Application of Income Tax and Value-Added Tax for Peer-to-Peer (“P2P”) Lending Companies
Technological advances have been progressing rapidly along with the development of the internet on a wide scale, triggering the financial sector to adapt. In this day and age nearly all financial transactions can be conducted online. This ease of transaction escalates the number of transactions, including technology-based lending and borrowing (P2P Lending) businesses.
According to Otoritas Jasa Keuangan (Financial Services Authority) Regulation No. 77/POJK.01/2016 on the Technology-Based Fund-Lending Services (“POJK 77/2016”), Technology-Based Fund-Lending Services (P2P Lending) are organizations of financial services to bridge a lender with a borrower for the purpose of entering a loan agreement in rupiah currency directly through an electronic system using an internet connection.
The P2P lending business is growing massively in Indonesia. As of March 2, 2022, 102 fintech lending companies have secured their license from the Financial Services Authority (“OJK”). Responding to this trend, the Government issued Minister of Finance Regulation No. 69 of 2022 concerning Income Tax and Value Added Tax in the provision of financial technology, which came into force on May 1, 2022 (“Regulation No. 69/2022”). Regulation No. 69/2022 provides legal certainty regarding tax obligations on the P2P Lending business activities.
Income Tax Implication on Lenders
According to the Regulation No. 69/2022, the lenders of P2P lending shall be subject to Income Tax. The amount of withholding tax for domestic lenders and permanent establishments is 15% and for foreign lenders and the non-permanent establishment is 20%, and such amounts are applied on the interest of the loan imposed to the lenders through P2P lending providers that are registered with the OJK. The deduction of withholding tax that is subject to the lender shall be deducted by the P2P lending provider.
There are 2 conditions against the lender for the implications of income taxes. If the lender provides a loan through P2P lending registered with the OJK, then there is no obligation for the lender to deduct withholding tax received by the P2P Lending through administrative fees. However, if the lender uses the P2P lending services that are not registered with OJK, in this case the lender shall be obligated to deduct the withholding tax received by the P2P lending providers through the administrative fees.
Income Tax Implication on P2P Lending Service Provider
Fundamentally, P2P lending service providers shall be subject to Indonesian corporate income tax considering that they receive income for their services as intermediaries in P2P lending activities. the P2P lending service provider shall be obligated to (i) provide proof of income tax deduction and deliver it to the lender; (ii) submit the income tax to the treasury fund; and (iii) report through the annual tax return. The obligation is carried out on income taxes collected from interest on loans received by lender.
By: Abyan Nagata Javier