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Tax and Legal Issues for “Over the Top” Business in Indonesia_1

09 May 2016

Tax and Legal Issues for “Over the Top” Business in Indonesia

                Minister of Communication and Informatics (MCI) has issued the circular letter No. 3/2016 regarding application service provider and/or content provider through internet (Over The Top / OTT).

                This Circular Letter rules that for foreign OTT company should have a Permanent Establishment (PE) in Indonesia. As consequences all the foreign OTT companies such as Google, Youtube, Amazon, Netflix, etc will be required having their branch (PE).

                As a PE, income earned from Indonesia will be subject to Corporate Income Tax and VAT. A PE will have the obligation to withhold taxes as well i.e. payroll tax, tax on offshore and onshore services, final tax on rental.

                Actually there are some issues that MCI and DGT / MOF (Directorate General of Taxes / Minister of Finance) need to solve together :

  1. Circular Letter cannot be applied for public. It should be in the form of Regulation (Peraturan) as regulated by Law No. 22 year 2012 juncto  Law No. 10 year 2004
  2. PE should be regulated under tax law but not other law/regulation. The tax authorities need to amend the current tax laws in order to anticipate the ‘booming’ e business in the future.
  3. Mostly the current tax treaty has not ruled clearly the PE criteria for OTT Companies.

Revising of tax treaties is a compulsory too in this case.

These issues are happened in most countries as well.

Best,

Agung Tjahjady SH, CPA, MM, BKP

Registered Tax Consultant, Advocate

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