The definition of permanent establishment (PE) as stipulated in the Income Tax Law has already been amended from 1983 to 2008. A PE is defined as a business form used by an individual who does not reside in Indonesia, an individual who lives in Indonesia for not more than 183 (one hundred and eighty-three) days in a period of 12 (twelve) months, or an entity that is not established and has no domicile in Indonesia to carry out business or conduct activity in Indonesia.
In this respect, the form of PE in Indonesia can be classified as follows:
Domicile of management; branch of company; representative office; office building; factory; workshop; warehouse; space for promotion and sale.
2. Businesses activities
Mining and quarrying of natural resources; natural oil and gas mining; fisheries, animal husbandry, agriculture, plantation or forestry; construction project, installation or assembly project; furnishing of services in any form by an employee or any other persons, as long as it is conducted for more than 60 (sixty) days in a period of 12 (twelve) months.
A person or entity that acts as an agent with a dependent position.
An agent or employee of an insurance company that is not established and has no domicile in Indonesia, and that receives insurance premiums or covers risk in Indonesia.
5. Assets and agents
Computer, electronic agent or automatic equipment that is owned, leased or used by an operator of electronic transactions to conduct business activities online.
The Directorate General of Tax (DGT) issued a regulation in February 2017 on the determination of PE for foreign tax residents who provide applications and/or content services online (over-the-top (OTT) services). PE is defined as follows for foreign tax residents who provides OTT services:
- Companies owned, leased or controlled by a foreign tax resident or other parties domiciled in Indonesia, such as places of management, branch companies, representative offices, office buildings, garages or workshops, warehouses, rooms for promotions and sales, computers, including servers and data centres, electronic agents and other automatic devices, which are used by a foreign tax resident who provides OTT services in order to conduct business or activities in Indonesia.
- Companies who act for or on behalf of a foreign tax resident who provides OTT services in order to operate businesses or activities in Indonesia, under:
a) Income Tax Law: operating for more than 60 days within a period of 12 months
b) Double taxation treaty: satisfying the time test requirements under the tax treaty between Indonesia and partner countries or jurisdictions, or their agents, whose positions are dependent.
Branch profit tax
The net post-tax profits of a PE are subject to branch profit tax at a rate of 20%. This rate may be reduced under a double taxation treaty. Branch profit tax applies regardless of whether the income is remitted to the head office or not. An exemption may apply if the profits are reinvested in Indonesia.