Tax & Accounting

Understanding Tax Treatment of Representative Offices in Indonesia

Posted on by

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.

Related Services from Dezan Shira & Associates RELATED: International Tax Planning Services from Dezan Shira & Associates

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.

Related Resources RELATED: Establishing a Representative Office in Indonesia 

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.


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 or visit 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.


Related Reading

dsa brochureDezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.

An Introduction to Doing Business in ASEAN 2016
An Introduction to Doing Business in ASEAN 2016 introduces the fundamentals of investing in the 10-nation ASEAN bloc, concentrating on economics, trade, corporate establishment and taxation.We also include the latest development news in our “Important Updates” section for each country, with the intent to provide an executive assessment of the varying component parts of ASEAN, assessing each member state and providing the most up-to-date economic and demographic data on each.

 introduction-to-foreign-investment-in-indonesiaAn Introduction to Foreign Investment in Indonesia
Indonesia stands out in the ASEAN region for its competitive wages, large labor pool, and burgeoning domestic market. With a population exceeding 250 million, the country is poised to become an immensely lucrative market as it develops further and the urban consumption class continues to grow. In this inaugural issue of Indonesia Briefing magazine, we examine these trends, and highlight how Indonesia has made enormous strides in streamlining and liberalizing its business environment.

The Guide to Manufacturing in Indonesia magazineThe Guide to Manufacturing in Indonesia
Choosing if, where, and how to establish foreign manufacturing operations in Indonesia can be a significant challenge. While the archipelago’s vast diversity may initially seem daunting, a number of options are available which will allow entry and operations to be conducted in a seamless manner.In this issue of ASEAN Briefing, we discuss the growing importance of Indonesia as a hub for manufacturing within Southeast Asia, and provide guidance on how to select and establish operations within the country.

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

Posted on by

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.

Related Services from Dezan Shira & Associates RELATED: Tax Advisory Services from Dezan Shira & Associates

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.

Continue reading…

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

Posted on by

By Agus Sugih Hart, Winnindo Business Consult
Editor: Samuel Glickstein

financial-services-indonesiaOn December 21, 2015, the Indonesia Financial Services Authority (Otoritas Jasa Keuangan/OJK) published Regulation No. 38/POJK.05/2015 titled “Registration and Supervision of Actuaries, Certified Public Accountants, and Appraisers to Provide Services for the Non-Banking Financial Industry in Indonesia”. According to this regulation, actuaries, public accountants, and appraisers must register with OJK as non-banking financial industry (IKNB) service providers before they can conduct services for non-banking financial institutions (LJKNB). The term LJKNB includes insurance companies, pension funds, leasing companies, and other non-banking financial institutions (including Sharia law-based financial institutions).

Continue reading…

Indonesia Financial Accounting Standard (IFAS) 70 in Support of Tax Amnesty Program

Posted on by

By: Mourme Taruna Halim

As a supporting action of the Institute of Indonesian Chartered Accountants (Ikatan Akuntan Indonesia / IAI) for Indonesia’s Tax Amnesty program, the Financial Accounting Standard Board (Dewan Standar Akuntansi Keuangan / DSAK) has released Indonesia Financial Accounting No. 70 concerning Accounting for Tax Amnesty Assets & Liabilities. This standard provides guidance for entity preparing financial reports in the wake of the recently applied Tax Amnesty Law. This standard also provides guidance for entities hoping to avoid financial accounting misstatements in the future under the amnesty program.

Indonesia’s Tax Amnesty: A Quick Background

Indonesia has had a Tax Amnesty program in place since July of 2016, which will run until March 2017. The general purpose of this program is to increase tax revenue of the current year, improve tax compliance in the future, and increase overseas fund repatriation. To participate in the Amnesty, Indonesia taxpayers are required to declare any additional assets and liabilities (domestic and overseas) which has not been reported in the last annual tax filing (2015 being the cut-off year). As a penalty, those declaring assets under the amnesty will be required to pay a percentage of the net assets declared (depending on the location and time during which these assets are declared) which can range from 2 to 10 percent. Defined by the authorities as redemption money, penalties have been touted as a means of increasing government revenue.

Continue reading…

Scroll to top