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Indonesia Permanent Establishment

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            Indonesia Business
               Organization
Reference and information concerning Permanent
           Establishment in Indonesia
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                               PERMANENT ESTABLISHMENT

    1. Basic


       •   Permanent Establishment (PE) is a form of enterprise by person or legal entity that not
           residing in Indonesia or present in Indonesia for no more than 183 days in 12 month
           period not set up and domiciled in Indonesia to carry out business or conduct activities in
           Indonesia in any form that similar to:
               o   Management Office;
               o   Branch Office;
               o   Representative Office;
               o   Office Building;
               o   Factory;
               o   Workshop;
               o   Mine or quarry of natural resources or area of drilling operations used for mining
                   explorations;
               o   Fishing area, livestock breeding area, agricultural area, plantation or forest area;
               o   Construction project, installation or assembly project;
               o   Provisions of services in any form by employee or other person as conducted
                   more than 60 days in 12 month period;
               o   Individual or legal entity who act as agent with dependent position;
               o   Agent or employee of insurance company neither formed in Indonesia which
                   receives insurance premiums or insures risk in Indonesia.


       •   Rules applying to taxation of PEs are designed to capture tax on worldwide income of
           related organization earned in direct connection with activities of PE, while excluding other
           unrelated activities.
       •   Although PE is included in the definition of Foreign Taxpayers, however the Tax liabilities for
           PE are quite equal and same as local / non-foreign Taxpayers.
       •   A PE is obliged to have Tax Registration Number and if the PE is suitable, than the PE
           must be confirmed as Taxable entity.
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    Taxation

    -   Income Tax
        •   PE obliged to perform the rights and obligations as the same as local / non-foreign
            Taxpayers;
        •   PE oblige to report and convey the SPT (yearly tax report) of income tax for entity, SPT of
            PPh (Income Tax) of Article 21 or 26, PPh of Article 23 or 26, PPh Article 22, PPh Article
            4 point (2) and/or other Income Tax in accordance with the applicable regulations;
        •   The fundamental difference between Foreign Taxpayers and Local / non-Foreign
            Taxpayers are :
                 o     The Taxable income are only come from activity in Indonesia only, because PE
                       basically a Foreign Taxpayers.
                 o     There are some special treatment for income tax that became the object
                       of PE Tax and the costs that may be deducted for PE was provided in the Article 5
                       of the Income Tax Act
                 o     There are special obligations exclusive for Article 26 of the Withholding Tax for
                       Taxable income after deducted for the tax in Indonesia as regulated in Article 26
                       point (4) of the Income Tax Act.
        •   However, the net profit after income tax of a foreign company in Indonesia (PE) is subject
            to additional        tax, often referred    and   recognized   as   “the   branch profits tax” at   a
            rate of 20% of net profit after tax (net income after tax).
        •   If   the     foreign      companies        (PE)   come   from the    treaty partner countries, then
            the branch profits tax rate is in accordance with the applicable taxtreaty between both
            countries.
        •   In order to determine the total amount of PE foreign companies in Indonesia taxable
            income, the payments to the central office that may not be deducted as expenses are
            deductible to:
                 o     Royalties or other benefits associated with the use of property, patents or other
                       rights;
                 o     Benefits that associated with management services and other services;
                 o     Interest except interest rates related to the banking business.
        •   In addition, the central office administrative costs that allocated to their PE in Indonesia
            can be charged only for the ratio between the amount of their PE income in Indonesia with
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           their total global income multiplied by the number of their central office administrative
           costs.
       •   Tax incentives that can be obtained by a PE foreign company in Indonesia is the income
           tax exemption for tax in Article 26 point (4) of the branch profits tax, if they meet
           the cumulative requirements, such as:
               o      Re-Investment is carried out on all taxable income after deduction of income tax in
                      the form            of equity           participation              in      a newly           established              company and
                      domiciled in Indonesia as a founder or founding participant;
               o      Re-Investment is done in the current tax year or no later than the next fiscal year,
                      from the fiscal year they received or earned income;
               o      And not allowed to diverse the Re-Investment at least within the period of 2 (two)
                      years after the investee company conducted some kind of commercial production.


    2. Regulation


       •   Act No. 17 of 2000 Regarding the Third Amendment to Law Number 7 of 1983
           concerning Income Tax;
       •   Decree/Decision                of the        Director General                 of Taxation           Number             KEP-62/PJ./1995
           concerning the type and amount of administrative costs of central office that allowed to be
           Charged as a Fee of a Permanent Establishment;
       •   Decree/Decision of the Director General of Taxation No. 113/KMK.03/2002.




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DOCUMENT INFO
Description: A simple Reference and Information regarding Permanent Establishment in Indonesia (Business in Indonesia).