Receiving dividends can be a rewarding income stream, but many individual taxpayers in Indonesia may not realize there’s a way to make those earnings tax-free. Under current regulations, if you invest dividends in property, you may legally enjoy income tax exemptions. This opportunity is part of a broader government initiative to stimulate local investment and boost economic activity.
What Are Tax-Free Dividends in Indonesia?
Indonesia offers tax exemptions on dividends for individual taxpayers who meet certain conditions. According to Article 15 paragraph (1) of Minister of Finance Regulation (PMK) No. 18/2021, “Domestic dividends received or obtained by domestic individual taxpayers shall be excluded from the income tax object, provided that they are invested in the territory of Indonesia for a certain period.”
This means if you’re receiving dividends from shares or other investments, you can potentially avoid income tax by reinvesting those funds domestically. The government sees this as a way to encourage capital retention and promote national economic growth.
Read More: A Guide to Property Taxes for Real Estate Business Owners
Why Invest Dividends in Property to Save on Taxes
One of the most straightforward ways to meet the exemption criteria is to invest dividends in property. Property, in this context, includes land and/or buildings developed on it. The regulation is clear about the type of property that qualifies. As stated in Article 35 paragraph (5), “Property as referred to in paragraph (2) letter c does not include property subsidized by the government.”
Therefore, eligible investments might include residential or commercial real estate—excluding government-subsidized housing. This approach not only helps taxpayers reduce their tax burden but also contributes to the real estate sector and local development.
Partial Investment, Partial Exemption Explained
It is important to note that only the amount of dividends reinvested qualifies for exemption. If you reinvest less than the total dividends received, only that portion will be excluded from tax.
For instance, suppose you receive IDR 1 billion in dividends but only invest IDR 600 million in qualifying property. In that case, the IDR 600 million will be exempt, while the remaining IDR 400 million will be subject to a final income tax of 10%.
This system offers flexibility but requires accurate planning to maximize tax benefits. It’s advisable to maintain detailed records of how and where the dividends are invested.
Read More: Understanding Property Transaction Taxes in Indonesia: Leasehold vs. Freehold
Foreign Dividends? Still Eligible for Tax Relief
Dividends sourced from overseas are not excluded from this incentive. Article 15 of PMK 18/2021 also provides relief for international earnings: “Foreign dividends received or obtained by domestic taxpayers may also be excluded from the income tax object, provided that they are invested or used to support other business activities in the territory of Indonesia for a certain period.”
This clause allows taxpayers with global portfolios to redirect their earnings into domestic ventures. Whether you choose property or other approved business sectors, the key requirement remains the same: the investment must occur within Indonesia.
How to Start: Invest Dividends in Property the Smart Way
Getting started with property investment doesn’t have to be complicated. Begin by identifying high-potential properties, such as land in emerging areas or buildings with strong rental prospects. Conduct proper due diligence to ensure the investment qualifies under the regulation.
You should also consult a tax advisor to align your strategy with current laws. Investing in real estate not only secures tax savings but also adds long-term value to your portfolio. By choosing to invest dividends in property, you contribute to national growth while optimizing your own financial outcomes. With Seven Stones Indonesia, you can streamline the legal process, ensure compliance, and focus on your business growth.
Source: news.ddtc.co.id, bisnisbrstfriend.co.id
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