In an effort to enhance the competitiveness of the capital market and encourage companies to go public, the Indonesian government offers tax incentives to Public Companies that meet certain criteria. This provision is regulated under Article 64 and Article 65 of Government Regulation No. 55 of 2022 on the Adjustment of Regulations in the Field of Income Tax (“GR 55/2022”), which is a derivative of Law No. 7 of 2021 on the Harmonization of Tax Regulations.

According to Article 64 of GR 55/2022, the general Corporate Income Tax (CIT) rate applicable to resident corporate taxpayers and permanent establishments is 22%, effective from the 2022 fiscal year. However, Article 65 paragraph (1) provides an opportunity for resident taxpayers in the form of Public Companies to obtain a 3% tax rate reduction, resulting in an effective rate of 19%. This reduction serves as a fiscal incentive for companies that have demonstrated commitment to transparency and share liquidity in the Indonesian capital market.

To qualify for the reduced CIT rate, the Public Company must fulfil the following conditions:

1. At least 40% of its paid-up shares must be traded on the Indonesia Stock Exchange (IDX);
2. The shares must be owned by at least 300 parties, each of whom may not hold more than 5% of the total issued and fully paid shares;
3. This ownership structure must be maintained for a minimum of 183 calendar days within a single fiscal year;
4. The Public Company must submit periodic reports to the Directorate General of Taxes (DGT) to confirm compliance with the above requirements.

This policy aims to encourage more companies to conduct IPOs and become listed issuers on the IDX, enhance retail investor participation in the capital market, improve corporate transparency and governance, and promote the capital market as a fiscally competitive financing alternative.

While this incentive offers clear benefits, companies must remain vigilant, non compliance with  any of the eligibility criteria (such as having fewer than 300 shareholders or an overly concentrated ownership structure) may result in the forfeiture of the reduced tax rate, thereby reverting to the general 22% rate.

The reduced corporate income tax rate for qualifying Public Companies under GR 55/2022 represents a progressive step by the Indonesian government to foster public listings and broaden the retail investor base. Companies intending to take advantage of this incentive must diligently monitor their shareholding composition and ensure timely and accurate reporting to the DGT.

If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of the leading corporate law firms in Indonesia, with extensive experience handling similar matters. Our team of professional corporate and civil lawyers makes us one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.

Author:
Dewi Susanti