Individual Tax Refund – Dividend Withholding for a Foreign Investor

Recovered dividend withholding tax and secured correct treaty treatment for future payments

A Malaysian investor holding shares in several publicly listed Indonesian companies was charged the full 20 percent withholding rate on dividends, even though the Indonesia–Malaysia Double Tax Agreement allows a reduced 10 percent rate. The higher rate was applied because the Certificate of Domicile was not submitted in time. We verified the client’s treaty eligibility, coordinated with custodians and issuers to correct withholding documentation, and prepared a complete refund application package. As a result, the investor was able to recover excess tax and establish proper treaty compliance for future years.

Challenge

The client, a Malaysian tax resident and long-term portfolio investor in Indonesian consumer goods and manufacturing companies, received dividend income that was withheld at the standard 20 percent rate. Although the investor qualified for the 10 percent treaty rate, the required Certificate of Domicile was not submitted before the dividend record dates. Custodians and issuers therefore applied the default statutory rate.

Correcting this required clear proof of tax residency, alignment of records between Malaysian and Indonesian custodians, and strict compliance with Indonesia’s Directorate General of Taxes requirements. Refunds for foreign individuals must be routed through the withholding issuers, which added further coordination and increased the administrative complexity of the process.

Solution

We began by confirming the investor’s eligibility for treaty benefits under the Indonesia–Malaysia DTA. Our team helped the client obtain a Certificate of Residence from Malaysia’s LHDN and complete the necessary Indonesian forms (DGT-1 and DGT-2). We then worked with the Malaysian custodian, the Indonesian sub-custodian, and the listed issuers to secure corrected withholding slips and complete supporting records. All actions were aligned with the refund rules outlined in PER-40/PJ/2010 and PER-25/PJ/2018.

Once documentation was ready, we compiled the entire refund package. This included dividend vouchers, corrected slips, shareholding confirmations, transaction records, Indonesian Tax ID details, and passport copies. We also prepared the DGT-3 refund form and the DGT-4 Power of Attorney in English and Bahasa Indonesia so that issuers could file the claim with the tax authority. We explained the expected review timeline under Article 17B of the KUP Law and MoF Regulation 172/2023 and advised the client on how to submit domicile documents annually to avoid similar issues in the future.

Impact

Refund claims for fiscal years 2022 to 2024 were completed and submitted with full supporting documentation. Both Malaysian and Indonesian authorities confirmed the investor’s treaty eligibility, and issuers have begun processing the refund request with the Directorate General of Taxes.

The investor now has a clear process to ensure that the treaty rate is applied correctly each year. This reduces the risk of future over-withholding and provides greater certainty and efficiency for ongoing investment activities in the Indonesian capital market.

Strategic significance and key takeaways

This case highlights the importance of timely treaty documentation for individual investors with cross-border portfolios. Indonesian withholding procedures are strict, and any delay or omission in submitting residency forms leads to automatic application of the higher statutory rate. Recovering excess tax is possible, but the process requires accurate validation of residency, cooperation from multiple intermediaries, and careful adherence to DGT regulations.

• Treaty benefits depend on timely submission of residency documents to custodians and issuers.
• Refund claims involve multiple parties and must be backed by complete, verifiable records.
• A clear compliance plan helps investors avoid recurring over-withholding and ensures more efficient dividend payments.