Income Tax, as stipulated in Article 23 of Law No. 36 of 2008 (Income Tax Law) is a tax on income received by domestic taxpayers originating from capital, services or business activities (PPh 23). This income can be obtained by taxpayers because of transactions with other parties in the context of providing products/services.

A. Objects of PPh 23

Objects of PPh 23 are grouped based on their imposition rates. Article 23 (1) of Income Tax Law further regulates the two types of imposition rates, namely:

1. The imposition rate of 15% (fifteen percent), which is imposed on income/rewards originating from:

• • Dividend
  • Flower
  • Royalties
  • Prizes, awards, bonuses, and the like that have been deducted by Domestic Individual Tax as stipulated in Article 21 of the Income Tax Law (PPh 21)

2. The imposition rate of 2% (two percent), which is imposed on imbalances/income originating from:

• • Rent and other income in connection with the use of assets, except for imbalances/income that have been subject to PPh 21 and Final Income Tax as regulated in the relevant laws and regulations.
  • Benefits in connection with: technical services, management services, construction services, consulting services, and other services other than services that have been deducted by PPh 21 and Final Income Tax. Furthermore, a list of other services that may be subject to PPh 23 is regulated in Article 1 (2) and (6) of the Minister of Finance Regulation No. 141/PMK.03/2015 (MoF Regulation 141/2015), these services include:
    • Legal Services
    • Appraisal Services
    • Actuary Services
    • Mining Services

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B. Exemption of PPh 23

Article 23 (4) of the Income Tax Law regulates several types of imbalances/income that are exempted from the imposition of PPh 23, namely:

1. Income that has liabilities from the bank
2. Rent payable in respect of leases with option rights
3. Dividends obtained by limited liability companies originating from reserves of retained earnings as domestic taxpayers, cooperatives and regionally owned enterprises.
4. The rest of the results of cooperative operations in collaboration with its members
5. Income payable to business entities for financial services that work as credit or financing distributors.

Taxpayers with imbalance/income exempted from the imposition of PPh 23 can apply for a Certificate of Free Income Tax Article 23 (SKB PPh Article 23) as a marker so that they are not subject to double Income Tax (PPh).

C. Procedure for Submitting Notice of Exemption for PPh 23

Submission of Notice of Exemption for PPh 23 begins with the fulfillment of the required documents by the taxpayer. These documents consist of:

1. Notice of Exemption for PPh 23 application letter;
2. Has submitted the latest Annual Income Tax Notification Letter (SPT) prior to submitting the application; and
3. Calculation of income tax that is expected to be payable for the year the application is submitted.

After the required documents are fulfilled, taxpayers can apply for the Notice of Exemption by visiting the Integrated Service Point (TPT) of the Tax Service Office (KPP) and submitting the Application Form along with the NPWP and SKT. Then the TPT officer will verify the document. If the documents are complete, the TPT officer will print the Notice of Exemption.

The facility for exemption from taxes through this Notice of Exemption very beneficial for taxpayers to avoid double tax obligations. If you have met the terms and conditions set out to be able to apply for it, then it would be best to submit the application immediately to the nearest tax office to the taxpayer’s domicile.

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