Tax on Stock Transactions

BASED ON data from the Indonesian Central Securities Depository (KSEI), the number of capital market investors in the country has reached 7.86 million investors as of January 31, 2022. Interestingly, of the various capital market investment instruments, stocks are the most favored investment choice by investors.

Share ownership can indeed provide additional income for investors in the form of capital gains. This additional income occurs when shareholders sell their shares above the purchase price.

In addition, investors can also receive income in the form of dividends on share ownership. In the context of taxation, additional income from the sale of shares and dividends is an object of final income tax (PPh).

The legal umbrella for the imposition of taxes on stock and dividend transactions is primarily contained in Article 4 paragraph (2) letter c of Law no. 7 of 1983 concerning Income Tax stated Law no. 7 of 2021 concerning Harmonization of Tax Regulations ( PPh Law stated UU HPP ).

So, what is the final PPh aspect of stock and dividend transactions? Here’s the discussion.

Final PPh on Share Transactions
IMPLEMENTATION of PPh collection on the income from the sale of shares is regulated in PP 14/1997 in conjunction with KMK 282/1997. Unfortunately, the regulation does not explain the definition of stock. When referring to the information on the Indonesian Stock Exchange (IDX), shares can be understood as a sign of an individual’s or business entity’s equity participation in a company or limited liability company.

For information, the founder’s shares in the table above are the shares obtained by the founder from the capitalization of premium issued after the initial public offering (IPO) or shares derived from the founder’s share split. The definition is as stated in Article 1 paragraph (3) KMK 282/1997.

However, 3 groups of shares are excluded from the definition of founder shares. First, the shares obtained by the founders come from the distribution of dividends in the form of shares. Second, the shares obtained by the founder after the IPO originate from the exercise of pre-emptive rights, warrants, convertible bonds, and other convertible securities. Third, the shares obtained by the founders of the mutual fund company.

In the aspect of withholding, the final income tax on the sale of shares made by the WPDN will be deducted by the stock exchange operator through a securities broker as written in Article 4 KMK 282/1997. The final withholding of income tax is carried out at the time of settlement of the share sale transaction.

Final Income Tax on Dividends
When a company makes a large profit, generally the company will distribute a portion of the profit to shareholders. The profits that are distributed to shareholders are known as dividends.

Referring to Article 1 paragraph (18) of PMK 18/2021, dividends are part of the profits received or earned by shareholders. Article 4 paragraph (1) letter g of the Income Tax Law stated the HPP Law, dividends can include dividends in any name and any form, including dividends from insurance companies to policyholders and distribution of the remaining results of cooperative operations.

In general, domestic and foreign dividends received by individual taxpayers are the object of final income tax. However, domestic and foreign dividends received by the WPDN may be granted exemption from income tax objects as long as they meet the specified requirements.

The dividends that are excluded from the object of income tax are dividends distributed based on the GMS or interim dividends by the provisions of laws and regulations. Furthermore, by Article 15 paragraph (1) of PMK 2021, dividends originating from within the country received or obtained by domestic individual taxpayers are excluded from income tax objects on the condition that they must be invested in the territory of the Republic of Indonesia within a certain period.

Meanwhile, specifically for WPDN in the form of an entity, domestic dividends obtained by the taxpayer are excluded from the object of PPh without investment conditions as applicable to domestic individual taxpayers. This is by the description of Article 15 paragraph (2) of the 2021 PMK.

In addition to dividends from within the country, dividends originating from abroad can also be excluded from the object of income tax. This exception can be granted if dividends are invested or used to support business activities in the territory of the Republic of Indonesia within a certain period.

Foreign dividends that can be excluded from income tax objects include dividends from foreign business entities whose shares are traded on the stock exchange and whose shares are not traded on the stock exchange.

If the amount of dividends invested in the territory of the Republic of Indonesia is less than the number of dividends received, only the dividends invested can be excluded from the imposition of income tax. This means that dividends that are not invested are still subject to income tax by applicable regulations.

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