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Copyright by Remidian Bahureksa || Written by Radi A.


Indonesia Business
Reference and information concerning Permanent
Establishment in Indonesia
Reproduction, Republication, and/or changing the content for any
Commercial Purposes is Prohibited. For educational purpose is permitted,
with notification to info@remidian-

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regarding Permanent Establishment
services in Indonesia, please do not
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1. Basic

• Permanent Establishment (PE) is a form of enterprise by person or legal entity that not
residing in Indonesia or present in Indonesia for no more than 183 days in 12 month
period not set up and domiciled in Indonesia to carry out business or conduct activities in
Indonesia in any form that similar to:
o Management Office;
o Branch Office;
o Representative Office;
o Office Building;
o Factory;
o Workshop;
o Mine or quarry of natural resources or area of drilling operations used for mining
o Fishing area, livestock breeding area, agricultural area, plantation or forest area;
o Construction project, installation or assembly project;
o Provisions of services in any form by employee or other person as conducted
more than 60 days in 12 month period;
o Individual or legal entity who act as agent with dependent position;
o Agent or employee of insurance company neither formed in Indonesia which
receives insurance premiums or insures risk in Indonesia.

• Rules applying to taxation of PEs are designed to capture tax on worldwide income of
related organization earned in direct connection with activities of PE, while excluding other
unrelated activities.
• Although PE is included in the definition of Foreign Taxpayers, however the Tax liabilities for
PE are quite equal and same as local / non-foreign Taxpayers.
• A PE is obliged to have Tax Registration Number and if the PE is suitable, than the PE
must be confirmed as Taxable entity.
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- Income Tax
• PE obliged to perform the rights and obligations as the same as local / non-foreign
• PE oblige to report and convey the SPT (yearly tax report) of income tax for entity, SPT of
PPh (Income Tax) of Article 21 or 26, PPh of Article 23 or 26, PPh Article 22, PPh Article
4 point (2) and/or other Income Tax in accordance with the applicable regulations;
• The fundamental difference between Foreign Taxpayers and Local / non-Foreign
Taxpayers are :
o The Taxable income are only come from activity in Indonesia only, because PE
basically a Foreign Taxpayers.
o There are some special treatment for income tax that became the object
of PE Tax and the costs that may be deducted for PE was provided in the Article 5
of the Income Tax Act
o There are special obligations exclusive for Article 26 of the Withholding Tax for
Taxable income after deducted for the tax in Indonesia as regulated in Article 26
point (4) of the Income Tax Act.
• However, the net profit after income tax of a foreign company in Indonesia (PE) is subject
to additional tax, often referred and recognized as “the branch profits tax” at a
rate of 20% of net profit after tax (net income after tax).
• If the foreign companies (PE) come from the treaty partner countries, then
the branch profits tax rate is in accordance with the applicable taxtreaty between both
• In order to determine the total amount of PE foreign companies in Indonesia taxable
income, the payments to the central office that may not be deducted as expenses are
deductible to:
o Royalties or other benefits associated with the use of property, patents or other
o Benefits that associated with management services and other services;
o Interest except interest rates related to the banking business.
• In addition, the central office administrative costs that allocated to their PE in Indonesia
can be charged only for the ratio between the amount of their PE income in Indonesia with
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their total global income multiplied by the number of their central office administrative
• Tax incentives that can be obtained by a PE foreign company in Indonesia is the income
tax exemption for tax in Article 26 point (4) of the branch profits tax, if they meet
the cumulative requirements, such as:
o Re-Investment is carried out on all taxable income after deduction of income tax in
the form of equity participation in a newly established company and
domiciled in Indonesia as a founder or founding participant;
o Re-Investment is done in the current tax year or no later than the next fiscal year,
from the fiscal year they received or earned income;
o And not allowed to diverse the Re-Investment at least within the period of 2 (two)
years after the investee company conducted some kind of commercial production.

2. Regulation

• Act No. 17 of 2000 Regarding the Third Amendment to Law Number 7 of 1983
concerning Income Tax;
• Decree/Decision of the Director General of Taxation Number KEP-62/PJ./1995
concerning the type and amount of administrative costs of central office that allowed to be
Charged as a Fee of a Permanent Establishment;
• Decree/Decision of the Director General of Taxation No. 113/KMK.03/2002.

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