Indeed, investing in stocks abroad can increase profits & diversify investments better. That's why you should know about foreign stock trading taxes. Investing in foreign stocks does provide many advantages that you cannot get through buying and selling shares in the country. However, the risk is also great.
What is Foreign Stock Trading Tax?
Law No. 7 of 1983 article 4 paragraph 3 concerning Income Tax has included regulations regarding the sale and purchase of shares. Some of these regulations have been amended by Law No. 36 of 2008. In addition, Government Regulation No. 14 of 1997 concerning Income from Stock Sales Transactions on the Stock Exchange also contains this.
So, the investment tax is very clear. Unfortunately, many stock players do not understand it. Meanwhile, for the collection of Income Tax on Income from Shares Selling Transactions on the Stock Exchange, you can find it in the Decree of the Minister of Finance No. 282/KMK.04/1997.
Basis of Imposition of Tax on Overseas Stock Trading
In stock investing, there are 2 types of taxes. The first type is the share sales tax, which is 0.1 percent. The second type is income tax on dividends, which is 10%.
1. Share Sale
For this tax, the Stock Exchange imposes a tax by deducting it through a stock broker. In addition, the broker will deposit taxes on the sale of shares to the state. So, this tax burdens you when you sell a stock, be it a loss or a profit.
2. Income Tax from Dividends
If there are Indonesian citizens who have shares abroad at least 50% and are not listed on the stock exchange, there will be a Deemed Dividend tax. This provision has been in effect since 2017. The dividend is only for tax purposes.
The formula for this foreign share trading tax is, multiply the percentage of capital participation of domestic taxpayers in foreign companies that are directly controlled.
Types of Dividend Tax
Dividends are profit sharing for shareholders according to the number of shares. In addition, dividends are tax objects so there is an income tax levy. Here, every taxpayer who receives dividends is required to pay taxes first. However, not all dividends are subject to tax. Sometimes, some profits are not subject to tax.
1. Not a Tax Object
Taxpayers will receive dividends which include BUMD, BUMN, PT, and cooperatives from equity participation in business entities in Indonesia. It will not be subject to tax if the dividend comes from retained earnings and the business entity that receives the dividend with the lowest share is 25% of the capital.
2. Tax Object
Tax object dividends are dividends with conditions other than those we have mentioned above. In this case, there are 2 categories. First, dividend income is a tax object, but is not subject to income tax. Second, dividend income is a tax object and there is an income tax levy.
3. Tax Object Dividend without PPh
This dividend includes income payable/paid to the bank, rent payable/paid in relation to a business lease, dividends that are not subject to tax, dividends from individuals, profit share as referred to in Article 4 Paragraph 3 (i), and income payable/ paid to business entities/financial services.
Dividend tax includes foreign stock trading tax. The reason is, this is a tax deduction on profits received by taxpayers both from within and outside the country. These profits include profits from cooperatives, profits from shares, and profits from insurance policies.
Overseas Stock Trading Tax for US Stocks
1. Stock Sales Tax for US Shares
In this tax on the sale of foreign shares in US shares, if the sale of shares is at a profit, the US government does not deduct the investors' profits. However, they only recognize it as a Tax Object in Indonesia. For information, Indonesian taxation adheres to a worldwide income system.
So, in principle, income from US shares is also subject to tax. How to calculate income tax from profits is to combine it with other income for the calculation of income tax payable, and enter the annual tax return later.
The amount is 5% for income up to 50 million, 15% for income above 50 million to 250 million, 25% for income above 250 million to 500 million, and 30% for income above 500 million. On the other hand, if the investment suffers a loss, it is not a tax object.
2. Tax on Dividends or Dividend Tax for US Shares
The income tax from this dividend is still there for US stocks. Especially if we as investors have shares abroad at least 50%, but are not listed on the stock exchange. So, it is very likely that there will be a deemed dividend tax where this policy is effective starting in 2017.
Based on the Regulation of the Minister of Finance, the foreign share trading tax is more focused on the calculation of deemed dividends which are not paid as dividends, but are claimed as dividends for tax purposes in accordance with the Act.
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