Article 4(3) Income Tax on Dividends Excluded as Tax Objects
- Maulana Ibrahim, Andre Wilson Siregar, Ellicia Emerliawati, & Nugraha Wira Taruna
- Aug 11
- 5 min read
Dividends Excluded as Tax Objects
Investments are considered an economic stimulus for a country or for modern civilization, where investments hold a key role in increasing the economic growth within the society.
Dividends are one of the income types originating from investments, where many modern investors are investing in hopes of obtaining dividends. The implication of taxes on dividends can result in a lesser amount of investment being done by the public, where it was reported by analyses from other countries. As a result, for the last few decades, many governments have implemented an income tax incentive on dividends, including Indonesia.
Since the issuance of Law Number 11 Year 2020 in 2021, the requirements for dividends to be excluded from the imposition of tax for Domestic Taxpayers have been adjusted to be easier, hoping to act as a stimulant to increase the amount of investments done by Indonesians.
Table of Contents
Tax Subject
The tax subject of the tax object exemption on Article 4(3) Income Tax is Individual or Corporate Taxpayers, both domestic and foreign, that receive or obtain income in the form of dividends.
Non-Tax Object
Income in the form of dividends is the profit obtained by shareholders. The dividends exempted as tax objects include:
Domestic Dividends received or obtained by Domestic Taxpayers
Foreign Dividends and income after tax from a foreign permanent establishment (BUT) received or obtained by Domestic Taxpayers
Criteria
Dividends received by Domestic Individual Taxpayers, with criteria including:
Domestic dividends, as long as the dividends are reinvested in Indonesia within a certain period
Foreign dividends, as long as dividends are reinvested or are used to support other business activities within the Indonesian area, and within a certain time period
Dividends received by Domestic Corporate Taxpayers, with criteria including:
Domestic dividends without any requirements
Foreign dividends, as long as dividends are reinvested or are used to support other business activities within the Indonesian area, and within a certain time period
Investment Instruments including:
The Republic of Indonesia State Securities and the Republic of Indonesia Sharia State Securities
Bonds or sukuk from State-Owned Enterprises, whose trading activities are supervised by the Financial Services Authority
Bonds or sukuk from a funding institution owned by the government, whose trading activities are supervised by the Financial Services Authority
Financial investments in perception banks, including sharia banks
Bonds or sukuk from private companies, whose trading activities is supervised by the Financial Services Authority
Infrastructure investments through a government partnership with a business entity
Real sector investments based on the priority list set by the government
Capital equity in a newly established company and is a shareholder in Indonesia
Capital equity in an established company and is a shareholder in Indonesia
Partnership with an investment management company
Usage to support other business activities in the form of distributing loans to micro and small businesses within the territory of the Republic of Indonesia in accordance with the provisions of laws and regulations in the field of micro, small, and medium enterprises, and/or
Other legitimate forms of investment in accordance with the provisions of laws and regulations
Investments from letter a until letter e and letter l placed within an investment instrument in the financial market in the following forms:
Debt security, including medium-term notes
Sukuk
Stocks
Mutual funds
Asset-backed securities
Real-estate investment funds
Deposits
Savings
Giro
Collective-Investment contract schemes traded in the Indonesian Stock Exchange, and/or
Other forms of financial investment, including insurance products related to investment, funding companies, pension funds, or venture capital, whose approved by the Financial Services Authority
Investments from letter f until letter l placed within an investment instrument outside the financial market, such as:
Infrastructure investments through a government partnership with a business entity
Real sector investments based on the priority list set by the government
Property investments in the form of land and/or buildings built above the land
Direct investments in a company within the Indonesia area
Metal investments in the form of gold bars
Partnership with an investment management company
Usage to support other business activities in the form of distributing loans to micro and small businesses within the territory of the Republic of Indonesia in accordance with the provisions of laws and regulations in the field of micro, small, and medium enterprises, and/or
Other legitimate forms of investment outside the financial market in accordance with the provisions of laws and regulations
Certain period includes:
Investments must be made at the end of the Third Month after the Tax Year when the dividend or other income is received or obtained for Individual Taxpayers at the latest
Investments must be made at the end of the Fourth Month after the Tax Year when the dividend or other income is received or obtained for Corporate Taxpayers at the latest
Investments must be made at a minimum of 3 (three) Tax Years since the dividend or other income is received or obtained
Dividend Receiver Filing Obligation
Domestic Taxpayers as the dividend receiver must file the entire received dividend, both domestic and foreign, in their Annual Tax Returns in the Non-Taxable Income section. Taxpayers who receive dividends exempted as a tax object must also file an investment realization report.
The investment realization report must be reported regularly at the end of the Third Month after the Tax Year ends for Individual Taxpayers and at the end of the Fourth Month after the Tax Year ends for Corporate Taxpayers. The report must be filed using a certain channel legitimized by the Directorate General of Taxes, which is through the e-reporting feature in the DJP Online site for the 2024 Tax Year and prior years’ obligations, and using the Core Tax Administration System or Coretax for the 2025 Tax Year obligation.
Case Study
PT ABC is a 50% shareholder of PT BBB. In December 2024, PT BBB announced that the company will be distributing dividends amounting to IDR100,000,000/ Thus, the dividend income of IDR50,000,000 received by PT ABC in 2024 will be excluded as an income tax object.
Mr. Andri is one of the shareholders of a foreign public company. In 2024, Mr. Andri received a dividend from said company for IDR10,000,000, and its entirety is reinvested back in Indonesia in the form of deposits for a 3-year period. Thus, the dividend income received by Mr. Andri is excluded as an income tax object.
Legal Basis
Law Number 7 Year 1983 regarding Income Tax as lastly amended by Law Number 6 Year 2023 regarding Stipulation of Government Regulation in Lieu of Law Number 2 Year 2022 on Job Creation to Become Law
Government Regulations Number 55 Year 2022 regarding the Adjustment of Regulation in the Field of Income Tax
Minister of Finance Regulations Number 18 Year 2021 regarding the Implementation of the Law Number 11 Year 2020 as lastly amended by Minister of Finance Regulations Number 81 Year 2024 regarding Job Creation Within the Fields of Income Tax and Value-Added Tax and Luxury Goods Sales Tax as well as General Taxation Provisions and Procedures
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