Payments to Nonresidents
Operating Losses (Years)
(a) This rate also applies to Indonesian permanent establishments of foreign companies. See Section B.
(b) See Section B for details concerning the taxation of capital gains.
(c) In general, a final withholding tax at a rate of 20% is imposed on payments to nonresidents. Tax treaties may reduce the tax rate. Dividends paid to resi dent companies are exempt from tax. Dividends paid to resident individuals are exempt from tax if such dividends are invested in Indonesia for a certain time period. If the exemption does not apply, a 10% final withholding tax applies to dividends paid to tax-resident individuals. A 15% withholding tax is imposed on interest paid by nonfinancial institutions to residents. Interest paid by banks on bank deposits to residents is subject to a final withholding tax of 20%. Interest on bonds paid to residents and nonresidents is subject to a 10% withholding tax.
(d) This is a final withholding tax imposed on gross rent from land or buildings.
(e) This tax is considered a prepayment of income tax. It is imposed on the gross amount paid to residents. An increase of 100% of the normal withholding tax rate is imposed on taxpayers subject to this withholding tax that do not pos sess a Tax Identification Number.
(f) This tax is considered a final tax. The applicable tax rate depends on the type of service provided and the “qualification” of the construction companies. The “qualification” is issued by the authorities with respect to the business scale of a construction company (that is, small, medium or large).
(g) This is a final tax imposed on the gross amount paid to nonresidents. The withholding tax rate on certain types of income may be reduced under double tax treaties.
(h) This is a final tax imposed on the net after-tax profits of a permanent estab lishment. The rate may be reduced under double tax treaties. The tax applies regardless of whether the income is remitted. An exemption may apply if the profits are reinvested in Indonesia.
(i) Losses incurred by taxpayers engaged in certain businesses or incurred in certain areas may be carried forward for up to 10 years (see Section B).
B. Taxes on corporate income and gains
Corporate income tax. Companies incorporated or domiciled in Indonesia are subject to income tax on worldwide income. Foreign tax may be claimed as a tax credit subject to a limitation rule (see Foreign tax relief). Branches of foreign companies are taxed only on those profits derived from activities carried on in Indonesia. However, income accruing from Indonesia to a for eign company having a permanent establishment in Indonesia is taxed as income of the permanent establishment if the business generating the income is of a similar nature to the business of the permanent establishment. This is known as the “force of attraction” principle.
Deemed permanent establishment or Electronic Transaction Tax. Laws have been passed but not yet implemented to the effect that an offshore seller, offshore service provider or offshore e-commerce organizer meeting the significant economic presence criteria can be treated as a permanent establishment and subject to income tax.
Significant economic presence will be defined in further regula tions with reference to the following:
• Consolidated business group turnover of a certain amount
• Sales in Indonesia of a certain amount
• Active users of digital media in Indonesia of a certain number
If income tax cannot be imposed as a result of the application of a tax treaty, the offshore seller, offshore service provider or
i n D on E sia 765
10/20 (g) Branch Profits Tax 20 (h) Net
Carryback 0 Carryforward 5 to 10 (i)
offshore e-commerce organizer meeting the significant economic presence criteria will be subject to the Electronic Transaction Tax. This tax will be imposed on the sale of goods or services from outside Indonesia through e-commerce to the buyer or the user in Indonesia if the sale is conducted by an offshore taxpayer, whether directly or via an offshore e-commerce organizer. These laws await implementing regulations before they can enter into effect. Indonesia may pursue an approach consistent with Base Erosion and Profit Shifting (BEPS) 2.0 rather than implementing these laws.
Rates of corporate tax. Corporate tax is imposed at a flat rate of 22%. This rate applies to Indonesian companies and foreign com panies operating in Indonesia through a permanent establishment. The tax rate is reduced by three percentage points for listed companies that have at least 40% of their paid-up capital traded on the stock exchange. Small and medium-scale domestic com panies (that is, companies having gross turnover of up to IDR50 billion) are entitled to a 50% reduction of the tax rate. The reduced rate applies to taxable income corresponding to gross turnover of up to IDR4.8 billion.
A previously announced reduction of the corporate tax rate to 20% has been canceled.
Branch profit tax. The net after-tax profits of a permanent estab lishment are subject to branch profit tax at a rate of 20%. This rate may be reduced under a double tax treaty. Branch profit tax applies regardless of whether the income is remitted to the head office. An exemption may apply if the profits are reinvested in Indonesia.
Tax incentives
Tax Allowance Incentive. Tax incentives under the Tax Allowance Incentive are granted to certain qualifying resident companies investing in certain types of businesses or regions. The Tax Allowance Incentive consists of the following:
• Accelerated depreciation and amortization.
• Extended period of 10 years for the carryforward of a tax loss (normally 5 years), subject to certain conditions.
• Reduced tax rate of 10% (or lower rate under a double tax treaty) for dividends paid to nonresidents.
• Investment allowance in the form of reduction of net income by 30% of the amount invested in land and buildings, and plant and equipment. This allowance is claimed at a rate of 5% each year over a six-year period.
To qualify for the above tax incentives, the investment must be a new investment or an investment for the purpose of expanding a current business. Under a government regulation, 166 categories of business sectors and 17 other categories of industries in certain areas may qualify for the tax incentives. The designated areas and provinces are generally outside Jakarta. They are primarily the provinces located in Kalimantan and Sumatera.
Certain restrictions apply to the use and transfer of fixed assets that benefit from the incentives. These restrictions apply for the first six years of commercial production or for the prescribed use ful life of the assets for tax purposes. The incentives are revoked
766 i n D on E sia
with a penalty if these rules are violated. Implementation of the government regulation is evaluated within two years from the date on which the approval is granted. A monitoring team is estab lished for this purpose.
Tax Holiday Incentive. Certain taxpayers engaged in a “pioneer industry” may seek a tax incentive commonly known as the Tax Holiday Incentive, which was introduced in 2011 and lastly renewed in September 2020. The Tax Holiday Incentive offers 50% and 100% corporate tax exemptions for 5 to 20 years, depending on the amount of new capital investment. An addi tional period of corporate income tax reduction for two fiscal years is also offered after the expiration of the tax holiday in the following cases:
• 25% reduction of the corporate income tax payable if the new capital investment is at least IDR100 billion but less than IDR500 billion
• 50% reduction of the corporate income tax payable if the new capital investment is at least IDR500 billion
To qualify for the Tax Holiday Incentive, taxpayers must fulfill the following criteria:
• They must be Indonesian legal entities.
• They must be engaged in a “pioneer industry.”
• The capital investment must be new and not yet issued with an approval or rejection on an application to reduce the corporate income tax of the company.
• They must have a new capital investment plan with a minimum value of IDR100 billion.
• They must satisfy the thin-capitalization ratio required by the Minister of Finance for income tax purposes.
• They must commit to start realizing their capital investment plan within a year after the approval to obtain the Tax Holiday Incentive is issued.
Currently, the following sectors qualify as pioneer industries:
• Integrated upstream base metal industry (steel and non-steel), with or without its derivatives
• Integrated purification and/or refinery of oil and gas industry, with or without its derivatives
• Integrated petrochemical industry that is oil-, natural gas- or coal-based, with or without its derivatives
• Integrated basic organic chemical industry sourced from agri culture, plantation or forestry, with or without its derivatives
• Integrated basic inorganic chemical industry, with or without its derivatives
• Integrated pharmaceutical raw material industry, with or with out its derivatives
• Manufacturing industry of irradiation equipment, electromedical or electrotherapy
• Manufacturing industry of electronical or telematic equip ment’s main components such as semiconductors’ wafers, backlights for liquid crystal displays, electrical drivers or dis plays
• Manufacturing industry of engines and main components for engines
• Manufacturing industry of robotic components that support the engine manufacturing industry
i n D on E sia 767
• Manufacturing industry of main components for power plant machineries
• Manufacturing industry of automotive and automotive main components
• Manufacturing industry of main components for ships
• Manufacturing industry of main components for trains
• Manufacturing industry of main components for aircraft and supporting activities for the aerospace industry
• Manufacturing industry with products based from agriculture, plantation or forestry that produce pulp, with or without its derivatives
• Economic infrastructure
• Digital economy that covers activities such as data processing, hosting and other related activities
The tax holiday regulations now stipulate a “scoring guideline” on what can be categorized as a “pioneer industry” despite not being one of the specifically listed categories. Therefore, compa nies interested in making new investments have better guidance as to whether a proposed investment can be categorized as a pioneer industry. A taxpayer engaged in an industry that is not listed as a pioneer industry as stated above may now apply for the Tax Holiday Incentive if the taxpayer meets the other criteria to obtain the Tax Holiday Incentive and reaches a score of at least 80 on the pioneer industry criteria.
Taxpayers that have received tax incentives for investments in certain types of businesses or regions are not eligible for the Tax Holiday Incentive.
The Tax Holiday Incentive application is processed through the Online Single Submission (OSS) system. The completed applica tion to obtain the Tax Holiday Incentive is submitted by OSS to the Minister of Finance as a recommendation to obtain the Tax Holiday Incentive, and OSS will notify the taxpayer that the taxpayer’s application is in process. The decision to grant the Tax Holiday Incentive to the company is issued by the Chairman of the Investment Coordinating Board on behalf of the Minister of Finance within five business days after it receives the complete proposal. The Tax Holiday Incentive can be given by the Minister of Finance with respect to a proposal that is submitted within four years after 8 October 2020.
Super deduction incentives. Super deduction incentives are dis cussed below.
A super deduction for labor-intensive industry is available. This income tax incentive is available for a domestic corporate taxpayer that conducts new capital investment or business expansion in a business sector that is a labor-intensive industry sector and is not eligible for a tax allowance or the Tax Holiday Incentive. The income tax facility provided to the qualified taxpayer is an investment allowance of 60% (on top of normal tax depreciation) of the amount invested in tangible fixed assets, including land, which are used in the main business activity. This allowance may be claimed at the rate of 10% each year over a six-year period beginning with the fiscal year of the starting of commercial production.
768 i n D on E sia
A super deduction for apprentice, internship and teaching activi ties is available. For a domestic corporate taxpayer that carries out work practice, internship or teaching to coach and develop human resources with “certain competencies” may be eligible for a reduction of gross revenue of a maximum of 200% of the total expenses incurred for work practice, internship or teaching ac tivities. “Certain competencies” is defined as competency to in crease human resources quality through work practice, internship or strategic teaching to achieve human resources effectiveness and efficiency as part of a human resources investment, and to meet the structure of labor requirements that are needed by the business or industry sectors.
A super deduction for research and development (R&D) activities is available. A domestic corporate taxpayer that carries out certain R&D activities in Indonesia may be eligible for a reduc tion in gross revenue of a maximum of 300% of the total ex penses incurred for “certain R&D activities” in Indonesia. Certain R&D activities are defined as R&D activities conducted in Indonesia to produce invention, innovation, mastery of new technology or transfer of technology for industrial development to increase the competitiveness of national industry.
Special tax rates. Special tax rates granted to certain companies are described below.
Petroleum. Tax rates applicable to petroleum companies are those applicable when the petroleum companies’ contracts were signed and approved. In addition, foreign petroleum companies are sub ject to branch profit tax of 20% on their taxable income, except as otherwise provided in an applicable tax treaty.
Mining. Income tax applicable to general mining companies may depend on generation of the concessions granted (that is, when the concession is granted). Holders of earlier concessions are taxed at the rates ranging from 30% to 45% (the tax rates are the rates prevailing at the time the concession was granted). Holders of the more recent concessions are taxed in accordance with the prevail ing tax laws (current rate is 22%). Although withholding tax on dividends paid overseas is generally imposed at a rate of 20%, some earlier concessions provide a reduced rate of 10%. These rates may be subject to reduction under certain tax treaties.
Construction companies. Construction companies are subject to corporate income tax with tax rates ranging from 2% to 6% of the contract value. The income tax applies to complete or partial con struction activities. The applicable tax rate depends on the busi ness qualification of the respective company and/or the type of services performed. The tax is considered a final tax. Consequently, no corporate income tax is due on the income at the end of a fis cal year. Foreign construction companies operating in Indonesia through a branch or a permanent establishment are subject to further branch profit tax of 20% on the taxable income (account ing profit adjusted for tax) after deduction of the final tax. The rate is subject to applicable tax treaties. Exemption from branch profit tax may apply in the circumstances described above (see Branch profit tax).
i n D on E sia 769
Foreign drilling companies. Foreign drilling companies are sub ject to corporate income tax at an effective rate of 3.75% of their gross drilling income, as well as to branch profit tax of 20% on their after-tax taxable income. The branch profit tax may be re duced under certain tax treaties. Branch profit tax may be avoided in the circumstances described above (see Branch profit tax).
Nonresident international shipping companies and airlines. Nonresident international shipping companies and airlines are subject to tax at a rate of 2.64% of gross turnover (inclusive of branch profit tax). As a result of the reduction of the corporate tax rate in 2010, the effective tax rate may change. However, this has not yet been confirmed through the issuance of a tax regulation.
Small and medium-sized entities. Individual and corporate tax payers (except permanent establishments) with annual gross turnover of less than IDR4.8 billion are subject to income tax at a rate of 0.5% of monthly gross turnover for the following maxi mum periods:
• Seven fiscal years for individual taxpayers
• Four fiscal years for corporate taxpayers in the form of coop eratives, limited partnerships or firms
• Three fiscal years for corporate taxpayers in the form of com panies
This income tax is final.
The following taxpayers are excluded from this final tax:
• Taxpayers who choose to be subject to normal income tax rates
• Corporate taxpayers that have already received tax allowance or tax holiday facilities
• Corporate taxpayers in the form of limited partnerships or firms that are established by a few individual taxpayers who have special expertise and provide the same services as inde pendent professional services
• Corporate taxpayers that have not yet started commercial operations
• Corporate taxpayers that have gross revenue of IDR4.8 billion or more from commercial operations in a year
For purposes of the above measure, business income does not include income from independent professional services, such as, among others, services provided by lawyers, accountants, medical doctors and notaries.
Taxpayers qualifying for a different final tax regime, such as con struction services companies, are not eligible for this 0.5% final tax.
Under the new Tax Regulations Harmonization Law (HPP Law), starting from the 2022 fiscal year, part of a certain annual gross revenue up to IDR500 million of an individual taxpayer that is subject to final income tax as above is not subject to income tax.
Capital gains. A 0.1% final withholding tax is imposed on pro ceeds of sales of publicly listed shares through the Indonesian stock exchange. An additional tax at a rate of 0.5% of the share value is levied on sales of founder shares associated with a public offering. Founder shareholders must pay the 0.5% tax within one month after the shares are listed. Founder shareholders that do
770 i n D on E sia
not pay the tax by the due date are subject to income tax on the gains at the ordinary income tax rate.
Capital gains derived by residents are included in taxable income and are subject to tax at the normal income tax rate. Capital gains derived by nonresidents are subject to tax at a rate of 20%. The law provides that the 20% tax is imposed on an amount of deemed income. The Minister of Finance established the deemed income for sales of unlisted shares. The deemed income equals 25% of the gross sale proceeds, resulting in an effective tax rate of 5% of the gross sale proceeds. This rule applies to residents of nontreaty countries and to residents of treaty countries if the appli cable treaty allows Indonesia to tax the income.
In addition to sales or transfers of shares, Indonesian tax applies a 20% tax rate to an estimated net income of 25% on sales or trans fers of certain assets owned by non-Indonesian tax residents that do not have a permanent establishment in Indonesia. The assets are luxury jewelry, diamonds, gold, gemstones, luxury watches, antiques, paintings, cars, motorcycles, yachts and/or light aircraft. This results in an effective tax rate of 5%. The purchaser must withhold the tax. A tax exemption applies to transactions with a value of less than IDR10 million. The provisions of tax treaties override the above regulation.
The sale or transfer by nonresidents of shares in conduit compa nies or special purpose companies established or resident in taxhaven jurisdictions that have a special relationship with an Indonesian entity or an Indonesian permanent establishment of a foreign entity is deemed to be a sale or transfer of shares of the Indonesian entity or the permanent establishment. The relevant regulation provides that the Indonesian income tax applicable to the transaction is 5% of the gross sale proceeds. The 5% rate is derived from the application of the 20% cross-border withhold ing tax under Article 26 of the Income Tax Law to a profit that is deemed to be 25% of the gross sale proceeds. A provision in an applicable tax treaty overrides the above rule if the seller of the shares is a tax resident in a country that has entered into a tax treaty with Indonesia.
Sellers or transferors of the right to use land or buildings are sub ject to tax at a rate of 2.5% of the gross transfer value. The gross transfer value must represent the market value if the seller and buyer have a special relationship. Purchasers or transferees must pay a transfer duty of 5%, which may be reduced to 2.5% for transfers in business mergers approved by the Director General of Taxation.
Administration. The annual corporate income tax return must be filed by the end of the fourth month following the end of the fiscal year. The deadline can be extended for two months. The balance of annual tax due must be settled before filing the annual tax return.
Corporate income tax must be paid in advance through monthly installments, which are due on the 15th day of the month follow ing the relevant month. The tax installment equals 1/12 of tax payable for the preceding year (after exclusion of non-regular in come) or tax payable based on the latest tax assessment received.
i n D on E sia 771
Banks and securities companies calculate their monthly tax in stallments based on quarterly and semiannual financial reports, respectively.
Dividends. In general, dividends are taxable.
Starting November 2020, Indonesian-source dividends paid to tax-resident companies are exempt from tax. Dividends paid to tax-resident individuals are exempt from tax if such dividends are invested in Indonesia for a certain time period. If the exemption does not apply, dividends received by Indonesian resident indi viduals are subject to a final tax of 10%. To qualify for tax exemption, the dividend paid to resident companies and resident individuals must be declared at the annual general meeting of shareholders or as an interim dividend based on the prevailing regulations. Under the Company Law, dividends can only be paid out of profits.
Dividends remitted to overseas shareholders are subject to a final 20% withholding tax, unless an applicable tax treaty provides a lower rate.
Foreign dividends paid by offshore companies and after-tax profit from offshore permanent establishments, which are received by corporate or individual tax residents, are exempt from tax if such income is invested in Indonesia or used to sup port other businesses in Indonesia for a certain time period and satisfy certain conditions.
Foreign tax relief. A credit is allowed for tax paid or due overseas on income accruing to an Indonesian company, provided it does not exceed the allowable foreign tax credit. The allowable foreign tax credit is computed on a type (basket)-of-income and countryby-country basis.
C. Determination of trading income
General. Income is broadly defined. It includes, but is not limited to, the following:
• Business profits
• Gains from sales or transfers of assets
• Interest, dividends, royalties and rental and other income with respect to the use of property
• Income resulting from reorganizations, regardless of the name or form
• Gains from sales or transfers of all or part of a mining conces sion, funding participation or capital contribution of a mining company
• Receipt of refund of tax that has been claimed as a tax deduction
• Income earned by syariah-based businesses (syariah refers to businesses conducted in accordance with Islamic law)
• Interest compensation
• Surplus of Bank Indonesia
Certain income is not taxable or is subject to a final tax regime. Interest earned by resident taxpayers on time deposits, certifi cates of deposit and savings accounts is subject to a 20% with holding tax, representing a final tax on such income. A final 20% (or lower rate provided in a tax treaty) withholding tax is imposed on interest earned by nonresidents.
772 i n D on E sia
Taxpayers are generally able to deduct from gross income all expenses to the extent that they are directly or indirectly incurred in earning taxable income. Nondeductible expenses include the following:
• Income tax and penalties
• Expenses incurred for the private needs of shareholders, associ ates or members
• Gifts
• Donations (except for donations for national disasters, grants in the framework of R&D activities in Indonesia, grants for the development of social infrastructure, grants in the form of education facilities [for example, books, computers, chairs, tables and other educational resources] and grants for the devel opment of sport)
• Reserves and provisions for certain industries
Business losses incurred overseas are not deductible.
Foreign-exchange gains and losses are treated as taxable income and deductible expenses in accordance with the generally accepted accounting procedures in Indonesia that are consistently adopted.
Under the HPP Law, starting from the 2022 fiscal year, certain benefits in kind will now be tax-deductible for the employer and become taxable income for the employee/recipient. “Benefit in kind” means consideration in kind in the form of goods other than money and/or consideration in the form of enjoyment for the right to use certain facilities and/or services. The HPP Law provides certain exemptions from this treatment.
Inventories. For tax purposes, inventories must be valued at cost using either the first-in, first-out (FIFO) or average-cost method. The last-in, first-out (LIFO) method is not allowed.
Provisions. Provisions are generally not deductible for tax pur poses.
Certain taxpayers that may claim bad debt provisions as deduct ible expenses include banks and certain nonbank financial insti tutions, such as other corporate entities providing loan facilities, insurance companies, leasing companies that lease assets under finance leases, consumer financing companies, and factoring com panies. The following companies may also claim tax deductions for reserves or provisions:
• Social insurance providers: reserves of social funds
• Forestry companies: reserves for reforestation
• Mining companies: reserves for reclamation of mining sites
• Industrial waste treatment companies: reserves for closure and maintenance of waste treatment plants
Taxpayers may claim tax deductions for bad debts if all of the following conditions are satisfied:
• The costs have been claimed as corporate losses in commercial financial reports.
• A list of the names of the debtors and totals of the bad debts is submitted to the Director General of Taxation.
• A legal suit for collection of the debt is filed with the public court or government institutions handling state receivables. Alternatively, taxpayers may publicize the bad debt in a general or specialized publication or obtain acknowledgment of the write-off of the bad debt from the relevant debtor.
i n D on E sia 773
The write-off of receivables from a related party is not deductible for tax purposes.
Depreciation and amortization allowances. Depreciation is calcu lated on the useful life of an asset by applying the straight-line method or declining-balance method. In general, depreciation is deducted beginning with the month the expenditure is incurred. However, for assets under construction, depreciation begins with the month in which the construction of the assets is completed. Buildings are depreciated using the straight-line method. The fol lowing table provides the useful lives and depreciation rates for depreciable assets.
Depreciation method
Class of Useful life Straight- Decliningasset (years) line (%) balance (%)
Buildings Permanent 20 5
Non-permanent 10 10
Other assets
Class 1 4 25 50
Class 2 8 12.5 25
Class 3 16 6.25 12.5
Class 4 20 5 10
Intangible assets with more than one year of benefit, including leases of tangible property, are amortized according to their use ful lives using the same percentages applicable to fixed assets. Special depreciation and amortization rules apply to assets used in certain businesses or in certain areas (see Section B).
Under the HPP Law, starting from the 2022 fiscal year, deprecia tion of a permanent building that has a useful life of more than 20 years will be carried out using the straight-line method using a 20-year life or in accordance with the actual useful life based on the taxpayer’s accounting records. Amortization of intangible assets that have a useful life of more than 20 years will be amor tized over 20 years or in accordance with the actual useful life based on the taxpayer’s accounting records.
Revaluation of assets for tax purposes. Subject to approval of the Directorate General of Taxation, increments resulting from re valuation of tangible fixed assets is subject to final income tax at the following rates:
• 3% for applications submitted from 15 October 2015 through 31 December 2015
• 4% for applications submitted from 1 January 2016 through 30 June 2016
• 6% for applications submitted from 1 July 2016 through 31 December 2016
• 10% for applications submitted in the 2017 fiscal year
The final tax is applied to any excess in value of the tangible fixed assets’ revaluation or revaluation forecast over the tangible fixed assets’ tax written-down value. This tax must be settled before the application is submitted. The value of tangible fixed assets being revalued should be the fair market value of the tangible fixed as sets as determined by a licensed appraisal company. The
774 i n D on E sia
Directorate General of Taxation may redetermine the fair market value of the relevant tangible fixed assets.
Revaluation of fixed assets can be conducted on all of the tangible fixed assets owned by the company or certain selected tangible fixed assets if the assets are physically located in Indonesia and are used to earn, collect and maintain taxable income. The tangible fixed assets revaluation can only be performed every five years, and any breach of this period results in the imposition of additional tax. A tangible fixed asset that has been revalued is depreciated based on a new revalued cost base and is treated as having the same useful life as a new asset.
Revalued tangible fixed assets in Classes 1 and 2 (see Depreciation and amortization allowances) that are transferred before the end of their useful lives, as well as revalued tangible fixed assets in Classes 3 and 4, and land and buildings that are transferred within 10 years of their revaluation approval, are subject to ad ditional tax.
Relief for losses. Tax losses may not be carried back. They may generally be carried forward for five years. Tax losses incurred by certain businesses or incurred in certain areas may be carried forward for up to 10 years (see Section B).
Groups of companies. The losses of one company may not be used to reduce the profits of an affiliate.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate (%)
Value-added tax (VAT), on delivery of taxable goods, on imports of goods and on services (including services furnished by foreign taxpayers outside Indonesia if the services have a benefit in Indonesia), unless specifically exempt; an offshore seller, offshore service provider or offshore e-commerce organizer can be appointed by the Indonesian tax authorities as an e-commerce VAT collector to collect, pay and report the VAT payable on e-commerce transactions with Indonesian customers because these transactions are considered to be a utilization of intangible taxable goods or taxable services from offshore within Indonesia Standard rate 10
(Under the HPP Law, starting 1 April 2022, the standard VAT rate is increased to 11% and will increase again to 12% starting no later than 1 January 2025.) Export of goods or certain services 0
Sales tax on luxury goods, imposed in addition to the VAT on the delivery of luxury goods manufactured in or imported into Indonesia; rate depends on the nature of the goods 10 to 200
i n D on E sia 775
Nature of tax Rate (%)
Transfer duty on land and buildings 5 Carbon tax; introduced by the HPP Law, an individual or corporation that acquired goods containing carbon and/or carry out activities causing carbon emission is subject to carbon tax; carbon tax is payable on the acquisition of goods containing carbon or activities that resulted in the carbon emission in a certain amount and for a certain period; carbon tax is to be payable at the time the goods containing carbon are acquired, at the end of the calendar year when the activities that resulted in a certain amount of carbon emissions occurred or at another time that will be further regulated by a government regulation; the carbon tax rate will be higher than or equivalent to the carbon price rate at the carbon market per kilogram of carbon dioxide equivalent (CO2e) or its equivalent unit; if the carbon price rate at the carbon market is lower than IDR30 per kilogram CO2e, the law appears to set a carbon tax floor of IDR30 per kilogram of CO2e or its equivalent unit; carbon tax is effective starting 1 April 2022 for coal-fired power stations; many key aspects of the carbon tax will not be known until implementing regulations are released Various
E. Miscellaneous matters
Foreign-exchange controls. No exchange controls affect the repayment of loans and the remittance of dividends, interest and royal ties. Underlying documents must be submitted to the remitting bank for the remittance of funds in foreign currency of more than the equivalent of USD100,000. Foreign loans must be reported to Bank Indonesia to enhance the monitoring of the country’s for eign exchange reserves.
Debt-to-equity rules. Under the tax law, the Minister of Finance may determine an acceptable debt-to-equity ratio. In September 2015, the Minister prescribed a maximum debt-to-equity ratio of 4:1, effective from the 2016 tax year. This rule applies only to Indonesian resident companies, which are companies that are established or incorporated in Indonesia or domiciled in Indonesia and that have their equity made up of shares. It does not apply to permanent establishments. Certain taxpayers are exempted from the rule.
Under the Minister of Finance Regulation regarding the debt-toequity ratio, if a taxpayer breaches the ratio limit, the Directorate General of Taxation is entitled to adjust the taxpayer’s borrowing costs based on the debt-to-equity ratio limit. For a taxpayer that has a nil or negative equity, all costs related to the borrowing are treated as nondeductible for corporate tax purposes. Foreign loans must be reported to the Directorate General of Taxation.
776 i n D on E sia
Non-reporting of foreign loans results in the forfeiting of the deductibility of the interest.
Interest rates on related-party loans must be at arm’s length.
Transfer pricing. The law provides that the following methods may be used to determine arm’s-length pricing:
Comparable uncontrolled price method
Resale-price method
Cost-plus method
Profit-split method
Transactional net margin method
Comparable uncontrolled transaction method
Tangible and intangible asset valuation method
Business valuation method
The Indonesian tax authority requires that related-party transac tions or dealings with affiliated companies be carried out in a “commercially justifiable way” and on an arm’s-length basis. Taxpayers must maintain documentation establishing that relatedparty transactions are conducted at arm’s length. The transferpricing study must be maintained for 10 years from the relevant tax year.
The Indonesian tax authority uses advance pricing agreements (APAs) to regulate transactions between related parties and to mitigate future transfer-pricing disputes with the Director General of Taxation. Broadly, an APA represents an advance agreement between a company and the Director General of Taxation regard ing the determination of the acceptable pricing for a transaction between related parties. An APA provides the sales price for manufactured goods, the amount of royalties and other informa tion. An APA may be entered into with the Director General of Taxation (unilateral) or between the Director General of Taxation and the foreign tax authority (bilateral).
F. Treaty withholding tax rates
Indonesia has introduced tough anti-treaty abuse rules. The Indonesian tax authority may ignore the provisions of a tax treaty if these rules are not satisfied.
The Indonesian tax authority may seek agreement with a tax treaty jurisdiction for exchange of information, mutual agreement pro cedure and assistance with tax collection.
The following table shows withholding tax rates under Indonesia’s double tax treaties.
Dividends (%) Interest (b) Royalties A B % %
Algeria 15 15 0/15 15
Armenia 15 10 0/10 10
Australia 15 15 0/10 10/15 (c)
Austria 15 10 0/10 10
Bangladesh 15 10 10 10
Belarus 10 10 10 10
Belgium 15 10 0/10 10 Brunei
Darussalam 15 15 15 15
i n D on E sia 777
•
•
•
•
•
•
•
•
Dividends (%) Interest (b) Royalties
A B % %
Bulgaria 15 15 0/10 10
Canada 15 10 0/10 10
China Mainland 10 10 0/10 10
Croatia 10 10 0/10 10
Czech Republic 15 10 0/12.5 12.5
Denmark 20 10 0/10 15
Egypt 15 15 0/15 15
Finland 15 10 0/10 10/15 (c)
France 15 10 0/10/15 10/15 (c)
Germany 15 10 0/10 10/15 (a)(c)
Hong Kong (d) 10 5 0/10 5
Hungary 15 15 0/15 15
India 15 10 0/10 15
Iran 7 7 0/10 12
Italy 15 10 0/10 10/15 (c)
Japan 15 10 0/10 10
Jordan 10 10 0/10 10
Korea (North) 10 10 0/10 10
Korea (South) 15 10 0/10 15
Kuwait 10 10 0/5 20
Luxembourg 15 10 0/10 12.5 (a)
Malaysia 10 10 0/10 10
Mexico 10 10 0/10 10 Mongolia 10 10 0/10 10
Morocco 10 10 0/10 10 Netherlands 5 10 5/10 10
New Zealand 15 15 0/10 15
Norway 15 15 0/10 10/15 (c)
Pakistan 15 10 0/15 15 (a)
Papua New Guinea 15 15 0/10 15 (a)
Philippines 20 15 0/10/15 15
Poland 15 10 0/10 15
Portugal 10 10 0/10 10 Qatar 10 10 0/10 5
Romania 15 12.5 12.5 12.5/15 (c)
Russian Federation 15 15 0/15 15
Seychelles 10 10 0/10 10 Singapore 15 10 0/10 8/10 (c)
Slovak Republic 10 10 0/10 15
South Africa 15 10 0/10 10
Spain 15 10 0/10 10
Sri Lanka 15 15 0/15 15
Sudan 10 10 0/15 10
Suriname 15 15 0/15 15
Sweden 15 10 0/10 10/15 (c)
Switzerland 15 10 10 10 (a)
Syria 10 10 10 15/20 (c)
Taiwan 10 10 0/10 10
Thailand 15 15 0/15 10/15 (c)
Tunisia 12 12 0/12 15
Turkey 15 10 0/10 10
Ukraine 15 10 0/10 10
778 i n D on E sia
Dividends (%) Interest (b) Royalties A B % %
United Arab Emirates 10 10 0/7 5 (a)
United Kingdom 15 10 0/10 10/15 (c)
United States 15 10 0/10 10
Uzbekistan 10 10 0/10 10
Venezuela 15 10 0/10 20 (a)
Vietnam 15 15 0/15 15 Zimbabwe 20 10 10 15 (a)
Non-treaty jurisdictions 20 20 20 20
A Rate applicable to portfolio investments.
B Rate applicable to substantial holdings. (a) Technical services are subject to the following reduced rates of withholding tax:
• Germany: 7.5%
• Luxembourg: 10%
• Pakistan: 15%
• Papua New Guinea: 10%
Switzerland: 5%
• United Arab Emirates: 5%
• Venezuela: 10%
• Zimbabwe: 10%
(b) If two rates are other than 0%, the higher rate applies to interest paid to com panies in certain specified industries or to interest on certain bonds. The 0% rate applies if the beneficial owner of the interest is the government. (c) The rates vary according to the rights or information licensed. (d) The tax treaty allows each of the signatory jurisdictions to apply the domestic tax anti-avoidance rules.
In addition to the above treaties, Indonesia has entered into agreements for the reciprocal exemption of taxes and duties on air transport with Bangladesh, Croatia, Laos, Morocco, Saudi Arabia and South Africa.
i n D on E sia 779
•
