Everything You Should Know About Tax Treaty

Procedures for The Application of Double Taxation Avoidance Agreement (P3B)

  1. Double Taxation Avoidance Agreement, hereinafter referred to as P3B, shall be the agreement between the Government of Indonesia and the government of counterparty country or counterparty jurisdiction to prevent any imposition of double taxation and tax evasion
  2. Non-Resident Taxpayer, hereinafter briefly referred to as WPLN, shall be foreign tax subject as intended in the PPh Law receiving and/or obtaining income originating from Indonesia either through permanent establishment in Indonesia or otherwise
  3. Procedures for the application of double taxation avoidance agreement have been stipulated in Regulation of the Director General of Taxation Number PER-25/PJ/2018
  4. WPLN receiving and/or earning income from Indonesia may obtain Benefits of P3B in accordance with the provisions stipulated in P3B with the following provisions:
  1. the income recipient shall not be Indonesian resident tax subject;
  2. the income recipient shall be an individual or entity constituting resident tax subject of counterparty country or counterparty jurisdiction of P3B;
  3. there is no abuse of P3B (article 5 PER-25/PJ/2018); and
  4. the income recipient shall be beneficial owner, in the event of being required in P3B.

WPLN shall meet provisions as Beneficial Owner as intended in Article 2 subarticle d in the event that:

  1. for individual WPLN, he does not act as Agent or Nominee; or
  2. for corporate WPLN, it must meet the following provisions:
  1. not acting as Agent, Nominee, or Conduit;
  2. having control to use or benefit from funds, assets, or rights generating income from Indonesia;
  3. not more than 50% of the income of the entity is used to fufill liabilities to other parties;
  4. bearing risk of assest, capitals, or liabilities owned; and
  5. having no liabilities whether written or not written to continue a part of or the entire incomes received from Indonesia to other party.

 

Procedures for The Submission of SKD WPLN, Tax Withholding and/or Collection and Reporting 

  1. WPLN shall submit SKD WPLN meeting the requirements as intended in Article 4 to Tax Withholder and/or Collector.
  2. Tax Withholder and/or Collector receiving SKD WPLN must convey electronic information in the said SKD WPLN to the Director General of Taxation through the website of the Directorate General of Taxation or certain channels designated by the Director General of Taxation.
  3. For the submission of SKD WPLN, proper receipt of SKD WPLN shall be issued, and Tax Withholder and/or Collector shall convey the receipt of SKD WPLN to the WPLN.
  4. The submission of SKD WPLN shall only be done 1 (once) to receive Benefits of P3B in accordance with the period specified in SKD WPLN.
  5. WPLN already having SKD WPLN receipt shall not be required to submit SKD WPLN for the next tax withholding and/or collection in accordance with the period specified in SKD WPLN.
  6. WPLN shall submit receipt of SKD WPLN to Tax Withholder and/or Collector
  7. In the context of tax withholding and/or collection in accordance with the provisions stipulated in P3B, Tax Withholder and/or Collector receiving receipt of SKD WPLN must check the information in SKD WPLN in the website of the Directorate General of Taxation or certain channels designated by the Director General of Taxation based on the receipt of SKD WPLN received.
  8. In the event that based on the checking by Tax Withholder and/or Collector, it is known that the provisions as set out in Article 2(PER 25/PJ/2018) have not been met, the Tax Withholder and/or Collector shall be obligated to conduct tax withholding and/or collection in accordance with the provisions stipulated in the PPh Law.
  9. Tax Withholder and/or Collector must make tax withholding and/or collection slip in the form of electronic document in accordance with provisions on slip of withholding and/or collection of income tax.
  10. In the event that the electronic document is not available, Tax Withholder and/or Collector must make tax withholding and/or collection slip in the form of hard copy in accordance with the provisions on income tax withholding and/or collection slip.
  11. Withholder and/or Collector shall be obligated to report tax withholding and/or collection in accordance with the provisions on the reporting of Tax Return.
  12. In the event that there is income received and/or earned by WPLN but there is no tax withheld and/or collected in Indonesia based on the provisions stipulated in P3B, Tax Withholder and/or Collector must remain to report the income received and/or earned in Tax Return in accordance with the provisions on the reporting of Tax Return.

 

SKD WPLN

SKD WPLN as intended in Article 3 paragraph (2) sub-paragraph b (PER-25/PJ/2018) must meet the following requirements:

  1. using DGT Form;
  2. completed correctly, completely and clearly;
  3. signed or given a sign equal to signature by WPLN in accordance with common practices in the P3B counterparty country or counterparty jurisdiction;
  4. legalized by being signed or given a sign equal to signature by the Competent Authority in accordance with common practices in the P3B counterparty country or counterparty jurisdiction;
  5. there is statement of WPLN that there is no abuse of P3B as intended in Article 2 sub-article c;
  6. there is statement that the WPLN is the beneficial owner if it is so required in P3B as intended in Article 2 sub-article d; and
  7. used for the period specified in SKD WPLN.
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