Remitting Profits Overseas from Indonesia
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.
Interest: Indonesia withholds 20 percent on interest payments. DTAs offer lower rates and several opportunities for exemptions. Payments to banks or other financial institutions are generally accompanied by lowered tax rates. If paid to a government, a bank connected to a government loan agreement, or specified banks and financial institutions, the withholding tax may be completely exempt. There are also lower rates and exemptions if the profits paid are derived from specified industrial undertakings. A domestic rate of 15 percent is administered for recipients with a PE.
Royalties: As with dividends and interest, royalties are subject to a 20 percent withholding tax. Lower rates are available for many sectors in most DTAs, including for artistic copyrights and industrial, commercial, or scientific equipment and experience. For recipients with a PE, the standard 15 percent domestic rate is used.
Branch Profits Tax: Indonesia charges PEs a 20 percent branch profit tax on after-tax profits, even if funds are not remitted to the home country. This amount can be lowered through a DTA or exempted if profits are reinvested in Indonesia.
Foreign Exchange Restrictions: Indonesia does not have foreign exchange controls over the inflow and outflow of money. However, companies must provide Bank Indonesia with a record of all transfers to foreign countries, including the amount transferred in Indonesian Rupiah (IDR), annual balance sheets, and profit and loss statements. In most cases, payments within the country must be made in IDR.
Indonesia Briefing 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 email@example.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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