Current Tax Regulation regarding Benefits-in-Kind

Following the enactment of the updated Income Tax Law introduced under the Tax Regulations Harmonization Law (Harmonisasi Peratusan Perpajakan/HPP), the most recent implementing regulation is the Government Regulation Number 55 Year 2022 (“GR 55/2022”) of 20 December 2022.

The GR 55/2022 addresses several aspects including:

benefits-in-kind (BIK);
territorial taxation of foreigners;
taxable objects;
deductible expenses;
fiscal depreciation & amortization;
rules of tax avoidance; and
the aspect of international tax.

This article briefly covers the changes contained in the HPP Law regarding the taxation of benefits-in-kind.

Remuneration in Kind

The Regulation defines "remuneration in kind" as remuneration in the form of goods other than money in exchange for work performed or services rendered. Remuneration in the form of "benefits" is defined as remuneration in the form of the right to use facilities or services provided by the employer or provided by a third party and for which the employer has paid.

Under the previous Income Tax Law, BIK has not been taxable to the employee (recipient) and is not deductible to the employer when calculating Corporate Income Tax. Under recent regulation changes, BIK is now taxable to the employee (although there are exceptions) and the costs are deductible to the employer, provided that such costs are related to the generation, collection and maintenance of income.

Exceptions to taxable BIK

There are exceptions to taxable BIK:

food and beverages provided by the employer at the workplace for all employees;
BIK provided in designated areas provided that such area has already been approved by the Director General of Tax. The procedures for granting tax exemption on BIK provided in designated areas shall be determined by a Minister of Finance Regulation;
BIK, which must be provided by the employer for the performance of the employee's work activity;
BIK that is sourced or financed by the Governmental budget;
BIK of certain types and/or thresholds that correspond to the type and/or value of the BIK or to eligibility criteria for recipients estab-lished by regulation of the Secretary of the Treasury.

Tax Base

The tax base for remuneration in kind is equal to the market value. The tax base for remuneration in kind is based on the costs incurred or to be incurred by the provider.

Under the regulation, the employer's obligation to withhold Income Tax on BIK begins on January 1, 2023. Accordingly, Income Tax on BIK received in FY 2022 (if the employer has not withheld tax) must be calculated, withheld, and declared by the employee on their 2022 annual Income Tax return. The employer can technically deduct the BIK in FY 2022.

Please note, however, that during the Media briefing on January 10, 2023, the Director General of the Internal Revenue Service men-tioned that the expected regulation from the Minister of Finance on this issue is still in process, and the actual implementation of the employer deduction will take place in the second half of 2023, after the recent changes have been socialized.