Indonesia: Google in Indonesia

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Indonesia: Google in Indonesia

intl-updates-small.jpg

The Indonesian tax authority has spent the past few months conducting an investigation into Google's tax affairs through the company's office in Indonesia. However, Google's parent company, Alphabet, is arguing that Google does not have a permanent establishment (PE) in Indonesia and is not required to establish a PE under the applicable laws and regulations.

Karyadi-Freddy
tanuwijaya.jpg

Freddy Karyadi

Danny Tanuwijaya

Google has an Indonesian subsidiary that performs the marketing activities in the jurisdiction while all contracts and payments to every transaction are conducted online directly to Google Singapore (Google SG).

The dispute between the internet giant and Indonesian tax authority is about the amount of profits that are booked in Indonesia, and ultimately taxable in Indonesia.

According to local media reports, Google SG provides 4% of its revenue sourced from Indonesia as a commission fee to Google Indonesia.

The Indonesian tax authority claims that the taxes paid by Google should be calculated using the basis of the total earnings generated from the advertisement activities in Indonesia.

To address the issue, the government is making changes to its laws, but the rules are still being prepared.

On March 31 2016, the Minister of Communication and Information issued Circular Letter No. 3 of 2016 (MCI Circular Letter), concerning internet-based applications and/or over the top (OTT) content service providers. The MCI Circular Letter was published to provide an understanding to OTT service providers – like Google – and telecommunications operators on the upcoming OTT regulation, which is still being prepared by the MCI.

The MCI Circular Letter stated that OTT services consist of the following services:

  • Internet-based application services, which provide communication services that include, among others: short messages, voice calls, video calls, chatting, financial and commercial transactions; and

  • Internet-based content service providers, which offer digital information services that include, among others: writings, voices, pictures, animations, music, videos, movies, and games.

Foreign parties providing OTT services should establish PEs in accordance with Indonesian taxation laws.

In relation to the tax for OTT services, the Indonesian tax authority has issued Circular Letter of the Directorate General of Taxation No. SE – 06/PJ/2015, concerning the withholding of income tax on e-commerce transactions, which provides that the obligations to withhold the income tax in e-commerce transactions are applicable to the payment of specified services, among others the provision of time and/or place of the mass media and intermediary services, relating to the online marketplace, classified adverts, daily deals and online retail businesses. For the foreign taxpayer that is not establishing a PE, the tax rate is 20% of its revenue sourced from Indonesia through the above services.

The Indonesian tax authority will also issue a separate regulation that will categorise Google's activity as those that trigger the existence of a PE. The new regulation is still being prepared and no information has been released about when the regulation will be issued or when it will enter into force. The new regulation is said to require Google and other similar businesses to establish a PE in Indonesia. By establishing a PE, the government will require Google to pay the 25% corporate income tax on all of its revenue sourced from Indonesia.

Freddy Karyadi (fkaryadi@abnrlaw.com) and Danny Tanuwijaya (dtanuwijaya@abnrlaw.com), Jakarta

Ali Budiardjo, Nugroho, Reksodiputro, Law Offices

Tel: +62 21 250 5125

Website: www.abnrlaw.com

more across site & shared bottom lb ros

More from across our site

Looking at transfer pricing simplification is “obviously helpful”, but it should be done in line with current standards, a senior government figure reportedly said
The UK Government’s plans to close the tax gap via increased HM Revenue and Customs investment have failed to impress local tax advisers
Under the merged scheme for R&D tax relief introduced last year, rules on contracted out R&D have changed. James Dudbridge argues for a proactive approach when reviewing companies’ commercial arrangements
Cultural nuances could account for tax advisers’ perceived poor cost management, a local partner told ITR
Updated rules represent a significant shift in the Luxembourg TP landscape and emphasise the need for robust arm’s-length calculations, says Vanessa Ramos Ferrin of TransFair Pricing Solutions
KPMG Law US revolves around contract managed services and the US is the largest market for that, Stuart Bedford tells ITR in an exclusive interview
The US law firm’s tax counsel tells ITR about inspirations from a ‘legendary’ German tax scholar, perfecting riesling wine and what makes tax cool
Wopke Hoekstra also swore the EU would ‘hit back harder’ if faced with a trade war; in other news, a UK watchdog has launched an investigation into an audit completed by MHA
Other reasons included the complexity of reporting, resource constraints and interactions with tax administrations
Despite this boost for investors, the OECD also said that extensive reliance on income-based instruments across economies is concerning
Gift this article