The Indonesian economy is becoming the darling of Asia as economic growth hits 5.0 percent and the stock markets booms as foreign investors pour money into the country. The 2016 GDP growth rate, released by the Indonesian Central Statistics Agency last week, exceeds growth figures of 4.8 percent seen in 2015. Of this growth, part came from a healthy 5 percent increase in domestic consumption, while Indonesian imports and exports also increased, as did investment.
Economy & Trade
By: Dezan Shira & Associates
Editor: Alexander Chipman Koty
In comparison to Singapore, Malaysia, and Thailand, Indonesia is more prohibitive to foreign businesses. Not only does Indonesia generally demand higher taxation, but it also has more bureaucratic red tape. Still, many investors are intrigued by the country’s enormous potential. Like Thailand, loss prevention requirements, timing requirements, and pre-remittance compliance are not required. In addition, Over 60 countries hold DTAs with Indonesia, reducing the relatively high withholding taxes the country levies. In order for investors to qualify for DTA benefits, recipients of remittances must confirm their tax residency by providing the Indonesian Tax Office with a certificate of domicile certified by their home country’s tax authority. Foreign entities operating through Permanent Establishments (PEs) generally have the same tax commitments as resident companies. PEs have a relatively broad definition in Indonesia and are subject to particular government regulations and tax rates. As such, investors should be certain whether or not their businesses accidentally qualify as PEs.
Dividends: Remittance of dividends is liable to a 20 percent withholding tax. This amount can be reduced through a DTA. Even with a DTA, however, the rate is generally still between 10 and 15 percent. If the nonresident recipient has a PE in Indonesia, domestic rates of 10 to 15 percent apply.