On 1 April 2019, the Minister of Finance of Republic of Indonesia enacted the Minister of Finance Regulation Number 35/PMK.03/2019 on Determination of Permanent Establishment (“MoF Regulation No. 35/2019”).
This regulation is issued in order to give legal certainty for the foreign taxpayers that carry out business or activities through a permanent establishment, when implementing their taxation rights and obligations in Indonesia.
The MoF Regulation No. 35/2019 explains the meaning of foreign individual and foreign entity as follows:
- A foreign individual means an individual who does not reside in Indonesia or an individual who is in Indonesia no more than 183 days within 12 months.
- A foreign entity means an entity that is not established and does not domiciled in Indonesia.
A permanent establishment is a form of business that is used by foreign individuals or foreign entities to carry out their business or activities in Indonesia (“PE”), based on the following criteria:
- Having a business place in Indonesia.
The business place covers all types of places, spaces, facilities, or installations, including machinery or equipment, that are used by the foreign individuals or entities to conduct their business or activity, such as:
- Management domicile;
- Branch of company;
- Representative office;
- Office building;
- Space for promotion and sales;
- Mining and extracting natural resources;
- The working area of oil and gas mining;
- Fisheries, livestock, agriculture, plantations, or forestry; and
- Computers, electronic agents, or automated equipment owned, rented, or used by foreign individual or foreign entity to run businesses through the internet.This criterion is not fulfilled if (i) the business place is only used for electronic data storage and/or electronic data management, and (ii) the foreign individuals or entities have limited access for operating the business place.
- The business place is permanent.
The business place is deemed as permanent if the business place is used continuously and located in a specific geographical location.
- The business place is used by a foreign individual or foreign entity to carry out its business or activities.
The business place is used to carry out business or activities if (i) the place is available to be used by the foreign individuals and entities, and they have unlimited access to carry out their business or activities in that place, and (ii) the foreign individuals or entities carry out their business or activities through that place.
Businesses or activities mean everything that is carried out by the foreign individuals or entities in order to obtain, collect, or maintain their income. The activities with a nature of preparatory or auxiliary are not deemed as PE.
Other Forms of Business that are Categorized as PE
Further, the following forms of business are also categorized as a PE, even though they are not fulfilled the above-mentioned criteria (business place):
- Construction project, installation or assembly project.
The construction project, installation or assembly project is the business carried out by foreign individuals or entities in Indonesia.Construction projects include (i) consultancy services, which include assessment, planning, design, supervision, management of construction, surveys, technical testing, or analysis; (ii) construction work, which includes construction, operation, maintenance, demolition or rebuilding; and (iii) integrated construction work, which includes the design model or the engineering, procurement, and implementation model.
The installation or assembly projects are for construction work and assembling machinery or equipment.
- Providing services in any form by employees or other person, provided that the services are carried out for more than 60 days within 12 months. The services are categorized as PE if meeting the following criteria:
- The employee or other person is employed by foreign individuals or entities or their subcontractor;
- The services are provided in Indonesia; and
- The services are provided to a party in Indonesia or outside of Indonesia.
- Persons or entities that act as a dependent agent.
The persons or entities that act as a dependent agent are categorized as PE if they act on behalf of the foreign individuals or entities, with the following criteria:
- Receiving instruction for the benefit of foreign individuals or entities; or
- Not bearing the risk of business or activity.The foreign individuals or entities are not deemed to have a PE if they use agent, broker or intermediary that is not dependent, and the agent, broker or intermediary runs its own company.
- Agents or employees of insurance companies that are not established and not domiciled in Indonesia but receiving insurance premiums or covering risks in Indonesia.
The agents or employees as mentioned above are deemed to be a PE if (i) receiving insurance premiums in Indonesia, or (ii) covering risks in Indonesia, where the insured party resides, domiciles, or resides in Indonesia. This provision does not apply to reinsurance.
Taxpayer Identification Number
The PE is required to obtain the Taxpayer Identification Number (“NPWP”). The registration shall be conducted at the latest 1 month after the start of business or activities in Indonesia.
The Director General of Taxes may issue the NPWP based on its authority if the PE fails to conduct the registration.
The PE that delivers taxable goods is also required to report its business in order to be stipulated as taxable entrepreneur, except for the small entrepreneur with the limitations as regulated by the Minister of Finance.
The report must be done by the end of next month, after the month when the amount of gross turnover exceeds the limitation of small entrepreneurs. The report is carried out no later than the end of the following month after the month when the gross circulation and/or gross receipts exceeds the limit of small-scale entrepreneurs.
Deletion of NPWP and Revocation of Taxable Entrepreneur
The NPWP can be deleted based on the application by the PE to the Director General of Taxes if the PE stops its business activities in Indonesia. The status of Taxable Entrepreneur can be revoked deleted based on the application by the PE to the Director General of Taxes if the PE no longer fulfills the provisions regarding Taxable Entrepreneurs.