Withholding Taxes on Insurance and Reinsurance Premia Paid to Overseas Insurance Companies
On October 18, 2024, the Minister of Finance (the “MOF”) issued Regulation No. 81 of 2024 on Tax Provisions for the Implementation of the Core Tax Administration System (the “Regulation”). The Regulation is an omnibus regulation that consolidates and updates various tax rules to enhance the new Core Tax Administration System. Its objective is to modernize the tax administration by ensuring transparency, efficiency, and accountability through advanced IT systems, improved business processes, and comprehensive databases.
This Newsflash outlines the provisions regarding the withholding taxes applicable to insurance and reinsurance premia paid to foreign insurance companies as stipulated in the Regulation. These provisions were previously regulated under MOF Decree No. 624/KMK.04/1994 dated December 27, 1994 on Withholding of Article 26 Income Tax on Income in the Form of Insurance Premia and Reinsurance Premia Paid to Overseas Insurance Companies (the “Decree”). The Decree is revoked and replaced entirely by the Regulation.
We set out below the key elements of the Regulation regarding the withholding taxes on insurance and reinsurance premia paid to overseas insurers.
♦ Consistent Tax Rate and Income Estimation
One of the primary features retained in the Regulation is the 20% withholding tax rate applied to the estimated net income from insurance and reinsurance premia paid to overseas insurance companies. This consistency ensures that businesses familiar with the Decree may continue their compliance efforts without needing to adjust to a new tax rate.
The method for calculating the estimated net income remains unchanged. Specifically, the Regulation stipulates that the “estimated net income”, which serves as the basis for withholding taxes shall be calculated as follows: (i) 50% of the premium paid by the insured to an overseas insurance company, (ii) 10% of the premium paid by an Indonesian insurance company to an overseas insurer, and (iii) 5% of the premium paid by an Indonesian reinsurance company to an overseas insurer.
♦ Extended Tax Payment Deadline
A significant modification introduced by the Regulation is the extension of the tax payment deadline. Under the Decree, taxpayers were required to remit the withheld tax within 10 days after the end of the month in which the premium was paid. The Regulation extends this period to 15 days after the end of the month in which the premium is paid.
♦ Simplified Documentation Requirements
Another notable change in the Regulation is the documentation requirements for withholding taxes. Previously, the Decree required the issuance of three copies of the withholding tax receipt: one for the payee, one to be attached to the Monthly Income Tax Return, and one for the withholding agent’s records. Now, the Regulation simplifies this process by eliminating the specific requirement. This change reduces the administrative burden on businesses and streamlines compliance process, making it easier for companies to fulfill their tax obligations with less paperwork.
♦ Enhanced Reporting Mechanism
Another key update in the Regulation is the introduction of a more streamlined reporting process. The regulation adopts the Unified Income Tax Monthly Return Form, which replaces the previously used Income Tax Monthly Return Form (SPT Masa PPh 26) under the Decree.
This unified form integrates various reporting requirements into a single, cohesive document, enhancing efficiency and reducing the likelihood of errors in tax filings. By consolidating reporting procedures, the Regulation aims at facilitating a more integrated and centralized approach to tax administration, benefiting both taxpayers and regulatory authorities
AKSET
Please contact Johannes C. Sahetapy-Engel (jsahetapyengel@aksetlaw.com), Thomas P. Wijaya (twijaya@aksetlaw.com), or Rayhan Andana Harits (rharits@aksetlaw.com) for further information.
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