Asset Deal vs Share Deal: Tax Implications Compared
Question:
MY NAME is Hendra, financial manager of a corporation in Jakarta. With a view to expanding our business, we plan to acquire a manufacturing company that holds several assets, including land, buildings, production machinery and patents.
We are currently considering the best approach for carrying out this acquisition — whether by purchasing its shares (share acquisition), or by purchasing only its assets (asset acquisition).
In this regard, we also need to consider the matter from a tax perspective. What are the actual differences in tax implications between the two transaction structures, both from our position as the prospective buyer and from the seller's position?
Hendra, Jakarta.
Answer:
THANK you for your question, Mr Hendra. The determination of strategy during the acquisition process typically depends on the objectives expected to be achieved from that process.
For instance, at the stage of defining company criteria, the acquiring company (buyer) often selects the target company (seller) based on the objective of launching a new product line or accessing previously unreachable markets.
This dependence on objectives also applies to the stage of determining the form of the acquisition agreement.
The parties may prefer a share acquisition (share deal) if a smooth and swift transition is desired. This is because the buyer will merely take over the shareholding in the target company. The company therefore continues to exist in its entirety. Thus, its name, business licences, contracts and employees remain unchanged; only ownership transfers to the buyer.
On the other hand, the parties may lean towards an asset acquisition (asset deal) if only certain assets are to be purchased and sold. In an asset deal, the buyer and seller can agree on which assets are to be taken over. Those assets must then be purchased and transferred one by one. The buyer subsequently operates the business in its own name.
However, commercial rationale alone is insufficient. In this context, tax considerations frequently determine how the acquisition strategy is executed. Moreover, tax plays a central role in creating financial synergies in the mergers and acquisitions (M&A) process.
Your question is therefore highly relevant and important to address. This article will examine the tax implications of an asset deal and a share deal from both the buyer's and seller's perspectives, in order to provide a comprehensive picture.
Tax Aspects of an Asset Deal
From the buyer's perspective, there are at least three tax aspects to consider.
First, VAT. The transfer of assets in the form of taxable goods (barang kena pajak/BKP in Indonesian) by a seller of taxable person (pengusaha kena pajak/PKP in Indonesian) status is, in principle, subject to VAT pursuant to Article 4 paragraph (1) subparagraph a in conjunction with Article 16D of the VAT Law.
VAT is calculated at a rate of 12% multiplied by an alternative tax base (dasar pengenaan pajak/DPP in Indonesian) of 11/12 of the selling price, resulting in an effective rate of 11%, pursuant to Article 3 of MoF Reg. 131/2024. In this case, the buyer is generally the party that bears this tax burden. However, if the buyer is of a taxable person status, the VAT paid constitutes input VAT that may be credited, provided the requirements of Article 9 of the VAT Law are fulfilled. Accordingly, the impact of the VAT burden on the buyer is principally one of cash flow.
Notwithstanding the foregoing, there is an exclusion that warrants attention. Pursuant to Article 1A paragraph (2) subparagraph d of the VAT Law, the transfer of taxable goods in the context of business acquisitions between taxable persons is not subject to VAT.
In other words, if the seller is of a taxable person status whereas the buyer is not, this exclusion does not apply and VAT becomes due on the transfer. It is therefore important to confirm that both your company and the target company are of taxable person status.
Second, corporate income tax. With reference to Article 11 paragraph (1) of the Income Tax Law (ITL), the basis for depreciation is the expenditure incurred to purchase the asset. This implies that the buyer's right to depreciate the purchased asset is based on the new tax base, namely the purchase price, rather than the seller's former book value. Consequently, if the purchase price exceeds the tax book value, the buyer can utilise relatively higher depreciation expenses. It should be noted that land is generally not depreciable, whereas intangible assets, such as patents, are amortised pursuant to Article 11A of the ITL.
In practice, the allocation of the purchase price to each individual asset (purchase price allocation) also needs to be properly documented.
Third, acquisition duty on the right to land and building (bea perolehan hak atas tanah dan bangunan/BPHTB in Indonesian). In respect of assets comprising land and buildings specifically, the buyer is required to pay the acquisition duty on the right to land and building at a rate of up to 5% of the taxable acquisition value (nilai perolehan objek pajak/NPOP in Indonesian) less the non-taxable acquisition value threshold. These provisions are set out in Articles 45 and 46 of the Financial Relations between the Central Government and Local Governance Law (HKPD Law). The definitive rate is established through the relevant local regulation.
As additional information, certain regions offer incentives in the form of a reduction or exemption from the principal amount of the acquisition duty on the right to land and building in the context of corporate restructuring. This is worth exploring further if relevant to your company's circumstances.
From the seller's perspective, there are also three tax aspects to consider.
First, VAT. Consistent with the foregoing explanation, assets transferred are subject to VAT where the exclusion under Article 1A paragraph (2) subparagraph d of the VAT Law is not satisfied, for instance, because the buyer is not a taxable person. In that context, the seller, as a taxable person, is obliged to collect VAT and issue a tax invoice pursuant to Article 13 paragraph (1) of the VAT Law.
Second, corporate income tax. If assets are sold at a price higher than their book value, the difference constitutes a gain that is subject to income tax. This is governed by Article 4 paragraph (1) subparagraph d number 3 in conjunction with Article 10 paragraph (3) of the ITL. In this case, the seller must include that gain in the calculation of corporate income tax at the statutory rates under Article 17 of the Income Tax Law (excluding gains from the transfer of land and/or buildings, which are subject to final income tax).
On another note, Article 392 of MoF Reg. 81/2024, as amended by MoF Reg. 1/2026, permits the use of book value for transfers of assets and acquisitions of assets in the context of mergers, consolidations, spin-offs or acquisitions, such that no taxable gain arises.
However, this facility does not apply automatically. The taxpayer must obtain approval from the Director General of Taxes and satisfy the requirements set out in Article 393 of MoF Reg. 81/2024, as amended by MoF Reg. 1/2026, including a business purpose test. Further, for acquisitions, this facility is only available under certain schemes and, as a general rule, cannot be utilised in asset acquisitions between private companies, such as that planned by your company.
Where book value is used, the transferee of the assets is required to use that book value as the basis for depreciation or amortisation, with the result that the benefit of an increased depreciation basis as discussed above is not obtained. This requirement is explained implicitly in the elucidation of Article 10 paragraph (3) of the Income Tax Law.
Third, final income tax. In respect of assets comprising land and buildings specifically, a special regime applies. Pursuant to Article 4 paragraph (2) subparagraph d of the ITL, the transfer of the right to land and/or building is subject to final income tax. The rate is 2.5% of the gross value of the transfer, pursuant to Article 2 of Gov. Reg. 34/2016. The income tax must be remitted by self-remittance by the seller before the deed of transfer is signed, pursuant to Article 3 of Gov. Reg. 34/2016. As it is final in nature, such income is not consolidated into the corporate income tax calculation.
As additional information, there are exclusion provisions in respect of final income tax under Article 6 subparagraph e of Gov. Reg. 34/2016. However, those exemptions apply only to the transfer of land and/or buildings in the context of mergers, consolidations or spin-offs that have been approved as using book value. Accordingly, those exclusions do not cover asset acquisitions as contemplated in your company's plans.
Tax Aspects of a Share Deal
The tax aspects of a share deal are relatively more straightforward than those of an asset deal. Nevertheless, there are considerations that warrant attention, particularly from the buyer's perspective.
From the buyer's perspective, no VAT liability arises. This is because securities (including shares) are a category of goods not subject to VAT pursuant to Article 4A paragraph (2) of the VAT Law. Equally, no acquisition duty on the right to land and building liability arises, as it is the shares instead of the land and buildings directly that change hands.
However, given that the buyer now owns the target company (together with its entire history), the buyer risks bearing the economic consequences of the target entity's historical tax liabilities. This includes tax disputes that may not yet be resolved, potential obligations arising from audits of prior years and any other concealed tax obligations. It is therefore important that a tax due diligence exercise be conducted and that warranty and indemnity clauses be included in the share purchase agreement.
From the seller's perspective, the gain on the sale of shares in a company (assuming they are not listed on a stock exchange) constitutes a taxable object for income tax purposes pursuant to Article 4 paragraph (1) subparagraph d of the ITL. For a seller that is a resident taxpayer, the applicable rate is the statutory rate under Article 17 of the ITL.
Meanwhile, final income tax on the transfer of land and buildings does not arise, as there is no transfer of the right to land and/or building in this transaction.
Closing Remarks
Based on the foregoing, the choice of transaction structure will determine the tax burden borne by each party. For ease of reference, the following is a comparative matrix of tax aspects under the two schemes:
That concludes our response. We hope it is helpful.
As a reminder, the Tax Consultation column is published weekly to address selected questions from loyal DDTCNews readers. Readers wishing to submit a question are welcome to send it to the following email address: [email protected]. (dik)