All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Indonesia: New CFC rule and new anti treaty abuse rule



Freddy Karyadi

Nina Cornelia Santoso

Following the enactment of Government Regulation in Lieu of Law (Peraturan Pemerintah Pengganti Undang-undang, or Perppu) No. 1 of 2017, concerning access to financial information for the interest of taxation on May 8 2017, the House of Representatives have further discussed whether to accept and bring the Perppu to a plenary meeting to be ratified as a law.

It was reported that nine of the 10 factions on Commission XI of the House of Representatives agreed thereto, while one faction, Gerindra Party, did not explicitly state its agreement and suggested the content of the Perppu should be accommodated in the draft bill concerning general provisions on tax instead. Most of the factions gave notes regarding the limit of balance of financial accounts that can be accessed in the framework of exchange of information (AEOI). In response, the Minister of Finance (MoF) stated that the limit will be further discussed in the future.

Previously, the MoF has issued an implementing regulation of the Perppu, Regulation No. 70/PMK.03/2017 (MoF Regulation 70/2017), on June 2 2017. This regulation provides more thorough steps and procedures on the implementation of the automatic exchange of information (AEOI), including:

  • Details of financial services entities required to submit reports containing the AEOI;

  • Details on financial accounts that must be reported and those that are exempted therefrom; and

  • The reporting procedures.

To implement the above regulations, the Indonesian Director General of Tax (DGT) signed cooperation agreements with several countries, including Hong Kong. The DGT and the Hong Kong Commissioner of the Inland Revenue Department signed a bilateral competent authority agreement (BCAA) on June 16 2017. The signing marked the first bilateral agreement on the AEOI signed by the Indonesian government, as well as the first step of cooperation between the two countries in matters related thereto. As a result, the Indonesian government may access financial information of Indonesian taxpayers having financial accounts in Hong Kong, and vice versa. Any financial information obtained through the AEOI cooperation will be added to the tax database of the respective country, which is expected to encourage voluntary compliance of taxation obligations, particularly in the reporting of income and financial assets overseas. On July 4 2017, the DGT also signed a joint declaration with the Ambassador of Switzerland, which demonstrates both countries' agreement to cooperate in the framework of the AEOI. Brunei Darussalam and Macau are expected to follow next.

On a separate occasion, the DGT issued the DGT Regulation No. PER-10/PJ/2017, concerning procedures of implementation of approval of double taxation avoidance (DTA) (DGT Regulation 10/2017) to replace the old regulations issued in 2009 and 2010 stipulating the same, as well as prevention of misappropriation of approval of DTA. In general, DGT Regulation 10/2017 provides new formats of the certificate of domicile (CoD) forms to be completed and submitted by the non-resident taxpayer and the tax withholder/collector, in order for them to enjoy tax treaty benefits. The CoD forms consist of:

  • DGT-1 Form: used by non-resident taxpayers other than those using DGT-2 Form; and

  • DGT-2 Form: used by banks, pension funds, and non-resident taxpayers receiving and/or obtaining income through custodians.

In principle, a tax withholder/collector is required to withhold/collect payable tax of income received by a non-resident taxpayer in accordance with the provisions under the Indonesian Income Tax Law. However, the tax withholder/collector is allowed to withhold/collect tax in accordance with a tax treaty in the event of, among others, the non-resident taxpayer submitting a CoD form that has met the administrative qualifications and other certain qualifications. The administrative qualifications are more or less similar with those stipulated under the old regulations. The "other certain qualifications" requirement is newly regulated, which in principle consists of the following:

  • For a non-resident taxpayer using DGT-1 Form, statements related to economic motives, management of business activities (including authority to carry out transactions), fixed and movable assets, employees, and other active activities or business must be made.

  • For a non-resident taxpayer using DGT-1 Form which is required to be a beneficial owner in the tax treaty, statements related to non-agency, non-nominee, and non-conduit must be made.

  • For a non-resident taxpayer using DGT-2 Form, statements related to being a tax subject at the resident country as well as non-agency, non-nominee, and non-conduit must be made.

Another key change is that the non-resident taxpayer is no longer required to confirm whether the earned income is subject to tax in its resident country.

The DGT Regulation 10/2017 also allows a refund of excess tax withholding and/or collection in certain circumstances.

Despite being issued on June 19 2017, the DGT Regulation 10/2017 will only be effective as of August 1 2017.

Lastly, the MoF issued a new regulation on controlled foreign company (CFC) and foreign tax credits (FTC) on July 27 2017, Regulation No. 107/PMK.03/2017, concerning determination of deemed dividends and its base of calculation by domestic taxpayers for shares participation in an overseas business entity other than a business entity trading its shares in the stock exchange. This regulation expands the scope of a CFC to include an indirectly owned CFC, which is a foreign entity with 50% or more shares that are collectively owned by:

  • An Indonesian taxpayer and a directly owned CFC and/or indirectly owned CFC;

  • An Indonesian taxpayer and other taxpayer through a directly owned CFC and/or indirectly owned CFC; or

  • A directly owned CFC and/or indirectly owned CFC.

In the event that the capital participation in the CFC is carried out through a trust or other similar entity overseas, such capital participation is deemed to be made by the party carrying out the capital participation. Further, it is also stipulated that the actual dividend paid by the CFC may be offset against deemed dividends that were previously reported for the past five consecutive years.

As for FTCs, in the event that the received dividend is less than the deemed dividend, the amount of FTC shall be whichever is lower between:

  • Income tax that should have been due overseas for dividends received from a directly owned CFC in accordance with the applicable tax treaty;

  • Income tax due or paid overseas for dividend received from a directly owned CFC; or

  • Such amount calculated based on a comparison between a dividend received by a directly owned CFC against the amount of a deemed dividend that may be calculated times the amount of income tax of such deemed dividend. To claim the FTC, a prescribed format of the FTC calculation must be attached to the relevant Indonesian taxpayer's annual income tax return, along with certain documents of the directly owned CFC.

Freddy Karyadi ( and Nina Cornelia Santoso (, Jakarta

Ali Budiardjo, Nugroho, Reksodiputro, Law Offices

Tel: +62 21 250 5125


more across site & bottom lb ros

More from across our site

This week Brazil’s former President Luiz Inacio Lula da Silva came out in support of uniting Brazil’s consumption taxes into one VAT regime, while the US Senate approved a corporate minimum tax rate.
The Dutch TP decree marks a turn in the Netherlands as the country aligns its tax policies with OECD standards over claims it is a tax haven.
Gorka Echevarria talks to reporter Siqalane Taho about how inflation, e-invoicing and technology are affecting the laser printing firm in a post-COVID world.
Tax directors have called on companies to better secure their data as they generate ever-increasing amounts of information due to greater government scrutiny.
Incoming amendments to the treaty could increase costs on non-resident Indian service providers.
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
The Malawian government has targeted US gemstone miner Columbia Gem House, while Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service.
ITR's latest quarterly PDF is now live, leading on the rise of tax technology.
ITR is delighted to reveal all the shortlisted firms, teams, and practitioners for the 2022 Americas Tax Awards – winners to be announced on September 22
‘Care’ is the operative word as HMRC seeks to clamp down on transfer pricing breaches next year.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree