In October 2025, the Indonesian government officially issued yuan-denominated bonds, commonly known as dim sum bonds. This is a noteworthy milestone in the country’s efforts to diversify funding sources. But how are these bonds treated for tax purposes? This article outlines the withholding tax provisions under Article 26 of the Income Tax Law, applicable tax rates on interest and capital gains, and how the Indonesia–China tax treaty applies.
Issuance of Dim Sum Bonds
The government issued dim sum bonds worth CNH 6 billion, marking the country’s first issuance in renminbi, with maturities of 5 and 10 years. This initiative is part of Indonesia’s broader strategy to expand its investor base and improve access to international capital markets.
The issuance also reflects a growing economic partnership between Indonesia and China, particularly in the financial and investment sectors.
Tax Treatment of Dim Sum Bond Interest
Article 26 Withholding Tax on Interest Income
Interest income from dim sum bonds is subject to Article 26 withholding tax at a maximum rate of 10%, as regulated under Government Regulation (Peraturan Pemerintah/PP) Number 9 of 2021. However, if a tax treaty provides for a lower rate, the treaty rate prevails. Under the Indonesia–China tax treaty, the applicable rate on interest is 10%.
Tax Rate Exemptions
The 10% rate does not apply if the interest recipient is a central or regional government, central bank, or state-owned financial institution. This exemption serves as an incentive for public institutions to participate in the international bond market.
Tax on Capital Gains, Discounts, and Premiums
Definition and Tax Treatment
In addition to interest, investors may earn income from capital gains, discounts, or premiums when bonds are sold or mature. Under PP Number 9 of 2021, such income remains subject to Article 26 withholding tax at a maximum rate of 10%.
Provisions Under the Indonesia-China Tax Treaty
Article 11, Paragraph 4, of the Indonesia-China tax treaty states that income derived from the sale of sovereign bonds is included in the definition of interest. Accordingly, both interest and capital gains from dim sum bonds earned by Chinese residents are subject to a 10% tax on the difference between the selling price and the acquisition price.
Tax Implications for Investors
Given these provisions, foreign investors—particularly from China—should note that income from Indonesia’s dim sum bonds is subject to a flat, competitive tax rate. A clear understanding of these rules is essential to accurately calculate net investment returns and maintain compliance with cross-border tax obligations.
Overall, the issuance of dim sum bonds not only broadens Indonesia’s funding sources but also opens new opportunities for international investors. It is therefore crucial to understand the tax framework, especially the Article 26 withholding tax rules and the Indonesia–China tax treaty.
FAQ on Tax Implications of Dim Sum Bonds in Indonesia
What is a yuan-denominated bond or dim sum bond?
A yuan-denominated bond, or dim sum bond, is a sovereign bond issued outside China in Chinese yuan (renminbi). In Indonesia’s case, the government issues these bonds as a financing instrument to attract international investors, particularly from the Chinese market.
How is interest income from dim sum bonds taxed?
Interest income is subject to Article 26 withholding tax at a maximum rate of 10% under PP Number 9 of 2021. However, if a tax treaty between Indonesia and the investor’s country (e.g., China) sets a lower rate, that rate applies instead.
Are all investors subject to the 10% interest tax?
No. Under the Indonesia–China tax treaty, the 10% rate does not apply to central or regional governments, central banks, or state-owned financial institutions. These entities may be exempt from withholding tax on bond interest.
How is tax applied to capital gains or discounts from bond sales?
Income from capital gains, discounts, or premiums on dim sum bond sales is also subject to Article 26 withholding tax at a maximum rate of 10%, as stipulated in Article 3, Paragraph 5, Letter b, of PP Number 9 of 2021.
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