INDONESIA Law and Practice Contributed by: Agus Ahadi Deradjat (Agung), Gustaaf Reerink, Adri Dharma, Karina Widyaputri and Ilma Sulistyani, ABNR Counsellors at Law
mining companies under specific contracts (eg, Pro - duction Sharing Contracts or Contract of Works). In addition, Indonesia has proposed introducing a thin capitalisation rule based on EBITDA, aligning with international best practices, to limit excessive interest deductions. However, as of now, this EBITDA-based limitation has not yet been implemented. 5.6 Transfer Pricing Transfer pricing rules are fully applicable in Indone - sia and are actively enforced by the Indonesian tax authority. They apply to transactions between related parties, including parent–subsidiary companies, sis - ter companies (under common control), transactions with related non-residents and domestic related-party transactions if tax benefits arise (eg, different tax rates Indonesia enforces both general (GAAR) and specific (SAAR) anti-avoidance rules to combat tax evasion and abusive arrangements. Under GAAR, the tax authority may re-determine taxable income or deny deductions if a transaction lacks a bona fide busi - ness purpose or is structured solely for tax benefits. They may apply the substance-over-form principle to disregard artificial arrangements without commercial substance. or a tax holiday/allowance). 5.7 Anti-Evasion Rules SAAR covers targeted rules such as transfer pricing, thin capitalisation, beneficial ownership, and Con - trolled Foreign Company (CFC) provisions. A CFC in Indonesia refers to a foreign entity that is at least 50% owned (directly or indirectly) by an Indonesian taxpayer or jointly controlled (≥50%) by Indonesian residents. Under Indonesia’s CFC rules, certain undis - tributed profits of such foreign subsidiaries may be deemed as dividends and taxed in Indonesia, even if not actually distributed and the CFC is located in a low-tax jurisdiction. These rules aim to prevent profit shifting and tax deferral through offshore entities. 5.8 Tariffs Indonesia’s tariff regime is based on the ASEAN Har - monized Tariff Nomenclature (AHTN), with import duties generally ranging from 0% to 40%. Preferen - tial rates apply under various free trade agreements
(eg, ASEAN, Japan and Australia). Tariffs are highest on goods intended to protect local industries, includ - ing agriculture (up to 40%), automotive (up to 50% + luxury tax), textiles, electronics, and processed food. Non-tariff measures like quotas and import licensing are also used in sensitive sectors. Global developments, such as the Regional Com - prehensive Economic Partnership (RCEP) which is a free trade agreement (FTA) among 15 Asia-Pacific countries, green trade measures (eg, EU CBAM), and supply chain realignment are influencing Indonesia’s tariff strategy. The country is increasingly using tar - iffs to promote domestic manufacturing, downstream industries (eg, mining and EV), and import substitu - tion, while maintaining competitiveness under inter - national trade agreements. Note that this information is based on general knowl - edge available within the firm’s office, and the authors are not customs or tariff specialists. Mergers, consolidations and acquisitions (whether of shares or assets) are subject to post-closing notifica - tion if the following criteria are cumulatively met: • the transaction constitutes a merger, consolidation, or acquisition that results in a change of control (including a change from sole control to joint con - trol, or vice versa); • the transaction meets the applicable jurisdictional thresholds; and • the transaction is carried out between non-affiliat - ed entities. Foreign-to-foreign transactions that satisfy the above criteria may have to be notified if they have a nexus with the Indonesian market. Currently, the Indonesian Competition Commission (KPPU) applies a dual- nexus approach, meaning that both undertakings involved in the transaction must have assets in, or sales to, Indonesia, either directly or indirectly through affiliates or subsidiaries. 6. Competition Law 6.1 Merger Control Notification General Overview
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