Article 4(3) Income Tax on Income Received by Venture Capital Companies
- Maulana Ibrahim, Andre Wilson Siregar, Ellicia Emerliawati, & I Made Arya Wira Utama
- 1 day ago
- 3 min read
Income Received by Venture Capital Companies Excluded as Tax Objects
Venture capital companies have a strategic role in supporting the growth of small and medium enterprises, as well as start-ups, through equity capital in the partner company. In order to push their role, the government provides a tax facility in the form of an Income Tax exemption on certain kinds of income received by venture capital companies.
The decision to provide such a facility is to create a beneficial investment climate and strengthen the national sector.
Tax Subject
Domestic Corporate Venture Capital Taxpayers receiving or obtaining income in the form of a part of the profit.
Non-Tax Object
Income in the form of Venture Capital in the form of a part of the profit from the partner company that is established and is conducting business activities in Indonesia.
Criteria
The income that is exempt from being an income tax object is the income received by venture capital companies with a license from the Financial Services Authority, with the criteria that the partner company:
is a micro, small, and medium company with a net sales of no more than IDR50 billion in a year during the last year prior to the financing from the venture capital.
its stocks are not publicly traded on the Indonesian Stock Exchange.
Additionally, the income exempt from being a tax object is the income received by venture capital companies as a result of financing partner companies or within a period of no more than 10 (ten) years.
Venture Capital Companies Obligation
The venture capital company that received the income fulfilling the laws and regulations will have the obligation to report its entire income in the Annual Tax Returns in the non-taxable income section.
Furthermore, the venture capital company must also do bookkeeping separately between the taxable income and the non-taxable income.
Case Study
Company B is a venture capital company with a license from the Financial Services Authority, and owns several investment portfolios in 2024. Two of which are financing in Company X, which has yearly sales of IDR30 billion, and Company Y, which has yearly sales of IDR25 billion.
Company B invested capital in Company X since 2009 and in Company Y since 2019. In 2024, Company B will be receiving an income as a result of its financing of both companies.
Tax Implications on Income Received by Company B:
On income received by Company B as a result of its financing of Company Y, the income is not considered as an income tax object since Company B has fulfilled the criteria of a venture capital company and Company Y has fulfilled the criteria of the partner company, which has no sales more than IDR50 billion per year. Additionally, the equity capital period from Company B to Company Y has just entered its fifth year.
However, on income received by Company B as a result of its financing of Company X, the income is considered as an income tax object since the equity capital from Company B to Company X does not fulfill the criteria mentioned above, having more than 10 (ten) years of equity capital period.
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
The Minister of Finance Regulations Number 48/PMK.010/2018 regarding the Tax Treatment on Equity Capital of Venture Capital Companies on Micro, Small, and Medium Enterprises
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