Asia: Indonesia government forces to sell foreign shell companies

The Indonesian government has recently implemented a new controlled foreign company (CFC) regulation. With the new CFC regulation, the Indonesian government is now authorised to impose a withholding tax on foreign entities that are controlled by Indonesians regardless of the jurisdiction of the foreign entities.

This would mean that if an Indonesian individual indirectly owns an Indonesian entity through a foreign company, the government will now be able to implement a tax at each level of dividend payment. Taxes will be imposed on dividend payments from the Indonesian entity to the foreign shell company and on dividend payments from the foreign company to the investors.

Off the back of the new regulation, direct ownership of the Indonesian would result in a 10% dividend tax whereas indirect ownership through a foreign entity would result in a 30% withholding tax. We can therefore expect to see a drop in the number of Indonesian entities being held by offshore companies.

"52% of corporate clients expects regulatory and legislative changes in the next 12 months to have a positive impact on their businesses whereas only 2% expects a negative impact."

According to RFi Group data, 17H1 Commercial Council Indonesia, 52% of corporate clients expects regulatory and legislative changes in the next 12 months to have a positive impact on their businesses whereas only 2% expects new regulations that would have a negative impact on their businesses. The new CFC regulation will likely unanticipated by business owners in Indonesia.

 

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