On 26 June 2019, the Ministry of Finance published a new regulation (No.93/PMK.03/2019(PMK-93) on the controlled foreign corporation (CFC) rules for fiscal year(FY) 2019 which amended the regulation No.107/ PMK.03/2017(PMK-107), concerning the determination of deemed dividends from CFCs as well as  the calculation of the deemed dividend amount.

Determination of deemed dividend income:

The PMK-93 regulation is specified the limitations of  deemed dividend of CFC income to  five types of income that is generally passive in nature. The following five types of CFC income limits the deemed dividend:

  • Dividends (excluding dividends from other CFCs);
  • Interest income, but excluding interest earned by the CFC engaged in the banking sector and the interest from unrelated parties;
  • Rent from land, buildings and other assets (if received from a related party);
  • Royalties; and
  • Gain on sale or transfer of passive assets

Calculation of deemed dividends:

Under PMK-93 regulation, deemed dividends are calculated as CFC gross income from the types of passive income described above, reduced by the following deductions and taxes:

  • The expenses for obtaining, maintaining, and collecting the income; and
  • The income tax payable, paid, or deducted from the income when it was paid to the CFC.

Regulation 93/PMK.03/2019 enters into force from 1 January 2019.