Indonesia Tax Regulation pertaining to financial-technology-based services

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Rapid development of financial technology (“fintech”) impacts the financial service industry’s business volume. According to the Director General of the Tax Authority, the fintech lending industry in Indonesia recorded IDR 295.85 trillion in loans by the end of 2021, an increase of 89.77 per cent year-on-year.  This triggers the authority to issue regulations in conjunction with the  implementation of The Law of Tax Regulation Harmonization / Harmonisasi Peraturan Perpajakan “HPP Law”).  
       
Quite recently,  the Minister of Finance issued MoF Regulation Number PMK-69/PMK.03/2022 of 30 March 2022 (“PMK-69”). The regulation addresses both, Income Tax and VAT aspect.
  

VAT

In general, financial services are VAT exempt. The said VAT exempt financial services include fund-ing or financing services provided by lender to borrower through a peer-to-peer (P2P) lending platform, insurance services through digital plat-forms, guarantee provision services, fund transfer services in the same bank or financial institution for current account holders, savings accounts, time deposit and the like. 
In this regard, the VAT regulation adopts equal treatment between digital (fintech based) transactions and conventional transac-tions. There are no new VAT-able objects, but  only a different mode of transaction.      
VAT is due upon the fee, commission, merchant discount rate or other compensations received by the digital facility provider or fintech service provider.  PMK-69 mentions the types of the abovementioned fintech services upon which VAT is due on the fee charged: 
  • payment system services; 
  • investment settlement services through integrated electronic communication; 
  • capital rising services such as digital crowd-funding; 
  • lending services through P2P platform; 
  • investment management through digital platform;
  • online insurance product.       
  

Income Tax 

With regard to P2P lending platform, the lender typically receives interest from the borrower which is passed through a P2P platform. From the perspective of the P2P platform provider, such interest payment is neither income nor deductible expense.  The interest income passed on to the lender must be declared in the lender’s  Income Tax Return. 
  
If the P2P platform provider is a Finan-cial Service Authority (Otoritas Jasa Keu-angan/OJK)-approved institution,  it must withhold Income Tax when passing on the interest payment to the lender.  The tax is Article 23 Withholding Income Tax (for domestic income recipients) or Article 26 Income Tax  (for non-resident income recipients).  But if the platform provider is not an OJK-approved institution, the onus of withholding tax lies on the borrower.   
  
P2P platform providers may receive fee commission or interest spread if the interest paid by the borrower is higher than the interest passed on to the lender.  The income, in general, must be declared in the P2P platform provider’s tax return. 
  
This income is not subject to Withholding Tax if it is an OJK-approved institution.  

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