Page 3 - Newsletter (Provision Regarding the Calculation of Taxable Income for Life Insurance Companies)

DDTC Newsletter Vol.01 | No.06 I April 2019 Page 3 of 4

Provision Regarding the Calculation of Taxable Income for Life Insurance Companies

Governor Regulation No. 84 of 2013 (Pergub DKI Jakarta rather based on providing certainty in terms of Taxable
No. 84/2013) which was amended through DKI Jakarta Income for life insurance companies, specifically the
Governor Regulation No. 262 of 2015 (Pergub DKI Jakarta affirmation of how to impose taxes on insurance claims/
No. 262/2015). benefits for life insurance companies.

Affirmation Provision Regarding the This regulation states that at the end of each year, the
Calculation of Taxable Income for Life premium reserve formed by the insurance company
Insurance Companies can still be used to pay claims for benefits that are due.
Furthermore, it can also be paid in the following year if
there are special causes of payment delays. The amount
On 8 April 2019, the Director General of Taxes issued itself will then be adjusted based on the calculation of
the latest provisions regarding taxation of insurance an actuarial who is authorized by the Financial Services
claims/benefits in life insurance companies through the Authority (Otoritas Jasa Keuangan/OJK).
Directorate General of Taxes Circular Letter Number SE-
08/PJ/2019 concerning Claim/Benefits of Insurance for The next condition to estimate taxable income regulated
Life Insurance Companies (SE-08/PJ/2019). in this provision is regarding the costs in the event of
claims or benefits from insurance. This states that the
Formerly, the rules pertaining to income tax on life cost will then be charged to the initial balance of the year
insurance only referred to the Director General of Taxes from the premium reserve. If the life insurance company
Circular Letter Number SE-97/PJ/2011 concerning encounters a shortfall of funding to pay insurance benefit
the Imposition of Income Tax on the Formation or claims to the policy owner, then the payment will be
Accumulation of Premium Reserve Funds for Taxpayers concurrently calculated as the current year cost.
Engaged in Life Insurance Business that is Deductible
from the Gross Income (SE-97/PJ/2011). After providing the concept of establishment of premium
reserve and the treatment of costs as a burden on the life
However, it should be understood that SE-08/PJ/2019 insurance company for any benefit claim, this Circular
which constitutes as a new provision is not a substitute Letter affirms the principle of how to calculate the taxable
for the previously applicable provision. For future income. There exist two conditions for estimating taxable
implementation, these two provisions will complement income in a life insurance company if a claim for these
one another. The promulgation of the latest regulation is benefits occurs as summarized in the following table.

Table 1 - Method of Determining the Treatment for Premium Reserve in the Case of Payment of Claims for
the Benefits of Life Insurance to Calculate Its Taxable Income

No Condition The Treatment for Premium Reserve
1 The initial balance of premium reserve of the year which has The decrease in premium reserve is still considered as
been subtracted by the payment of insurance claims/benefits income for the current year
in the current year has decreased compared to the premium
reserve calculated by actuarial at the end of the year.
2 The initial balance of premium reserve of the year which has The increase in premium reserve is considered as a cost that
been subtracted by the payment of insurance claims/benefits can be charged for the current year.
in the current year has increased compared to the premium
reserve calculated by actuarial at the end of the year. Note: the increase in premium reserve cannot be considered
as a cost if the increase is due to the formation of premium
reserves from investment returns that have been subject to
income tax with separate tax mechanisms of final and/or not
final tax objects.
*Source: SE-08/PJ/2019