Tax Implications on Spin-Off

General Overview

The Indonesian Minister of Finance has issued Regulation No. 56 Year 2021 on the use of tax book value for transfer of assets and liabilities in business spin-off for Indonesian entities which are eligible for corporate action. In essence, certain spin-offs are not considered taxable for either the parent company or the shareholders of the parent company.

Characteristics

Business spin-off that qualifies for the utilization of tax book value are highlighted below:

1. An existing entity which establishes one or more new entities by transferring some portion of Assets and Liabilities to the new entities and not liquidating the existing entity;

2. Transferring some portions of Assets and Liabilities to one or more entities without establishing a new entity and not liquidating the existing entity, then a spin-off under the provision of Value Added Tax Law; and

3. An existing entity which transfers some portions of Assets and Liabilities of two or more established entities and merging them into one entity and not liquidating the existing entity.

Companies eligible to apply tax book value as cited in point (1) above are:

a. Non-Go-Public company to perform Initial Public Offering within 2 years upon the issuance of tax book value for spin-off from Indonesian Directorate General of Taxation (DGT);

b. Go-Public company which has a Go-Public company as a result of spin-offs;

c. Company separating sharia businesses as the obligation under the provision of prevailing law;

d. Company which has an entity as a result of spin-offs obtain additional capital of IDR 500 billion (approximately USD33.2 million) which invested by foreign investor; or

e. Existing State-Owned Enterprises (SOEs) receiving additional capital injection from the Government for the establishment of SOE holding company purposes.

Companies eligible to apply tax book value as cited in points (2) and (3) above are:

a. Existing SOEs receiving additional capital injection from the Government for the establishment of SOE holding company purposes; or

b. Company which conducts business in relation with SOE restructuring provided that:

  1. Restructuring is conducted by the beginning of Fiscal Year 2021;
  2. Transfer of assets is not performed by selling or swapping assets; and
  3. Restructuring and transfer of assets are approved by the Minister of SOE.

Application Process

In view of the above for utilizing tax book value, company aiming to perform a spin-off must submit an application letter to the DGT within 6 months upon the effective date of the spin-off. Furthermore, company must fulfil business purpose test to obtain a fiscal certificate from the DGT.

In regards to the spin-off with additional capital which invested by foreign investor, company must provide additional supporting documents i.e., notarial deed of establishment or the amended deed which includes the amount of additional capital by foreign investor and the proof of realization or the full transfer of the additional capital.

If you are interested on this planning, please contact our tax experts:

Irwan Kusumanto - Head of Tax

Suwenny Leonardi - Associate Director (Tax)