In response, the Finance Ministry has issued the regulation PMK No. 107/PMK.03/2017 concerning Deemed Dividends by Resident Taxpayers on Ownership in Overseas Enterprises other than Business Entities listed in the Stock Exchange, which also replaces the earlier 2008 regulation.

The new regulation addresses six issues. The first is to widen the tax calculation base on dividends paid by non-listed overseas business entities. Previously, the criterion for a CFC was mainly direct control in non-listed business entities. The latest regulation also includes non-listed CFCs with indirect control/ownership.

Taxpayers will be deemed to have direct control of overseas companies if they have at least 50 percent ownership, whether they own these shares themselves or through collective ownership with other taxpayers.

The taxpayer is considered to have indirect control of a company if the CFC that is more than 50 percent owned by the taxpayer also has 50 percent or more ownership in other non-listed overseas companies. The regulation also applies to collective ownership, in which a group of taxpayers has 50 percent or more ownership in a non-listed foreign business entity.

The second is the calculation formula for deemed dividends. Wider criteria for CFCs have led to additional formula to calculate deemed dividends for taxpayers with direct or indirect control in non-listed overseas business entities. The calculation multiplies the percentage of ownership by the profit after tax from both overseas companies with direct and indirect control.

Third, is the calculation of deemed dividends through distributed dividends. There has been no previous regulation on this. Starting this year, deemed dividends received over the past five consecutive years can be considered received dividends from directly-controlled foreign business entities.

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