INDONESIA Law and Practice Contributed by: Agus Ahadi Deradjat, Gustaaf Reerink and Adri Dharma, ABNR Counsellors at Law
erally imposed at 15% on passive income such as dividends, interest and royalties, while payments for services, consulting, and rentals are typically subject to a 2% WHT. An exception applies to rentals of land and/or buildings, which are subject to a final WHT of 10%. These WHTs can usually be credited against the recipient’s annual income tax liability – except for the final WHT, which cannot be credited. For non-resident taxpayers, WHT is generally imposed at a flat 20% on Indonesian-sourced income, includ - ing dividends, interest, royalties, and service fees. However, this rate may be reduced or exempted under an applicable double taxation agreement (DTA), pro - vided the foreign recipient is able to demonstrate eli - gibility – typically through submission of a certificate of residence ( Direktorat Jenderal Pajak (DGT) Form). 9.3 Tax Mitigation Strategies Recent tax mitigation strategies in Indonesia gener - ally focus on optimising available investment incen - tives, strengthening transfer pricing (TP) policies, and improving tax governance to manage audit risks. Companies increasingly utilise tax holiday/allowance schemes, special economic zone ( kawasan ekonomi khusus ) facilities and restructuring of financing (debt vs equity) to reduce effective tax burdens. Businesses also revisit their TP models – particularly around meth - od selection, value-chain alignment and documenta - tion – and some pursue advance pricing agreements to reduce future disputes. On the compliance side, firms enhance internal tax controls, ensure proper deductibility support, optimise depreciation and expense timing, and proactively manage VAT and WHT exposures. As Indonesia pre - pares to implement the global minimum tax (rate of 15%), multinational groups are reassessing entity and holding structures to ensure cost-efficient, compliant operations. The overall trend is towards mitigation through incentive optimisation, prudent TP planning and stronger tax governance rather than aggressive tax structuring. 9.4 Tax on Sale or Other Dispositions of FDI The sale or other disposition of FDI in Indonesia is generally subject to capital gains tax, which is treated as ordinary income for Indonesian income tax purpos -
es. If the seller is an Indonesian tax resident, gains are taxed at the standard 22% CIT rate. For non-resident investors, capital gains derived from the transfer of shares in an Indonesian company are subject to a final WHT of 5%, calculated on the gross transfer value. If a tax treaty applies, the sale of shares may be exempt. The sale or transfer of shares in a public listed Indo - nesian company (on the IDX) is subject to 0.1% tax on the gross transfer value. Disposition of investments can also include offshore share transfers (ie, sale of shares in a foreign holding entity owning Indonesian subsidiaries). Under Indo - nesia’s indirect transfer rules, such transactions may under specific circumstances still be deemed taxable in Indonesia. VAT does not apply to share transfers, but stamp duty may apply. 9.5 Anti-Evasion Regimes 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. SAAR covers targeted rules such as TP, thin capitali - sation, beneficial ownership and controlled 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 con - trolled (≥50%) by Indonesian residents. Under Indone - sia’s CFC rules, certain undistributed profits of such foreign subsidiaries may be deemed as dividends and taxed in Indonesia, even if not actually distrib - uted. These rules aim to prevent profit shifting and tax deferral through offshore entities.
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