United States-Indonesia Tax Treaty
Indonesia International Tax Compliance Rules
Quick Summary. Situated between the Indian and Pacific Oceans between Asia and Australia, the Republic of Indonesia is the world’s largest island country and is comprised of more than seventeen thousand islands. Indonesia is a constitutional republic comprised of 34 provinces.
Indonesia is a signatory to the OECD’s Multilateral Instrument relating to the prevision of Base Erosion and Profit Shifting (BEPS), which was ratified in late 2019.
Effective in 2020, new legislation, Perppu-1, implemented new tax policies, which include a reduction in the corporate income tax rate and new provisions related to the taxation of e-commerce. In addition, Indonesia has introduced VAT provisions with respect to e-commerce.
Indonesia taxes resident corporations on worldwide income. Non-resident corporations with a permanent establishment are generally subject to taxation as a resident corporation.
Individual residents are subject to tax on worldwide income; non-resident individuals, however, are subject to withholding tax on Indonesian-sourced income.
Income Tax Treaty between the United States and Indonesia
Indonesia is a member of the United Nations (UN), World Trade Organization, (WTO), and the G20.
U.S.-Indonesia Tax Treaty
- Convention between the Government of the United States of America and the Government of the Republic of Indonesia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with a related Protocol and exchange of notes, signed at Jakarta on July 11, 1988
- UNITED STATES TREASURY DEPARTMENT TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE REPUBLIC OF INDONESIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, SIGNED AT JAKARTA ON JULY 11, 1988
Currency. Indonesian Rupiah (IDR)
Common Legal Entities.
Limited Liability Company (Perseroan Terbatas, PT)
Branch of foreign corporation, if entities operate in the oil and gas sector or provide banking services
Tax Authorities. Director General of Taxation
Tax Treaties. Indonesia has concluded more than 68 tax treaties.
Corporate Income Tax Rate. 25% standard
Individual Tax Rate.
5% on the first IDR 50 million
15% exceeding IDR 50 million up to IDR 250 million
25% on IDR 250 million to 500 million
30% on amounts exceeding IDK 500 million
Reduced 1% final tax on amounts not exceeding IDR 4.8 million
Corporate Capital Gains Tax Rate.
Taxed as rrdinary income and taxed at the standard rate. Certain transactions are taxed under a special regime (e.g. income from disposals of land and/or buildings, see transfer)
Individual Capital Gains Tax Rate.
Taxed as ordinary income at the normal rates.
Residence.
Corporate. Corporate residency is established based upon domicile or place of effective management or control.
Individual. Individual residence is established based upon presence in Indonesia for 183 days or more in any 12-month period.
Withholding Tax.
Dividends.
Nonresident: 20% tax, unless reduced under tax treaty
Domestic taxpayer to resident: 15%, unless exemption which is advance payment on tax liability
Resident Individual: 10%
Interest.
Nonresident: 20% unless reduced under tax treaty
Domestic taxpayer to resident: 15%, advanced payment on tax liability
Paid by Bank to tax resident: 20%
Royalties.
20% remitted abroad unless reduced by tax treaty.
Paid by domestic taxpayer to resident: 15%
Commissions.
Technical service fees: domestic taxpayer to resident:2%
20% imposed when remitted abroad unless reduced or eliminated.
Transfer Pricing.
Indonesia provides for transfer pricing rules based upon commercial standards and the arm’s-length standard.
CFC Rules.
CFC rules apply with respect to Indonesian resident taxpayers holding, directly or indirectly, at least 50% of the total paid-in capital or voting rights of the foreign company.
Inheritance/estate tax. No
Tax Treaty Network – International Tax Attorneys
Our international tax expertise allows us to guide clients through tax planning and compliance so that they can focus on what matters most. At Freeman Law, our clients are engaged in an interconnected business environment that spans across the globe. From supply chains to markets, cross-country taxation impacts every global business.
Do you have questions about Indonesia’s Tax Treaties? Schedule a free consultation with one of Freeman Laws International Tax Experts Today!
