Dividend Payments in Indonesia

4 min read|Last Updated: January 6, 2023|

After a successful incorporation, the company aims to maximise their profits to ensure that all shareholders receive dividend payments.The proper and timely payment of dividends acts as proof that the firm is being conducted correctly and properly. Dividend payments in Indonesia, and any other countries, are a much-anticipated financial boost received by shareholders from the stocks they own.

A dividend is a monetary payment given by a corporation to its shareholders. It is a method of disseminating a company’s profits. When a firm makes a profit or has a surplus, it will be able to reinvest the profit or excess in other commercial activities.

Retained earnings is the term for this type of reinvestment. The corporation then distributes a portion of the profit to the shareholders as a dividend. The profit share to shareholders can be paid in cash, which is normally put into a bank account, or it can be paid through more shares or share repurchase if the company has a re-investment strategy.

After receiving the dividends, the shareholders typically must pay income taxes. The company normally does not receive any income tax subtraction for the dividend expenses.

Criteria to Receive Dividends in Indonesia

The distribution of dividends in a limited liability corporation is governed by the Limited Liability Company Law No. 40 of 2007. (Company Law). Unless and until the GMS (“General Meeting of Shareholders”) determines differently, all net gains after any subtractions are put to one side, and assets are distributed to the shareholders as dividends.

The reserve is a set amount of money set aside from earnings at the Annual General Meeting of Shareholders. The criteria are set as follows:

  • Dividends can only be paid out if the corporation has a positive profits bank balance. A positive balance of earnings indicates that the current fiscal year’s net profits have offset the company’s cumulative losses from previous fiscal years.

  • Dividends that have not been distributed after five years must be put into a separate reserve. The procedure for distributing dividends held in the special reserve will be outlined at the Annual General Meeting of Shareholders (GMS). If the dividends in the separate reserve are not distributed within 10 years, they must be given back to the firm. These unpaid dividends will be included in the company’s other sources of revenue.

  • Provisional dividends, also known as short-term dividends, are given before the company’s yearly income, and their allotment is established at the General Meeting of Shareholders (GMS). It may be carried out before the conclusion of the current fiscal year if the company’s articles of association permit it.

  • Dividend income received by a local taxpayer from a limited liability business, commonly referred to as a Perseroan Terbatas or PT, is taxed as ordinary income for the taxpayer receiving the dividend. If the dividend beneficiary is a PT with a minimum shareholding of 25% in the company paying the dividend and the dividend is paid out of retained earnings, the PT is exempt from paying the corporate income tax.

How a Person May Increase the Amount of Money Received from Dividend Payments?

By looking for firms that are anticipated to grow their dividend payments each year, the amount of money earned from dividend payments can be increased. Shareholders in such companies will benefit as a result, allowing them to receive ever-increasing quantities of money. In most cases, when sales and earnings increase, the number of dividends to be paid increases as well.

If a dividend payment is received outside of a retirement bank account, the dividends can be reinvested. The amount of money gained from dividend payments is determined by the number of shares of high-quality dividend equities held.

The higher the number of shares owned; the more money can be made via dividends. Those who invest in profitable stocks for years, if not decades, may be able to make a significant amount of money each year only from dividend payments.

Companies in Indonesia that Have to Pay Dividends

Not all Indonesian corporations are required to pay dividends on a regular basis. In Indonesia, corporations are only required to pay dividends when they reach a certain stage or meet a set of conditions. From a legal standpoint, action should be taken solely against companies that do not pay dividends despite the fact that they should be able to, based on their stage or qualities.

Dividends can only be paid if the corporation has a positive bank balance of earnings, as previously stated. A corporation with a positive balance of earnings is one whose current fiscal year’s net profits have overcome its cumulative losses from previous fiscal years.

A firm based in Indonesia must additionally set aside a portion of each fiscal year’s net profit as a reserve until the reserve reaches at least 20% of the total subscribed and paid-up investment.

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How does Indonesia treat dividend income?2021-12-23T12:46:17+08:00

Dividends received from an Indonesian limited liability company are subject to final income tax at a rate of 10%. However, it becomes non-taxable if the recipient is a domestic individual taxpayer whose dividends are reinvested in Indonesia within a certain period. 

Are dividends paid out automatically?2021-12-23T12:46:05+08:00

To summarize: A company’s board declares a dividend, to be paid on a certain date to shareholders of record as of a prior date. In order to be one of those shareholders of record, you need to buy or already own shares before the ex-div date, which is the business day before the record date. 

How are dividend payments paid out?2021-12-23T12:45:55+08:00

Dividends are usually paid in the form of a dividend check 

Is dividend income taxable in Indonesia?2021-12-23T12:44:47+08:00

WP DN entities with ownership of less than 25% (<25%) are subject to normal income tax, unless they invest back in Indonesia within a certain time. 

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