Tax Aspects on Royalties
Jakarta, Ideatax -- Currently, the public is in the midst of a feud between several musicians over royalties for their songs. Basically, the issue of royalty payments is a classic issue in Indonesia. Therefore, in 2021, the Government issued Government Regulation Number 56 of 2021 concerning the Management of Royalties for Copyright of Songs and/or Music.
Royalty is a broad term. Black's Law Dictionary defines royalty as "A payment reserved by the grantor of a patent, mining lease, or similar right, and paid in proportion to the use made of the right by the assignee". On the other hand, the Legal Dictionary defines royalty as "The percentage of gross or net profits or a fixed amount per sale to which the creator of a work is entitled that is determined by contract between the creator and the producer, publisher, agent and/or distributor".
Several Indonesian regulations also clearly define royalties. Ministry of Finance Regulation Number 67 Year 2016, for example, defines royalties as a fee that must be paid by the buyer directly or indirectly as a condition of sale and purchase of imported goods containing Intellectual Property Rights. On the other hand, Law No. 28 of 2014 on Copyright defines royalties as compensation for the utilization of the economic rights of a work or related rights received by the creator or owner of the related rights.
Although in general royalties have various definitions, in tax terms, royalties can be defined as the amount paid or payable in any manner or calculation, whether periodically or not, in return for
The use or right to use copyright in literary, artistic or scientific works, patents, designs or models, plans, secret formulas or processes, trademarks, or other forms of intellectual/industrial property rights or similar rights;
Use or right to use industrial, commercial or scientific equipment/apparatus;
Provision of knowledge or information in scientific, technical, industrial or commercial fields;
The provision of additional or supplementary assistance in connection with the use or right to use the rights mentioned in point 1, the use or right to use the equipment mentioned in point 2, or the provision of knowledge or information mentioned in point 3, in the form of:
a. the receipt of or the right to receive image recordings or sound recordings or both, transmitted to the public by satellite, cable, optical fiber, or similar technology;
b. the use of or the right to use image recordings or sound recordings, or both, for television or radio broadcasts that are broadcast/emitted via satellite, cable, optical fiber, or similar technology;
c. the use or right to use part or all of the radio communication spectrum;
The use or right to use motion picture film, film or video tape for television broadcasts, or sound tape for radio broadcasts; and
Release of all or part of the rights relating to the use or granting of intellectual/industrial property rights or other rights as mentioned above.
Regarding the rate, Article 23 of Law Number 7 of 1983 concerning Income Tax as amended by Law Number 7 of 2021 stipulates that on income in the form of royalties paid, provided for payment, or which are due for payment, Income Tax Article 23 on income in the form of royalties shall be withheld at 15%.
Although royalty income is subject to ITA 23 of 15%, based on the latest provisions, DGT provides convenience for individual taxpayers who receive royalties. In Director General Regulation Number 1 Year 2023, it is regulated that royalties received by Individual Taxpayers who apply income tax calculation using the net income calculation norm, gross income is calculated at 40% of the total royalty income.
This means that the effective rate of Income Tax Article 23 on royalties for Individual Taxpayers who use the norm in calculating their income tax is 6%.
Government Regulation No. 94/2010 as amended by Government Regulation No. 45/2019 stipulates that Income Tax Article 23 is payable at the time of payment, when it is provided to be paid or at the time specified in the contract. As for royalty givers, royalties must be deducted at the end of the month in which the income is paid, when it is provided for payment or when the payment of the income in question is due, depending on the event that occurs first.
The payment code is 411124/103.
However, with the enactment of Director General of Taxes Regulation Number 24 of 2021, royalty deductions must be reported by the withholder in the Unification Period Tax Return. In addition, the withholder is also required to provide proof of withholding income tax article 23 on royalties to the royalty recipient. On the other hand, royalty recipients are also required to report royalty income in the Annual Tax Return for both corporate and individual taxpayers.
This is the explanation of the taxation aspect of royalty, if you need further assistance, you can contact Ideatax.
Law number 7 of 1983 concerning Income Tax;
Law Number 28 of 2014 concerning Copyright;
Law number 7 of 2021 concerning Harmonization of Tax Regulations;
Government Regulation Number 56 of 2021 concerning Management of Song and or Music Copyright Royalties;
Government Regulation of the Republic of Indonesia Number 94 of 2010 concerning Calculation of Taxable Income and Repayment of Income Tax in the Current Year;
Regulation of Ministry of Finance Regulation Number 67 of 2016 concerning Voluntary Declaration on Customs Value for Import Duty Calculation;
Regulation of the Director General of Taxes Number 24 of 2021 concerning the Form and Procedure for Making Unification Withholding / Collection Evidence and the Form, Content, Procedure for Filling, and Submitting Unification Income Tax Period Returns;
Regulation of the Director General of Taxes Number PER-1 / PJ / 2023 concerning Technical Guidelines for Procedures for Withholding, Depositing, and Reporting Income Tax Article 23 on Royalty Income Received or Obtained by Individual Taxpayers who apply Income Tax calculation using Net Income Calculation Norms.
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