29 Feb 2016
Doing Business in Indonesia Series
Indonesia that has more than 260 million people becomes a potential market for International Company to start a business.
In general, there are 3 steps of business entity that international companies can take to enter the Indonesia market based on the level of their confident.
- First Step
Setting up a Representative Office (RO) first for promotional activities only (selling could be done by The Importer/Distributor company in Indonesia).
This one is quite easy and fast to set up.
Taxation Issues :
The RO only have to prepare the ‘Expenses Report’ and does not have the obligation to file The Corporate Tax Return (CTR).
RO should withhold Withholding Taxes for services income recipient and Final Taxes
- Second Step
Once the company decided to sell their product/services/intangible goods, then setting up a branch in the form of ‘Permanent Establishment’ (PE) is recommended.
Taxation Issues :
As a PE, it has the obligation to pay 25% Corporate Tax (plan to be reduced by government within 2 or 3 years later) & file the CTR and levy 10% VAT.
PE also has to pay the 20% Branch Profit Tax (BPT) or using treaty rate based on taxable income after deducted by corporate tax.
Head office still control 100% of management and operation of PE.
- Third Step
Setting up a Joint Venture Company (PT/Perseroan Terbatas/Limited Liability Company) is the most confident level that a company can take.
It has to pay 25% & file CTR and levy 10% VAT, Withholding Taxes and Final Taxes.
Tax on dividend will be applied upon payment the dividend.
Dividend that paid to the ‘shareholder in the legal form of a PT’ that owned 25% or more shares, will be free of tax.
As additional information, government plans to change The VAT systems to GST (Good and Service Taxes) following several neighbor countries such as Singapore and Australia.
Comparing to Singapore and Australia, administration burden for taxation is quite high in Indonesia, since this authorities need everything in the form of ‘paper’. So maintaining a proper records and valid documentations are strongly suggested.
Agung Tjahjady SH, CPA, MM, BKP
Registered Tax Consultant – ATT Consulting
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