Remitting Profits Overseas from Indonesia

Posted by

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.


About
 Us

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 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.

 ‍

Related Reading

Annual Audit and Compliance in Vietnam 2016
In this issue of Vietnam Briefing, we address pressing changes to audit procedures in 2016, and provide guidance on how to ensure that compliance tasks are completed in an efficient and effective manner. We highlight the continued convergence of VAS with IFRS, discuss the emergence of e-filing, and provide step-by-step instructions on audit and compliance procedures for Foreign Owned Enterprises (FOEs) as well as Representative Offices (ROs).

VB_2015_Navigating_the_Vietnam_Supply_Chain_ImageNavigating the Vietnam Supply Chain
In this edition of Vietnam Briefing, we discuss the advantages of the Vietnamese market over its regional competition and highlight where and how to implement successful investment projects. We examine tariff reduction schedules within the ACFTA and TPP, highlight considerations with regard to rules of origin, and outline the benefits of investing in Vietnam’s growing economic zones. Finally, we provide expert insight into the issues surrounding the creation of 100 percent Foreign Owned Enterprise in Vietnam.

Tax, Accounting and Audit in Vietnam 2016 (2nd Edition)
This edition of Tax, Accounting, and Audit in Vietnam, updated for 2016, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in Vietnam, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who must navigate Vietnam’s complex tax and accounting landscape in order to effectively manage and strategically plan their Vietnam operations.

Leave a Reply

Your email address will not be published. Required fields are marked *