Retention Strategy Under the Tax Microscope: A Deep Dive into PPh 21 on Car Ownership Programs (COP)

The Car Ownership Program (COP) is one of the most popular remuneration strategies for retaining a company's top talent. In a general COP scheme, the company provides a car for the employee to use for a certain period (e.g., 4 years), and at the end of the period, the ownership of the car is transferred to the employee.

However, following the issuance of Minister of Finance Regulation Number 66 of 2023 (PMK 66/2023), the tax treatment of COP has fundamentally changed. Facilities that were once considered non-taxable company expenses for the employee have now become objects of Income Tax (PPh) Article 21 under the category of Benefit in Kind (Natura) and Benefit in Usage (Kenikmatan). The key determinant lies in the asset ownership status during the installment period.

Below is an in-depth analysis of two main COP scenarios and their tax implications.

Scenario 1: Car as Company Asset (Benefit in Usage turning into Benefit in Kind)

In this scenario, the car is purchased in the company's name and recorded as a company asset during the program period (4 years). The employee only holds usage rights. Only after 4 years is the ownership title transferred to the employee.

Phase 1: During the Program Period (Years 1 to 4)

As long as the car belongs to the company, the facility received by the employee is categorized as Benefit in Usage/Kenikmatan (Vehicle Facility).

• Income Value: Calculated based on the actual costs incurred by the company, including depreciation, maintenance, fuel, and driver costs (if any).
• Tax Exemption: Based on the latest regulations, this vehicle facility is EXEMPT from PPh Article 21 if two conditions are met: (1) The recipient is not a shareholder, and (2) The average gross income in the last 12 months is not more than IDR 100,000,000 per month.
• If the employee's salary is above IDR 100 million/month, the cost of the facility becomes an addition to gross income and is taxable.

Phase 2: End of Period (Transfer of Ownership)

When the car is handed over to the employee at the end of the 4th year, the form of compensation changes from "Benefit in Usage" to Benefit in Kind/Natura (Goods).

• PPh 21 Aspect: This transfer of rights is an object of PPh Article 21.
• Valuation Basis: The taxable value is the Market Value of the car at the time of transfer, not the book value or the company's residual auction price.

Scenario 2: Car as Employee Asset (Subsidy/Allowance)

In this scenario, the car is purchased directly in the employee's name (credit agreement/fiduciary in the employee's name) from the start, but the company helps pay the installments or down payment.

• Tax Analysis: Based on the DGT's affirmation, if the ownership document is in the employee's name from the beginning, essentially the employee is not receiving a vehicle facility, but rather receiving installment payment assistance/cash.
• PPh 21 Treatment: Every installment payment made by the company is considered income in the form of money (Allowance/Subsidy).
• Consequence: There is no tax exemption facility (the "salary under 100 million" rule does not apply here). The entire installment value paid by the company immediately becomes an object of PPh Article 21 and is added to the monthly salary for tax withholding each month.

Conclusion for Companies

HR and Tax divisions must review COP agreements. If the asset is recorded as the company's, ensure monitoring of the IDR 100 million salary threshold. If the asset is recorded in the employee's name from the start, ensure the installment subsidy is taxed immediately in the monthly payroll. Accurate valuation—both market value at transfer and depreciation costs—is key to compliance to avoid fiscal corrections.

Regulatory References:

1. Government Regulation Number 55 of 2022 concerning Adjustments to Regulations in the Field of Income Tax.
2. Minister of Finance Regulation Number 66 of 2023 concerning Income Tax Treatment on Reimbursement or Compensation in Connection with Work or Services Received or Obtained in the Form of In-Kind and/or Benefits.
3. Memorandum of the Director General of Taxes Number ND-14/PJ/PJ.02/2024 concerning Affirmation of the Implementation of Minister of Finance Regulation Number 66 of 2023.