The Villa Question and the Line on Directors’ Personal Expenses

Every foreign director running a Bali-based PT PMA reaches the villa question within the first six months of trading. The 2023 reform of the benefit-in-kind Indonesia regime under PMK 66/PMK.03/2023 changed the answer materially. This article sets out the current position on director personal expenses, the substance test, and the practical arithmetic on villa rent, vehicles, school fees and KITAS costs.

The question reaches the desk in one form or another in almost every initial advisory call for a foreign investment limited liability company (Perseroan Terbatas Penanaman Modal Asing, or PT PMA): can the company pay for the director’s villa, car, school fees, or family-related costs and treat the payment as a deductible business expense. The answer changed materially in 2023. The benefit-in-kind Indonesia regime under Law No. 7 of 2021, Government Regulation No. 55 of 2022, and Minister of Finance Regulation No. 66/PMK.03/2023 now produces fiscal symmetry between the company and the recipient, which alters the structural decision foreign investors made under the pre-2023 rules.

This article sets out the framework. The line between a deductible business expense and a benefit-in-kind. The substantive change under the 2023 reform. The application to four scenarios that come up repeatedly for foreign directors in Bali: the villa, the vehicle, school fees, and KITAS-and-visa costs. The six expense categories that remain clearly deductible without producing a BIK charge. The decision framework for the foreign director weighing whether to draw a benefit or fund the expense personally.

The line: deductible business expense or benefit-in-kind

A deductible business expense is a payment by the company that supports the licensed business activity and reduces the company’s taxable income at the 22 (twenty-two) per cent corporate income tax rate. Article 6 of the Income Tax Law (Law No. 7 of 1983 as amended by Law No. 7 of 2021) permits as deductible expenditure costs that are “incurred to obtain, collect, and maintain income”. Rent on commercial premises, salaries of operational staff, equipment depreciation, utility bills, professional fees, marketing costs, and the other ordinary costs of running the business sit cleanly within Article 6.

A benefit-in-kind is a payment by the company that confers a personal advantage on a director, employee or related individual associated with the company. Under Article 4 paragraph (1) letter (a) of the Income Tax Law, supplemented by PMK 66/PMK.03/2023, benefits-in-kind are treated as additional taxable income to the recipient. The amount is added to the recipient’s personal income tax base and taxed at the marginal rate under Article 17 of the same law: 5 (five) per cent up to IDR 60,000,000 (sixty million Indonesian Rupiah) of taxable income, rising in bands to 35 (thirty-five) per cent above IDR 5,000,000,000 (five billion Indonesian Rupiah).

The practical line is drawn at the substance of who benefits. A payment that primarily supports the licensed business activity is a deductible expense, with any side advantage to a director or employee treated as incidental. A payment that primarily supports the personal life of a director or shareholder is a benefit-in-kind, with the corporate angle treated as incidental.

The line is tested at four levels:

The documentation: does the company’s record of the transaction support the business purpose.

The substance: would a third party in the same role have received the benefit on commercial terms.

The proportion: where mixed use applies, is the allocation defensible.

The consistency: does the treatment match how the company has treated similar transactions in past years and how it has reported the position on the corresponding personal income tax filings.

What changed under the 2023 reform: natura and kenikmatan under PMK 66

The natura kenikmatan PMK 66 reform reversed the pre-2023 treatment of benefits-in-kind. Under the old Article 9 paragraph (1) letter (e) of the Income Tax Law, benefits-in-kind provided by an employer were non-deductible to the employer AND non-taxable to the recipient. The structure produced an apparent tax arbitrage: the company gave up its 25 (twenty-five) per cent corporate income tax deduction (the then-applicable rate), and in exchange the recipient received the benefit without personal income tax. For high-earning directors whose marginal personal rate sat above the corporate rate, the structure produced a net household saving.

Law No. 7 of 2021 on the Harmonisation of Tax Regulations (Undang-Undang Harmonisasi Peraturan Perpajakan, or UU HPP) reversed the position. Government Regulation No. 55 of 2022 provided the implementation framework. Minister of Finance Regulation No. 66/PMK.03/2023 set out the detailed rules, effective from tax year 2023. The current position is that benefits-in-kind are deductible to the employer AND taxable to the recipient.

The result is fiscal symmetry. The company captures a 22 (twenty-two) per cent deduction against corporate income tax. The recipient pays personal income tax at their marginal rate (which for most foreign directors of a Bali-based PT PMA sits at 25 to 35 per cent given typical compensation levels). The net household position depends on the relative rates: where the recipient’s marginal rate exceeds the corporate rate, the BIK structure produces a net cost to the household; where the recipient’s marginal rate is below the corporate rate, the BIK structure produces a net household saving.

The 2023 reform reversed both legs: BIKs are now deductible to the employer AND taxable to the recipient. The structural decision is no longer whether the benefit attracts tax, only where the tax falls and at what rate.

PMK 66/PMK.03/2023 also sets out specific exclusions from BIK treatment. Six categories of provision remain outside the BIK regime: food and drink provided at the workplace to all employees on equivalent terms; necessary work-related items including uniforms and safety equipment; provisions in remote or specified geographical areas where the employer must provide accommodation and basic services; benefits below defined small-value thresholds (such as religious holiday parcels up to a set ceiling); benefits required by other statute (the company’s statutory BPJS contributions); and benefits funded directly from the state budget (APBN or APBD). The exclusions are the platform on which the six clearly-deductible categories at the end of this article sit.

The villa: the structural example of director personal expenses

Under the post-2023 natura rules, the answer is layered. The rent is a benefit-in-kind to the director. The rental value (measured at the actual rental cost paid by the company, or the equivalent market rent where the company owns the property) is added to the director’s monthly PPh Article 21 base. The director pays personal income tax on the value at their marginal rate. For the company, the rent paid is deductible against corporate income tax at the 22 (twenty-two) per cent rate, provided the payment is properly documented and the housing is reported on the recipient’s PPh Article 21 filing.

The PT PMA villa rent question runs through every advisory conversation in Bali. The scenario: the company rents a villa for the foreign director’s accommodation, signs the lease in the company’s name, pays the rent from the company’s bank account, and asks whether the rent is a deductible business expense.

The position changes for directors whose marginal rate sits below the corporate rate. A director with taxable income under IDR 250,000,000 per year sits in the 5 to 15 per cent personal bands. For such a director the company-pays-villa-rent structure produces a net household saving of approximately 7 to 17 per cent of the rental value. For most foreign directors of a typical Bali PT PMA the personal rate exceeds the corporate rate, and the structure produces a net loss.

The substance test still applies. Where the villa is used substantively for company purposes (as a guesthouse for visiting clients, as a hybrid office for an expatriate director whose role requires representational hosting, or as a periodic meeting venue with documented business use), a portion of the rent can be allocated to ordinary business expense and is deductible without producing a BIK charge for that portion. The split must be defensible against a tax review and supported by contemporaneous records.

The vehicle question

The vehicle scenario follows similar logic. The company can purchase a car or motorcycle in its own name and record it as a corporate asset. The position then splits depending on use.

A vehicle used substantively for company business (sales calls, deliveries to clients, operational logistics, transport of company personnel) is a company asset, with depreciation, fuel, maintenance, insurance and the other running costs deductible to the company. The capital cost is recovered through depreciation at 25 (twenty-five) per cent declining balance for vehicles under Indonesian tax accounting.

A vehicle used substantively for the director’s private purposes is a benefit-in-kind. The value of the private use is added to the director’s PPh Article 21 base and taxed at the marginal rate. The vehicle remains a company asset; the depreciation and running costs remain deductible to the company.

A vehicle in the director’s personal name and reimbursed by the company on a per-kilometre basis is a separate route. The reimbursement is a non-taxable cost recovery to the director for the company-business portion; the private portion is not reimbursable. This route avoids the BIK calculation and is often the cleanest position for a foreign director whose driving pattern is heavily private.

The Sales Tax on Luxury Goods (Pajak Penjualan atas Barang Mewah, or PPnBM) sits separately on the original acquisition of a luxury vehicle (typically above IDR 1,000,000,000 acquisition value), at rates depending on the engine capacity. The luxury tax is borne by the company on the asset acquisition and is not directly relevant to the BIK question on subsequent use.

School fees and family benefits

School fees paid by the company for the director’s children are a benefit-in-kind to the parent under PMK 66/PMK.03/2023. The company’s payment is taxable to the parent at their marginal PPh rate and deductible to the company at the 22 (twenty-two) per cent corporate rate.

The figures involved are substantial. International schools in Bali charge between IDR 200,000,000 and IDR 400,000,000 (two hundred million to four hundred million Indonesian Rupiah) per child per year at secondary level. A director with two children paying a combined IDR 600,000,000 in school fees through the company adds that figure to their monthly PPh Article 21 base, producing a personal tax liability typically in the IDR 150,000,000 to 200,000,000 range per year.

The net household position mirrors the villa arithmetic. The company saves IDR 132,000,000 in corporate income tax. The director pays additional personal tax of approximately IDR 165,000,000. The net household result is roughly IDR 33,000,000 worse than if the director had funded the fees personally from after-tax income.

The arithmetic shifts for directors whose marginal rate sits below the corporate rate. For most foreign directors of a Bali-based PT PMA the personal rate exceeds the corporate rate, and the company-pays-school-fees structure produces a net household loss. The conservative position is to draw an after-tax dividend or director’s fee large enough to fund the school fees personally, accept the personal tax on the distribution, and avoid the BIK complication entirely.

The contractual relationship with the school sitting in the parent’s name (instead of the company’s) also avoids complications when the director leaves the role or transitions between companies. A school fee structure set up through the company creates an awkward unwind on departure.

KITAS, visa, and immigration costs

Immigration costs for a foreign worker employed by the company are deductible business expenditure where the worker is employed under a documented employment relationship and the immigration status is necessary for the licensed role. Visa fees, KITAS application and renewal fees, immigration agent fees, and the related government administration costs sit within ordinary business expense and do not produce a BIK charge for the foreign worker.

The KITAS is the Limited Stay Permit Card (Kartu Izin Tinggal Terbatas, or KITAS) required for a foreign worker to live and work in Indonesia. The application sequence involves the Notification of Foreign Worker Use (Pemberitahuan Penggunaan Tenaga Kerja Asing, or PPTKA) issued by the Ministry of Manpower, the Visa for Limited Stay (Visa Tinggal Terbatas, or VITAS) issued by Indonesian missions abroad, the KITAS itself issued by Immigration after entry, and the registration at the local kelurahan within 14 (fourteen) days of arrival.

The DPKK fee (Dana Pengembangan Keahlian dan Keterampilan, the manpower compensation fund) sits alongside at USD 100 (one hundred United States Dollars) per month per foreign worker, prepaid for the license period. Aggregate company spend on a single foreign director KITAS package typically falls in the USD 2,500 to 5,000 range for initial issuance, plus the DPKK at USD 100 per month.

The position changes for KITAS costs of a director’s spouse and dependents. Spouse and dependent KITAS costs are a personal expense of the principal foreign worker. Where the company elects to pay these costs, the company-paid director benefits fall within the BIK regime. The amounts are added to the director’s PPh Article 21 base and the company deducts the cost at the corporate rate. The economic result follows the same arithmetic as the villa and school fees scenarios.

What remains clearly deductible without a BIK charge

Six categories of director expense fall clearly within the deductible business expense column and do not produce a benefit-in-kind charge under PMK 66/PMK.03/2023.

Category	Typical examples	Treatment
Business travel	Flights, accommodation, ground transport, meals while travelling for company business	Deductible to company; no BIK to traveller, provided documented
Communication infrastructure	Mobile phone packages, internet subscriptions, laptops, tablets in the company’s name	Deductible; no BIK where equipment is asset-listed in the company
Professional development	Training, conferences, seminars, certification fees, professional body membership	Deductible; no BIK where directly related to the role
Professional advice	Legal, accounting, tax, immigration, consulting fees for the company role	Deductible; personal portion of advice is BIK
Workplace safety and statutory health	Workplace health screenings, occupational safety equipment, BPJS Kesehatan and Ketenagakerjaan	Deductible; no BIK under PMK 66/2023 exclusions
In-workplace food and drink	Office snacks, lunch onsite, communal coffee and tea, group provision	Deductible; no BIK under Article 4 of PMK 66/2023

The categories share a substantive link to the company’s licensed business activity and an absence of direct personal advantage to the recipient. Where a payment sits cleanly within one of these categories, the deduction is available and no BIK arises. Where a payment sits at the edge of a category (a “training” trip that is mostly a holiday, a “communication device” that is also a child’s tablet, a “professional fee” that includes personal tax advice for the director), the substance test applies and the line moves accordingly.

The decision framework for the foreign director

The structural decision on whether to fund a personal expense through the company or personally turns on four inputs. The director’s marginal personal tax rate. The company’s effective corporate rate (typically the headline 22 (twenty-two) per cent, lower for companies qualifying for the Article 31E relief). The substance of the expense (deductible business expense, mixed-use, or pure personal). The documentation the company can assemble to support the position at audit.

For most foreign directors of a Bali PT PMA with annual personal taxable income above IDR 500,000,000 (placing them in the 30 to 35 per cent bands), the post-2023 rules produce a net household cost when personal expenses are funded through the company. The conservative position is to draw compensation through clean salary or director’s fee channels, pay personal income tax at the marginal rate, and fund personal expenses from after-tax cash. The structure simplifies the audit position, removes the documentation burden of running mixed-use allocations, and avoids the recharacterisation risk on borderline expenses.

For directors whose marginal rate sits below the corporate rate (typically those with taxable income under IDR 250,000,000 per year), the company-pays-personal-expenses structure can produce a net household saving. The arithmetic favours the BIK route, although the saving is modest (in the range of 7 to 17 per cent of the expense amount) and is offset partly by the increased compliance complexity.

The genuine business expenses (the six categories at the foot of the previous section) remain firmly within the deductible-without-BIK column. A foreign director should not avoid claiming legitimate business travel, professional development, or communication infrastructure costs through the company out of caution about the BIK regime. The BIK question arises only where the substance of the expense is personal; where the substance is corporate, the deduction is available without complication.

Where this sits in TraceWorthy’s work

TraceWorthy’s financial services team performs the structuring of director compensation packages for foreign-owned companies across Indonesia, the allocation of mixed-use expenses between deductible business cost and benefit-in-kind, the preparation of the periodic PPh Article 21 filing reflecting BIK additions, and the response to the tax office where a BIK question arises in the audit window. We work with foreign directors to set the personal-expense strategy at the point of company formation and review it annually as personal circumstances, family structure, and the company’s profit position shift.

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This article provides general information on the benefit-in-kind regime applicable to a PT PMA in Indonesia under Law No. 7 of 2021, Government Regulation No. 55 of 2022, and Minister of Finance Regulation No. 66/PMK.03/2023 as at May 2026. It does not constitute legal, tax, accounting or regulatory advice. The post-2023 natura rules, the corporate income tax rates, the personal income tax bands, and the specific exclusions are set by regulation and can change. The position for any individual director depends on their compensation structure, their role within the company, their tax residency status, and the documentation supporting each payment. Obtain advice specific to your circumstances before acting on any point in this article.

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