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It has been a year since the Minister of Finance Regulation (Peraturan Menteri Keuangan / PMK) Number 66 of 2023 regarding the Income Tax Treatment of Reimbursement or Compensation in the form of Benefits in Kind (BiK) and/or Fringe Benefits was issued. However, there is still confusion and ambiguity in its implementation. To address this, the Directorate General of Taxes (DGT) issued a Directorate General of Taxes Official Note Number ND-14/PJ.02/2024 in mid-July, clarifying the implementation of PMK 66 of 2023.
The official note covers various aspects, including the limits on income from BiK and fringe benefits subject to income tax (PPh). However, in general, these provisions stipulate that Benefits in Kind (BiK) and/or fringe benefits received or obtained by the service provider are considered reimbursement or compensation for the service if they are determined as such based on a cooperation agreement, bill, invoice, receipt, or similar document.
The exemption of health and medical treatment facilities from PPh objects
According to previous provisions in PMK 66 of 2023, vehicle facilities provided by employers were exempt from PPh objects as long as they met two specific requirements. First, employees do not have a capital investment in the employer. Second, employees have an average gross income of employees from the employer not exceeding Rp100,000,000.00 (one hundred million rupiah) per month in the previous 12 (twelve) months.
This exemption is also stated in ND-14/PJ.02/2024, ensuring consistency in the tax treatment of such benefits. However, ND-14 of 2024 confirms that the term "employees who do not have a capital investment in the employer" includes employees whose names are not listed as parties with capital investment in the deed of establishment, deed of amendment, or similar documents notarized or authorized by other officials in accordance with applicable laws and regulations.
Additionally, ND-14/PJ.02/2024 clarifies that the gross income referred to in PMK 66 of 2023 encompasses all income related to work received or obtained by employees from employers who provide reimbursement or compensation in the form of vehicle facilities, including BiK and/or fringe benefits that are excluded from PPh objects.
The exemption of health and medical treatment facilities from PPh objects
There are two conditions for health and medical treatment facilities that are excluded from PPh objects. First, the facilities obtained from the employer based on the Decision Letter on the Determination of Business Location in Certain Areas or its extension. Second, the facilities provided by the employer not based on the Decision Letter on the Determination of Business Location in Certain Areas or its extension.
Employees can obtain exemptions for health and medical treatment facilities in certain areas if they meet specific requirements. First, the employer has a Decision Letter on the Determination of Business Location in Certain Areas or its extension. Second, the facilities are received or obtained by employees working in certain areas and/or their accompanying families. Third, the facilities are provided in certain areas, either by the employer independently or by cooperating hospitals, clinics, and/or healthcare providers.
Furthermore, health and medical treatment facilities in certain areas can also be provided in districts or cities directly bordering these areas, by cooperating hospitals, clinics, and/or healthcare providers.
Employers without a Decision Letter on the Determination of Business Location in Certain Areas or its extension can still provide health and medical treatment facilities exempted as tax objects, provided they meet several requirements. First, the facilities are received or obtained by employees. Second, the facilities are provided in connection with handling work accidents, occupational illnesses, life-saving emergencies, and continued care or treatment resulting from work accidents and/or occupational illnesses.
The exemption of educational facilities from PPh objects
Similar to health and medical treatment facilities excluded as taxable objects, educational facilities that are excluded from tax objects are also divided into two categories. First, the facilities provided by the employer based on the Decision Letter on the Determination of Business Location in Certain Areas or its extension. Second, the facilities from the employer that are not provided based on the Decision Letter on the Determination of Business Location in Certain Areas or its extension.
Two main conditions must be met to obtain an exemption for educational facilities as tax objects in certain areas. First, the facilities are received or obtained by employees working in certain areas and/or their accompanying families. Second, the facilities are provided in certain areas, either organized by employers independently or by educational and/or training institutions that cooperate with employers.
For the provision of educational and/or training facilities by employers that are not based on a Decision Letter on the Determination of Business Location in Certain Areas or its extension, an income tax exemption may be granted if two requirements are met. First, the facilities are received or obtained by employees, excluding their families. Second, the facilities meet the requirements of a scholarship that fulfills certain criteria.
For the record, scholarships that meet certain requirements as referred to above include scholarships received or obtained by employees who are Indonesian citizens, as well as for participation in formal and informal education conducted domestically and/or abroad.
The exemption of discount facilities from PPh objects
In addition to detailing exemptions for vehicle, health, and education facilities from income tax objects, ND-14 of 2024 also addresses confirmation on price reduction or discount facilities for employees. However, ND-14 of 2024 stipulates that price reductions or discounts to employees are considered income tax objects.
The regulation outlines three general types of discounts: First, special discounts for employees on the purchase of goods produced or traded by the employer. Second, special loans for employees with interest rates below the publicly published loan interest rates. Third, granting employees the option to purchase employer shares at a certain price and time in the future.
The provisions of ND-14 of 2024 confirm that the price reduction facility as referred to in number 1) is included in the scope of reimbursement or compensation in connection with work if it meets the following conditions:
- for special discounts for employees on the purchase of goods produced or traded by the employer, the amount paid by the employee to the employer to purchase the goods must be lower than the cost of sales of the goods in question.
- for special loans for employees, the value of the loan interest paid by the employee to the employer must be lower than the value of the interest costs incurred by the employer to obtain savings funds distributed to the employee (cost of funds); and
- for granting options to employees, the certain price paid by the employee to exercise the stock purchase option must be lower than the value of the costs incurred by the employer to acquire outstanding shares, in the event that the employer carries out a buyback of outstanding shares to meet the needs for exercising the stock option. Or, the nominal value of the shares plus the issuance costs, in the case where the employer issues new shares to accommodate the exercise of stock options.
This explanation highlights technical explanation regarding the provision of facilities or benefits that are subject to income tax. If you need further explanation, Ideatax is here to help.
