In employee retention strategies, companies often provide soft loans with low interest or even zero interest (0%). Previously, this area was often a "gray area." However, with the enactment of technical regulations on benefits in kind (natura/kenikmatan) following the Harmonization of Tax Regulations Law (UU HPP), the tax treatment is now very specific.
The key lies in the concept of "Price Reduction Facility" as a benefit in kind. Here is the comprehensive review.
Based on MoF Regulation (PMK) 66 of 2023 and its affirmation in DGT Memorandum ND-14/PJ/PJ.02/2024, loans provided to employees are considered an Object of PPh Article 21 (Benefit in Kind) if specific conditions are met.
A tax object arises if the interest paid by the employee is lower than the Cost of Funds incurred by the company to obtain those funds.
Taxable Benefit Formula: $$Benefit\ Value = (Company's\ Cost\ of\ Funds) - (Interest\ Paid\ by\ Employee)$$
If the company provides a loan without interest, the difference between the company's Cost of Funds and 0% (employee interest) will be considered additional income for the employee and subject to PPh 21 withholding.
Important:
In this scenario, the employee pays interest, but the rate is lower than the cost of funds borne by the company.
PT Maju Jaya borrows funds from Bank ABC at 12% per annum (Cost of Funds). These funds are then channeled as a loan to Mr. B (employee) at a special rate of 4% per annum.
PPh 21 Analysis: Since the employee rate (4%) is lower than the company's cost of funds (12%), there is a difference of 8%. This 8% of the loan principal is calculated as a Benefit in Kind each month and is subject to PPh Article 21 withholding.
Let's look at a specific example regulated in the memorandum: Mrs. K (a Bank employee) borrows Rp1,500,000,000 from her employer.
Analysis: Although Mrs. K receives a rate (13%) cheaper than the market (14%), the interest she pays is higher than the company's cost of funds (11%).
Result: There is no benefit/income that becomes an object of PPh Article 21 for Mrs. K because the company does not "lose money" or subsidize the cost of funds in real terms.
For the company, the interest cost difference borne (interest subsidy) for the employee constitutes a cost related to the employment relationship. Therefore, this cost is a deductible expense from the company's gross income when calculating Corporate Income Tax, provided the Taxable-Deductible principle is met.
Providing soft loans to employees now requires HR and Tax teams to scrutinize the source of funds. If the funds come from third-party loans that carry interest charges (cost of funds), the interest subsidy given to the employee is an object of PPh 21. However, if the interest paid by the employee is already above the company's cost of funds, there is no additional PPh 21 impact.
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