MoF Regulation No. 169/PMK.010/2015 dated September 9, 2015

STIPULATION OF DEBT AND EQUITY RATIO FOR INCOME TAX CALCULATION PURPOSES

Article 1

1. For income tax calculation purposes it is set a debt to equity ratio for corporate taxpayer which is established or domiciled in Indonesia and whose capital divided into stocks.
2. Debt is average outstanding of debt within one fiscal year or part of it, which calculated based on:
   1. Average outstanding balance at every end of month in corresponding fiscal year; or
   2. Average outstanding balance at every end of month in corresponding part of fiscal year.
3. Outstanding balance include balance of long term and short term debt also trade payable which bear interest.
4. Equity consist of average balance of capital at one fiscal year or part of it, and calculated based on:
   1. Average balance at every end of month in corresponding fiscal year; or
   2. Average balance at every end of month in corresponding part of fiscal year
5. Capital consist of equity as mentioned in financial accounting standards and non interest bearing loan from related party.

Article 2

1. The highest debt to equity ratio as mentioned in article 1 paragraph 1 is set 4:1.
2. Excluded from such provision is:
   1. Banking taxpayer
   2. Funding institution taxpayer
   3. Insurance and reinsurance taxpayer
   4. Oil and gas mining, general mining and other mining taxpayer which are bound in sharing contract, work contract or joint mining working agreement, and such contract or agreement require a specific debt to equity ratio; and
   5. Taxpayer whose all income is subject to final income tax under tax law and regulation, and
   6. Taxpayer in infrastructure business.
3. Banking taxpayer is a bank as stated in banking law and regulation and Bank Indonesia.
4. Funding institution taxpayer is a business entity in funding sector which provide funds or capital goods as mentioned in funding institution law and regulation.
5. Insurance and reinsurance taxpayer is insurance corporation, sharia insurance corporation, reinsurance corporation and sharia reinsurance corporation in insurance and/or reinsurance business sector as mentioned in insurance law and regulation.

Article 3

1. When taxpayer debt to equity ratio is higher than the ratio mentioned in article 2 paragraph 1, borrowing cost can be computed for taxable income calculation is the amount according to the ratio as mentioned in article 2 paragraph 1.
2. Borrowing cost is expenses bear by taxpayer for funds borrowing which include:
   1. Borrowing Interest
   2. Discount and premium related to borrowing;
   3. Additional expenses related to arrangement of borrowings;
   4. Finance charges in lease funding;
   5. Compensation for loan repayment guarantee; and
   6. Forex differences as result of foreign currency borrowings as long as such amount came from adjustment in interest expenses and expenses as mentioned in letter b, c, d and e.
3. Borrowings cost amount according to debt to equity ratio as mentioned in article 2 paragraph 1 that can be computed for taxable income calculation must consider provisions in article 6 and 9 Income tax Law No. 36 Year 2008.
4. When taxpayer has loan from related party, besides provisions in paragraph 1 and 3 it also must meet fairness and common practice principles as mentioned in article 18 paragraph 3 Income tax Law No. 36 Year 2008.
5. When taxpayer’s equity is nil or deficits, all borrowings cost cannot be computed in taxable income calculation.

Article 4

1. For taxpayer in oil and gas mining, general mining and other mining sectors, which:
   1. Bound in sharing contract, work contract or joint mining working agreement and
   2. Such contract or agreement require a certain debt to equity ratio.

Such provisions will valid until end of contract or agreements.

1. For taxpayer in oil and gas mining, general mining and other mining sectors, which:
   1. Bound in sharing contract, work contract or joint mining working agreement, and
   2. Such contract or agreement does not require a certain debt to equity ratio. Debt to equity ratio will refer to provision in article 2 paragraph 1.

 Article 5

1. Taxpayer who has offshore loans must report its balance to DGT.
2. When taxpayer does not file such report, borrowings cost on such loans cannot be deducted from taxable income calculation.
3. Procedures for offshore loans reporting will be set by DGT Regulation.

At the effective date of this regulation:

1. Minister of Finance Regulation No. 1002/KMK.04/1984, and
2. Minister of Finance Regulation No. 254/KMK.01/1985

are void and no longer valid.

This Provision for debt to equity ratio for income tax calculation purposes will be effective since 2016 fiscal year.

Further provisions for this regulation will be set by DGT Regulation.

This regulation will be effective at promulgation date.