largely to “passive” income, in contrast to the former “commercial profit after tax” approach. PMK-93 considers the following income as being passive:

  • Dividends, except dividends received from other CFCs
  • Interest income (except interest received from a resident taxpayer with a banking license, unless that resident taxpayer is related to the CFC)
  • Rental income from land and/or buildings
  • Other rent received from related parties
  • Royalties and profits from the sale or transfer of assets (capital gains)


Taxable base of deemed dividends

Consistent with PMK-107, the taxable base of “repatriable income” is dependent on the nature of the resident taxpayer’s control of the CFC. The repatriable income is calculated proportionally to the resident taxpayer’s effective ownership of the CFC:

  • If the resident taxpayer has direct control of the CFC—the taxable base is the net amount after tax on passive income (as defined above).
  • If the resident taxpayer has indirect control in the CFC—the taxable base is the net amount after tax on passive income as defined above multiplied by the effective ownership percentage.


Calculation of taxable income

Repatriable income is the “net income after tax”—i.e., the passive income (as defined above) after the following deductions:

  • Expenses to obtain, collect and maintain the passive income
  • Any foreign taxes due, paid or withheld on the income, multiplied by the effective ownership percentage of the relevant CFC


Read a September 2019 report [PDF 1 MB] prepared by the KPMG member firm in Indonesia

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