Tax & Accounting

Understanding Tax Treatment of Representative Offices in Indonesia

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By: Winnindo Business Consult
Editor: Dustin Daugherty

Recent years have seen numerous high-profile cases by the Indonesia tax authority against prominent foreign tech firms. Most notable of these cases is that of Google, which allegedly used an Indonesian RO to carry out its in-country business activities, but shifted all taxable profit to an offshore entity in Singapore. However, Google’s case is not uncommon. In fact, many investors also do the same thing and invoice clients from offshore entities, presenting themselves and their businesses to legal issues.

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Although previously this tax avoidance strategy may have been low-risk, the recent crackdown by the tax authorities demonstrates how essential it is that investors, even those using ROs in the country, take measures to ensure full tax compliance. Thus, to avoid the fate of Google and others, it is essential for companies operating ROs in Indonesia to have a strong grasp of tax regulations. Further, given the complexity of such regulations, investors are encouraged to seek the assistance of professional services experts of tax officials to avoid costly oversights.

Tax Treatment of Representative Offices

As ROs may not engage directly in profit generation, many investors assume the only tax they must be concerned with are withholdings on employee salaries. However, Indonesia’s Tax Authority has in fact put into place specific regulations for the tax treatment of ROs, stipulating that if ROs carry out activities to generate profit in Indonesia, even if the revenues are paid directly to an offshore parent, then such activities will be found to be liable for corporate taxation.

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ROs are categorized as a special class of taxpayers that have to use specified tax calculations to inform its CIT liability, even if the ROs are not directly booking revenue. The current tax rate under this special category is 0.44 percent of Gross Export Values (GEVs). GEVs are overall replacement values for revenues of a foreign company that operates an RO in Indonesia. These revenues come from goods or services delivered to persons or corporate entities located in Indonesia by the RO. Additionally, if the RO of foreign entities are de-facto found to be engaging in profit making activity on behalf of the parent company, then the parent company will be liable for the Branch Profits Tax specified in a tax treaty between Indonesia and the parent’s home country.


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Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in Indonesia, China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email indonesia@dezshira.com or visit www.dezshira.com. Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

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Regulatory Update: Updated Income Tax Allowances in Indonesia Extend Incentives to New Business Lines

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By Winnindo Business Consult
Editor: Mourme Taruna Halim and Samuel Glickstein

In April of 2015, the Indonesian government released a revised regulation on income tax allowances titled Government Regulation (PP) No. 18 / 2015 on Income Tax Allowance for Investment in Certain Business Fields and/or Regions. The regulation updates and revises the previously applied Regulation No. 52 / 2011 on income tax allowances and has been in effect since May of 2015.

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Eligibility for incentives

Broadly speaking, the measures introduced set out to increase investment by providing a tax allowance for corporate taxpayers. To qualify, investors must have been shown to establish new investments or expand their businesses in Indonesia. Allowances under the regulation will now extend to the following sectors:

  • Food and beverages
  • Petrochemicals (such as crude palm oil and crude palm oil kernel processing)
  • Textiles
  • Coal mining and natural oil processing
  • General Mining Operations
  • Renewal energy power plants
  • Pharmaceutical (modern and traditional) industry
  • Agriculture
  • Marine and fishing industry
  • Livestock
  • Forestry
  • Tourism

Regulation No.18/2015 also includes certain maritime sectors , such as the shipyard and seaport industry, which consists of shipping manufacturing, shipping equipment, shipping supplies and spare parts, and cargo loading and handling services.

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Financial Services Update: Registration and Supervision of Actuaries, Public Accountants, and Appraisers in Indonesia

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Editor: Samuel Glickstein

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