To follow up on the enactment of Law No. 7 of 2021 on The Harmonisation of Tax Regulations, Indonesia’s Minister of Finance (the “MOF”) has issued 14 implementing regulations, one of which is MOF Regulation No. 69/PMK.03/2022 on the Income Tax and Value Added Tax on the Organization of Financial Technology (“MOF Reg 69/2022”) issued on 30 March 2022, which came into force on 1 May 2022. This Advisory is intended to give a brief information to the Fintech players on the new regulation that may have impact on them.
MOF Reg 69/2022 provides clarity regarding the tax obligations of financial technology providers and users in Indonesia. This regulation mainly discusses the two following topics:
1. Income Tax in Peer-to-Peer (“P2P") lending transactions; and
2. Value Added Tax (“VAT”) on the provision of financial technology services.
The following are the key points that must be considered regarding the two main topics above.
A. INCOME TAX IN P2P LENDING TRANSACTIONS
1. The Type of Funds Considered Income that is subject to Income Tax in a P2P Lending Transaction and the Applicable Withholding Tax Rate
In a P2P lending transaction, the lender receives income in the form of interest on the loan (or anything equivalent to this according to Sharia principles) paid by the borrower through the P2P lending provider (“Loan Interest”). This Loan Interest is categorized as income of the lender that it must report in its annual tax return.
The Loan Interest is subject to income tax at the following withholding tax rates, which rates are differentiated according to the type of taxpayer the lender is:
|Type of Lender Taxpayer||Withholding Tax Rate|
|Resident Taxpayers and
|15% (fifteen percent) of the gross amount of the
Loan Interest (Article 23 Income Tax)
|Foreign Taxpayers that are not
|20% (twenty percent) of the gross amount of the
Loan Interest (Article 26 Income Tax)
MOF Reg 69/2022 explains to P2P lending providers that:
a. the lender’s Loan Interest (that is paid by the borrower through the P2P lending provider) is not considered a cost and cannot be calculated as a deduction from the P2P lending provider’s gross income for determining the amount of the P2P lending provider’s taxable income.
However, if the Loan Interest that is paid by the borrower to the P2P lending provider is higher than the actual Loan Interest that the P2P lending provider then forwards to the lender, this difference is deemed income that must be reported in the P2P lending provider’s annual tax return; and
b. P2P lending providers that hold a license or are registered with the Financial Services Authority (“OJK”) (“Licensed P2P Lending Providers”) may receive a fee, commission, ujrah or other reward (in any form equivalent to them) from the lender or borrower for the organization of the P2P lending (collectively “Rewards”). Neither the borrower nor the lender needs to deduct income tax from these Rewards. However, these Rewards must be reported in the Licensed P2P Lending Providers’ annual tax return.
2. The Party Responsible for Withholding the Income Tax Due on the Lender’s Loan Interest
MOF Reg 69/2022 names the Licensed P2P Lending Provider as the party responsible for withholding the income tax due on the lender’s Loan Interest. However, if the Loan Interest is not paid by the borrower to the Lender through a Licensed P2P Lending Provider, the borrower itself that must withhold the income tax due on the lender’s Loan Interest.
When withholding the income tax due on the lender’s Loan Interest, the Licensed P2P Lending Provider has the following obligations, among others:
a. to create proof of its withholding the income tax due and to provide the proof to the lender;
b. to deposit the Article 23 Income Tax and Article 26 Income Tax which has been deducted into the State Treasury’s account; and
c. to report the income tax withheld.
B. THE VAT DUE ON THE PROVISION OF FINANCIAL TECHNOLOGY SERVICES
The following table describes the key services/goods provided by Financial Technology Providers that are and are not subject to VAT:
Operational Services the fees for which are subject to VAT
|Services that are Subject to VAT||Services/Goods that are Not Subject to VAT (Exempt from VAT)|
1. Electronic Money services, including:
2. Electronic Wallets services, including:
3. Payment Gateways services, including:
4. Switching services;
5. Clearing services;
6. End Settlements services; and
7. Transferring funds services, including using blockchain technology or distributed ledger services for transferring the funds.
|The Organization of Investment Settlement Transactions||Providing integrated electronic communication facilities that support the settlement of securities transactions through book-entries.||-|
|Capital Raising Organization||Equity crowd funding (i.e. providing services for securities
offers made by issuers to sell
securities directly to investors
through an open electronic system network).
Placement of funds, lending, or financing services provided by lenders.
|Online Insurance Product Provision Services||This includes providing electronic communication facilities in order to facilitate transactions between insurance companies and policy holders, at least in the form of travel insurance product offerings
provided by E-Commerce
Online insurance services provided by insurance companies.
|Market Support Services||This includes providing product
information comparison data and providing financial service
|Digital Financial Support Services and Other Financial Services||This includes:
a. eco crowdfunding;
b. Islamic digital financing, ewaqf, and e-zakat;
c. robo advice and credit scoring;
d. trading invoices;
e. vouchers or tokens; and
f. blockchain application based products.
Financial Technology Providers that provide the above services that have been confirmed to be taxable entrepreneurs must collect, deposit and report the VAT payable on the fees charged for the services that are subject to VAT which currently is 11% (eleven percent). Tax is due on any form of compensation paid, such as fees, commissions, merchant discount rates (specifically for services provided by payment service providers), and other considerations in any name or form received by the above Financial Technology Providers.
The Financial Technology Providers who do not comply with their obligation to withhold, deposit and report Income Tax or their obligation to collect, deposit and report the required VAT will be subject to the sanctions that are provided under the prevailing regulations, which in general and among others consist of the following:
1. Administrative Sanctions:
a. fines; and
2. Criminal Sanctions.
Rahel Olivia Manurung
Budhy Apriastuti Evita