TAXES
LAW
9
I
nvestment laws and regulations in Indonesia, including the latest
regulation number 13/2017 of the Investment Coordinating
Board BKPM issued in December 2017, do not provide clear
regulations regarding the debt-to-equity ratio applied to a foreign
investment company (PMA). Pursuant to the BKPM Regulation,
the investor must inject a minimum capital of IDR 10 bio as total
investment (comprising equity and loans but excluding land and
buildings) to obtain an investment registration, of which IDR 2.5
bio shall be injected as paid up capital. Accordingly, it is commonly
assumed that BKPM applies a debt-to-equity ratio of 3:1 when
it grants an investment registration. However, BKPM may apply
different ratios, depending on the PMA’s envisaged business
activities and investment size. Hence, the debt-to-equity ratio
remains subject to BKPM’s discretion in individual cases.
The debt-to-equity ratio assumed by BKPM differs from the
approach under Indonesian tax regulations. Pursuant to the
Minister of Finance Regulation No. 169/PMK.010/2015 and its
implementing regulation recently issued by the Director General
of Taxation, DGT Regulation No. 25/PJ/2017, which govern
the implementation of thin capitalization rules in Indonesia, the
general debt-to-equity ratio is 4:1. Any borrowing costs exceeding
this ratio are not allowed as deductible expenses. The term “debt”
includes long-term and short-term debts as well as interest-
bearing trade debts, while “equity” means capital respectively
determined by the applicable financial accounting standards
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please refer to
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BSD Green Office Park,
BSD City, Tangerang 15345
Indonesia
Phone : +62 21 505 60405
Fax
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Email
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Debt to Equity Ratio
Debt-to-Equity Ratio in Indonesia
Markus Schlueter
Attorney-at-law (Germany)
+ 49 21 949 909 342
and non-interest-bearing loans from parties having special
relationships with the corporate taxpayers.
The debt-to-equity ratio under the Tax Regulation is applicable
for fiscal years from 2016 on and the requirement to report the
respective calculation (and private overseas loan details) to the
DGT as part of the company’s income tax return is effective from
the fiscal year 2017 on. Failure to submit the calculation may
trigger penalties as the annual corporate income tax return would
be deemed incomplete.
