Under Article 18 (1) of Law No. 7 of 1983 on Income Tax (as
lastly amended by Law No. 36 of 2008 – "Income Tax
Law"), the Minister of Finance ("MOF") is authorized
to determine the debt to equity ratio ("DER") of
corporate taxpayers for the income tax calculation purposes. To
implement this, on 9 September 2015, the MOF issued MOF Regulation
No. 169/PMK/010/2015 on the Determination of a Company's Debt
to Equity Ratio for Income Tax Calculation Purposes ("MOF
Regulation 169/2015").
Basically, MOF Regulation 169/2015 governs the maximum DER for
corporate taxpayers under which borrowing costs (such as: interest
on borrowings, costs incurred related to the arrangement of
borrowings, etc.) can be deducted in calculating the relevant
companies' corporate income tax. MOF Regulation 169/2015
provides the maximum DER of 4:1. If the DER exceeds the stipulated
maximum DER some of their borrowing costs will not be tax
deductibles.
