Income Tax - Article 26 (Income Tax for Foreign Taxpayers)

If you provide an income to a Non-Resident Taxpayer (SPLN), what you have to do is:

  1. First, check whether your counterparty is a Non-Resident Taxpayer for Indonesia Withholding Tax;
  2. If they are a Non-Resident Taxpayer, check whether they are subject to withholding Article 26 Income Tax at a rate based on the Tax Treaty;
  3. A Non-Resident Taxpayer can use the rate in the Tax Treaty if they have the Directorate General of Taxes (DGT) form (Certificate of Domicile of Non-Resident for Indonesia Withholding Tax or SKD WPLN) or a Certificate of Domicile (SKD) according to PER-25/PJ/2018;
  4. Access e-SKD menu on the website pajak.go.id and input the information on the DGT form to generate a receipt of Certificate of Domicile of Non-Resident for Indonesia Withholding Tax;
  5. Give the receipt to the Non-Resident Taxpayer;
  6. Withhold Article 26 Income Tax using the Tax Treaty rate if they qualify under PER-25/PJ/2018 and generate a withholding Article 26 Income Tax receipt using Article 23/26 Income Tax e-Bupot application;
  7. If they do not qualify for the Tax Treaty, the applicable Article 26 Income Tax rate is 20%;
  8. Pay the Income Tax by first creating a billing code. The payment must be made no later than the 10th day of the following month to a Collecting Agent;
  9. File Article 23/26 Income Tax electronically through e-Bupot menu on the website pajak.go.id or an Application Service Provider no later than the 20th day of the following month by enclosing the receipt of Certificate of Domicile of Non-Resident for Indonesia Withholding Tax even though the withholding Income Tax is made not based on the Tax Treaty;
  10. As of 1 August 2020, anyone making an Article 23/26 Income Tax-related transaction and registered with a Small Tax Office (KPP) in Indonesia must generate a withholding tax receipt and file a Periodic Article 23/26 Income Tax Return electronically using e-Bupot.

Table of Article 26 Income Tax Rate

If you provide an income to a Non-Resident Taxpayer (SPLN), what you have to do is:

  1. First, check whether your counterparty is a Non-Resident Taxpayer for Indonesia Withholding Tax;
  2. If they are a Non-Resident Taxpayer, check whether they are subject to withholding Article 26 Income Tax at a rate based on the Tax Treaty;
  3. A Non-Resident Taxpayer can use the rate in the Tax Treaty if they have the Directorate General of Taxes (DGT) form (Certificate of Domicile of Non-Resident for Indonesia Withholding Tax or SKD WPLN) or a Certificate of Domicile (SKD) according to PER-25/PJ/2018;
  4. Access e-SKD menu on the website pajak.go.id and input the information on the DGT form to generate a receipt of Certificate of Domicile of Non-Resident for Indonesia Withholding Tax;
  5. Give the receipt to the Non-Resident Taxpayer;
  6. Withhold Article 26 Income Tax using the Tax Treaty rate if they qualify under PER-25/PJ/2018 and generate a withholding Article 26 Income Tax receipt using Article 23/26 Income Tax e-Bupot application;
  7. If they do not qualify for the Tax Treaty, the applicable Article 26 Income Tax rate is 20%;
  8. Pay the Income Tax by first creating a billing code. The payment must be made no later than the 10th day of the following month to a Collecting Agent;
  9. File Article 23/26 Income Tax electronically through e-Bupot menu on the website pajak.go.id or an Application Service Provider no later than the 20th day of the following month by enclosing the receipt of Certificate of Domicile of Non-Resident for Indonesia Withholding Tax even though the withholding Income Tax is made not based on the Tax Treaty;
  10. As of 1 August 2020, anyone making an Article 23/26 Income Tax-related transaction and registered with a Small Tax Office (KPP) in Indonesia must generate a withholding tax receipt and file a Periodic Article 23/26 Income Tax Return electronically using e-Bupot.

 

Table of Article 26 Income Tax Rate

No.

Income

Rate x Tax Basis

Legal Basis

1.

Income received by Foreign Taxpayer in the form of:

  1. Dividends;
  2. Interest, including premiums, discounts, and guarantee fees;
  3. Royalties;
  4. Rents;
  5. Payments related to asset utilization;
  6. Income from services, works, and activities;
  7. Prizes and awards;
  8. Pensions and other periodic payments;
  9. Swap premiums and other hedging transactions;
  10. Gains from debt write-off

20%/Tax Treaty Rate x Gross Income

The payment is made using Tax Payment Slip (SSP) with:

Billing Code (MAP): 411127

Payment Type Code (KJS):

  • Dividends: 101
  • Interest: 102
  • Royalties: 103
  • Income from services: 104
  • Other than dividends, interest, royalties, income from services: 100

Income Tax Laws Article 26 paragraph (1)

2.

Income from sales of assets in Indonesia received by Foreign Taxpayer

The assets could be in the form of:

Luxurious jewelries, diamonds, gold, luxurious watches, antiques, paintings, cars, motorcycles, yachts, and light aircrafts

Exempt from withholding Article 26 Income Tax is:

Non-Resident Individual Taxpayer earning an income of no more than Rp10 million for each type of transaction (Article 3 paragraph (2) of PMK 82/PMK.03/2009)

20% x Estimated Net Income (ENI)

Estimated Net Income = 25% x Selling Price

Therefore, the effective tax rate is:

20% x 25% x Selling Price

= 5% x Selling Price

FINAL

The Withholding Agent is required to:

  • Provide withholding Article 26 Income Tax                         receipt;
  • Pay Article 26 Income Tax Payable in the name of the Foreign Taxpayer selling the assets no later than the 10th day of the month immediately following the month of transaction;
  • File withholding Article 26 Income Tax on a Periodic Tax Return no later than the 20th day of the following month

The payment is made using Tax Payment Slip with:

Billing Code (MAP): 411127

Payment Type Code (KJS): 100

Income Tax Laws Article 26 paragraph (2)

Regulation of the Minister of Finance No. 82/PMK.03/2009

3.

Sales of shares by Foreign Taxpayer

Sales of unlisted Indonesian company shares (Article 1 of KMK 434/KMK.04/1999)

Sales of conduit company shares located in a tax haven country, where the company serves as an intermediary for an Indonesian holding company or Permanent Establishment (PMK 258/PMK.03/2008)

20% x Estimated Net Income

Estimated Net Income = 25% x Selling Price

Therefore, the effective tax rate is:

20% x 25% x Selling Price

= 5% x Selling Price

FINAL

If the buyer is:

  • A Foreign Taxpayer, the Withholding Agent is the Indonesian company whose shares are being traded;
  • A Domestic Taxpayer appointed as a Withholding Agent, the tax is withheld by the Domestic Taxpayer themselves as a buyer. The company only records the document of transfer of shares sold if it is proven that Article 26 Income Tax has been paid in full by the Foreign Taxpayer by showing the original withholding tax receipt

The payment is made using Tax Payment Slip with:

Billing Code (MAP): 411127

Payment Type Code (KJS): 100

Income Tax Laws Article 26 paragraph (2a)

Decree of the Minister of Finance No. 434/KMK.04/1999

Regulation of the Minister of Finance No. 258/PMK.03/2008

4.

Insurance/reinsurance premium paid to overseas insurance company

20% x Estimated Net Income

Estimated Net Income:

  1. 50% of premium paid by the insured to the overseas insurance company. Therefore, the effective tax rate is: 20% x 50% = 10. %. The Withholding Agent is the insured;
  2. 10% of premium paid by the Indonesian insurance company to the overseas insurance company. Therefore, the effective tax rate is: 20% x 10% = 2%. The Withholding Agent is the Indonesian insurance company
  3. 5% of premium paid by the Indonesian reinsurance company to the overseas insurance company. Therefore, the effective tax rate is: 20% x 5% = 1%. The Withholding Agent is the Indonesian reinsurance company

The payment is made using Tax Payment Slip with:

Billing Code (MAP): 411127

Payment Type Code (KJS): 100

Income Tax Laws Article 26 paragraph (2)

Decree of the Minister of Finance No. 624/KMK.04/1994

5

A Permanent Establishment is exempt from Article 26(4) Branch Profit Tax (BPT) if its profit after tax is reinvested in Indonesia, provided that:

  1. Its entire Taxable Income after Income Tax is reinvested in the form of equity participation in a newly established company domiciled in Indonesia as a founder or a co-founder;
  2. The newly established company domiciled in Indonesia must actively carry out business activities stated in its deed of establishment no later than one year following its establishment;
  3. The reinvestment is made in the current year or at the latest in the Tax Year following the Tax Year the income is received/acquired by it; and
  4. It does not transfer the reinvestment at least within two years of the new company’s starting commercial production

To income before tax of the Permanent Establishment

    • the tax rate under Article 17 applies

To income after tax of the Permanent Establishment not reinvested in Indonesia

    • the tax rate of 20% x Income After Tax applies

The payment of Article 26 Income Tax for Branch Profit Tax is made using Tax Payment Slip with:

Billing Code (MAP): 411127

Payment Type Code (KJS): 100

 

Income Tax Laws Article 26 paragraph (4)

Decree of the Minister of Finance No. 113/KMK.03/2002

in conjunction with

Regulation of the Minister of Finance No. 257/PMK.03/2008

in conjunction with

Regulation of the Minister of Finance No. 14/PMK.03/2011 on the reinvestment of Permanent Establishment’s income