New Government Regulation on Taxation of Benefits in Kind

Government Regulation No 55 Year 2022 (“GR-55”) was issued on 20 December 2022 as implementing regulation on the Income Tax Law, which was last amended by Law No.7 Year 2021 (Tax Regulations Harmonization Law).

Article 4(1)(a) of the Income Tax Law defined income as taxable object, which is any increase in economic capacity received, or accrued, by a taxpayer in Indonesia as well as from offshore, which may be utilized for consumption or to increase the taxpayer’s wealth, in whatever name and form, including compensation or remuneration received or obtained in respect of employment or services rendered, including salary, wage, allowance, honorarium, commission, bonus, gratuity, pension or other forms of remuneration including remuneration in kind and/or benefits, unless otherwise stipulated by this Law.

Under Article 4(3)(d) of the Income Tax Law, the following compensation or remuneration related to employment services, which are received or obtained in kind and/or in the form of benefits, are excluded from taxable objects:

1. Foods, food ingredients, ingredients for beverages and/or beverages provided to all employees;
2. Remuneration in kind and/or benefits provided in certain areas;
3. Remuneration in kind and/or benefits provided by the employer for the execution of work;
4. Remuneration in kind and/or benefits sourced or funded by State/Regional/Village budget;
5. Remuneration in kind and/or benefits of certain types and/or thresholds.

Chapter VI of GR-55 provides further details on the taxation of benefits in kind. It stipulates benefits in kind as taxable to the recipient, and deductible to the employer/provider thereof as long as the cost is incurred in relation to deriving, collecting and maintaining its income.

Definition of Benefit in Kind (“BIK”)

Benefit in kind means remuneration in-kind, or in the form of benefits.

Remuneration in-kind means remuneration in the form of goods other than money (e.g. the gifting of ex-company car to an employee), transferred from the giver to the recipient as compensation or remuneration for work or services rendered.  Money is defined to include cheques, savings balances, electronic money or digital wallet balances.  

Remuneration in the form of benefits means remuneration in the form of the right to use certain facilities and/or services (e.g. the provision of a company car for use by the employee). The facilities and/ or service provided by the provider to the recipient may be sourced from the provider’s assets or third party’s assets leased and/or financed by the provider.

A. Benefits in Kind which are exempted from tax

1. The following food and/or beverage and their ingredients provided to all of employees[1]:

• Food and/or beverages provided by the employer at the workplace;
• Food and/or beverage voucher for employees who due the nature of their work cannot take advantage of the provision of food and/or beverage at the workplace, including employees in the marketing department, transportation department, and other external services.
• Food and/or beverage ingredients for all employees with a certain value threshold to be determined by a Minister of Finance (“MoF”) regulation.

2. Benefit in kind provided in designated areas[2] including facilities, infrastructure and/or facilities at the workplace for employees and their families in the form of housing, health services, education, place of worship, transportation and sports (but excluding golf, power boating, horse racing, gliding or motorsports). To be tax exempt, the provision of these benefits in kind must be made at the business location of the employer that has been determined as designated area by the Director General of Tax (“DGT”). To be a designated area, it must have the potential for economic development but lacks economic infrastructure and difficult to be reached by public transportation so that investors must bear relatively high risks and a long pay-back period. Designated areas include areas of seawater that have a depth of more than 50 meters where the seabed has mineral reserves, and remote areas. The procedures for granting tax exemption on benefits in kind provided in designated areas will be determined by a MoF regulation.

3. Benefit in kind that must be provided by employer for the execution of work[3] related to the requirements concerning the security, health and/or safety of employees as required by the relevant Ministries or Agencies pursuant to statutory provisions, including:

• Uniforms;
• Work safety equipment;
• Employee shuttle service;
• Lodging for crew members and/or
• Benefits in kind received within the framework of handling endemic, pandemic or a national disaster.

4. Benefit in kind sourced or funded by State Government / Regional Government / village budget.

5. Benefit in kind of certain types and/or thresholds [4] having regard to:

• the type and/or value of the received benefit in kind; and/or
• the eligibility criteria for the recipient of the benefit in kind

The certain type and/or value threshold of these benefits in kind and the eligibility criteria of the recipient thereof will be determined by a MoF regulation.

[1] Article 25 of GR-55
[2] Article 26 of GR-55
[3] Article 27 of GR-55
[4] Article 28 of GR-55

B. The taxable amount of Benefits in Kind [5]

• For remunerations in-kind, based on the market value; and
• For remuneration in the form of benefits, based on the amount of costs incurred or should be incurred by the provider.

Procedures for assessing and calculating benefits in kind will be determined by a MoF regulation.

[5] Article 29 of GR-55

C. The effective date of the above provisions on the tax treatment of Benefits in Kind [6]

• For employer or provider that maintain bookkeeping for the 2022 accounting year starting before 1 January 2022, the above provisions shall be effective as of 1 January 2022.
• For employer or provider that maintain bookkeeping for the 2022 accounting year starting 1 January 2022 or onwards, the above provisions shall be effective when the 2022 accounting year starts.
• The obligation on employer or provider to withhold income tax on benefits in kind is effective for income received or accrued as of 1 January 2023.
• For benefits in kind received in the year 2022 that have not been subject to income tax withholding by the employer or provider, the recipient must calculate, pay and report the tax in their individual income tax return for the year 2022.

[6] Article 73 of GR-55

Some action points to note.

If the employer or provider has not withheld tax on benefits in kind provided during the year 2022:

• They should inform their employees regarding the employees’ own personal obligation to report these benefits in kind in the individual income tax return for the year 2022 and provide the benefits in kind data to the employees to enable them to calculate and pay the tax before 31 March 2023.
• If based on the employment agreement or the employer’s policy that tax on benefits in kind will be covered by the employer, the employer must set up an internal process for the tax payment.