What You Need to Know About Taxation of Benefits in Kind

Both employers and employees must understand the tax treatment of non-cash benefits and perks, commonly known as “benefits in kind.” This guide offers a comprehensive overview of these benefits, including company cars and housing allowances. 

By reading this guide, you can gain valuable insights to make informed financial decisions and ensure compliance with tax regulations.

What are the Benefits in Kind?

Regulation 66 of 2023 (MoF 66/2023) regulates benefits-in-kind (BIK) for taxation in Indonesia, replacing MoF 167/2018 as of July 1, 2023. The recent regulation outlines two categories of benefits-in-kind:

• Compensation-in-kind: non-cash compensation like meals and uniforms.
• Compensation is provided through facilities such as housing, vehicles, and medical services.

The regulation outlines the types of taxable BIK in Indonesia and the conditions for exclusion. It also specifies the methods for taxation and valuation.

Deductibility of Benefits in Kind

As reaffirmed in the MoF 66/2023, certain benefit-in-kind (BIK) categories are excluded from the recipient’s taxable income. These include:

• Providing food and beverages to all employees.
• Specific BIK in designated areas.
• BIK is required for employees to perform their job duties.
• BIK is funded from regional or state revenue budgets.
• BIK of certain types or above-specified thresholds.

Moreover, BIK can be considered deductible expenses if they represent reimbursements or compensation and if they are related to:

• Employment relationships between employers and employees.
• Service transactions between taxpayers.

Expenses related to BIK costs that have a useful life of less than one year are recorded in the year the expense occurs. However, expenses related to benefits (kenikmatan) that have a useful life of more than one year are recognized through depreciation or amortization.

What are the Non-Taxable Benefits in Kind?

Although benefits-in-kind have traditionally constituted taxable income for employees or service providers, the regulation introduces specific exemptions. Below are scenarios where a benefit-in-kind is not subject to taxation:

1. Meals

• Meals are provided for all employees at the workplace without a set value limit.
• Suppose the employer offers meal coupons or reimburses employees for meals during off-site duties. In that case, the value should not exceed IDR 2 million per employee per month or the equivalent value of workplace meals, whichever is higher.

2. Security, Health, and Safety Benefits

• The government mandates these benefits through legal requirements without a specific value limit.
• Examples include uniforms, employee transportation, safety gear, and medical items, which are essential during events like pandemics.

3. Facilities and Infrastructure in Designated Areas

• The employer must have approval from the Director General of Taxes for the specific location.
• The employer can provide this benefit or collaborate with another party, where the employer bears the costs.
• Examples comprise housing, healthcare, education, transportation, and sports facilities within specified areas without a predefined value limit.

4. Gifts for Religious and Other Occasions

• Gifts can be food, beverages, or meal ingredients provided to all employees.
• These include gifts for religious holidays like Eid Al-Fitr, Christmas, Nyepi, Vesak, and Chinese New Year, with no set value limit. Non-religious gifts should be at most IDR 3 million per employee in a fiscal year. *

5. Work-Related Equipment or Facilities

• Employees must receive or obtain necessary work-related equipment or facilities.
• Examples encompass laptops, computers, cell phones, phone credit (pulsa), and internet access, with no predetermined value limit.

6. Healthcare and Medical Treatment Facilities

• The company-provided benefit should be accessible to all employees and cover work-related accidents, illnesses, emergencies, and follow-up treatments.
• There’s no predefined value limit for this benefit.

7. Sports Facilities

• This benefit must be available to the employee, except for specific activities like golf, horseback riding, power boating, gliding, and automotive racing, which should be at most IDR 1.5 million per employee in a fiscal year. *

8. Living Facilities

• Employees should have access to communal or non-communal living facilities, like dormitories or rented apartments/houses. Communal facilities have no value limit, while non-communal living is capped at IDR 2 million per employee per month. *

9. Vehicle Facilities

• These benefits are available to employees without equity participation in the employer and average gross income not exceeding IDR 100 million per employee per tax year. *

10. Employer-Paid Pension Fund Contributions

• Employees should receive or obtain this benefit, and the contributions should be made to a pension fund supervised by the Indonesian Financial Services Authority (OJK).

11. Prayer Facilities

• These include designated places for prayer, such as mushalas, mosques, chapels, or temples. There’s no specific value limit.

*Any in-kind benefit provided after July 1, 2023, surpassing the abovementioned thresholds, will incur tax liabilities for both employees. The employer is obligated to withhold and manage such taxes.

How to Calculate Benefits in Kind?

When assessing BIK benefits, employers can use either the market value of the benefit or the actual expenses that have been or are expected to be incurred. 

Employers offering these benefits are responsible for withholding income tax as the law requires. The process for withholding, remitting, and reporting income tax is as follows:

Let InCorp Indonesia Be Your HR Solutions 

At InCorp Indonesia, we recognize the value of streamlining payroll processes to help your HR teams focus their time on the employees’ day-to-day basis. Hence, we offer reporting assistance for benefits in kind as part of our payroll services. 

We understand that managing payroll can be complicated, so our payroll services offer a convenient solution to help you avoid unnecessary complications. Our services are designed to free up your time and allow you to focus on expanding your business. 

Additionally, our accounting services are tailored to relieve you of financial and tax reporting responsibilities. This gives you the flexibility to expand your business operations while we take care of your accounting needs. 

To begin consulting with us, kindly fill out the form below. Let us know your requirements, and we’ll get in touch with you.