Indonesia to implement the Global Minimum Tax Framework

On 31 December 2024, the Ministry of Finance of the Republic of Indonesia issued Regulation of the Minister of Finance PMK No. 136 of 2024 (‘PMK 136/2024’), which regulates the implementation of the Global Anti-Base Erosion/GloBE minimum tax framework and will come into force from the 2025 tax year. This step is part of the implementation of Pillar Two, which was initiated by the G20 and coordinated by the OECD, and is supported by more than 140 countries. So far, more than 40 countries have adopted these provisions, with most of them scheduled to come into force in 2025.

Background to the Global Minimum Tax

Globalisation has allowed multinational enterprises (MNEs) to shift profits and reduce effective tax rates, while existing measures to combat tax avoidance have been insufficient. Many countries have engaged in a race to the bottom on taxes, resulting in significant revenue losses. According to OECD data, tax avoidance results in developing countries such as Indonesia having to forgo over 3 % of their GDP.

The GloBE framework aims to address these issues by preventing the shifting of profits to low-tax jurisdictions and ensuring that companies pay a minimum amount of tax. Implementing GloBE is crucial for Indonesia to avoid future tax shortfalls.

Implementation of GloBE in Indonesia

PMK 136/2024 imposes a minimum effective tax rate of 15 % for multinational enterprises (MNEs) operating in Indonesia. If an MNE falls short of this rate, it will be required to pay additional tax to reach the required threshold.

PMK 136/2024 applies to multinational enterprise groups:

that operate in at least two jurisdictions; and
with an annual consolidated group revenue of at least 750 million EUR in at least two of the four preceding financial years.

There are several entities that are exempt from PMK 136/2024, including:

government agencies;
international organisations;
non-profit organisations;
pension funds; or
certain investment vehicles.

PMK 136/2024 explains that the mechanism for calculating the top-up tax is by calculating the difference between the tax the company should have paid (15 %) and the tax the company actually paid. The tax is levied through three mechanisms:

Domestic Minimum Top-up Tax (DMTT) – applied to companies with an ETR below 15 % and distributed pro rata among Low-taxed Constituent Entities (LTCEs) based on their share of GloBE income;
Income Inclusion Rule (IIR) – Ultimate Parent Entities (UPEs), Intermediate Parent Entities and Partially-owned Parent Entities are responsible for paying the top-up tax for LTCEs that they own, directly or indirectly;
Undertaxed Payment Rule (UTPR) – Applies to Indonesian CEs (exclusing investment companies) and provides for the allocation of top-up tax if low-tax jurisdictions fail to collect it, based on Indonesia's share of employees and assets compared to other UTPR countries.

To assess whether top-up tax is required, the ETR in each jurisdiction in which the multinational enterprise group operates is first calculated. This involves two key steps: first, the GloBE profit or loss is determined, followed by the calculation of the Adjusted Covered Tax. The ETR is then calculated by dividing the covered tax by the GloBE net profit.

Administration and Reporting

Indonesian constituent entities (CEs) of a multinational group must comply with various administrative requirements under the GloBE framework. Required filings include the Reporting Form, the Annual DMTT Income Tax Return, and the Annual UTPR Income Tax Return. Indonesian CEs are also required to file a GloBE Information Return (GIR) if they have been appointed as a reporting entity or if there is no Qualifying Competent Authority Agreement (QCAA) in place between Indonesia and the reporting UPE. The payment deadline is generally at the end of the following tax year, while tax returns and notifications must be filed within 15 months of the tax year end (18 months in the first year). For tax years ending on 31 December 2025, the first payments are due by 31 December 2026, with filings to be completed by 30 June 2027. Late filings may result in administrative penalties.

Conclusion

Deputy Finance Minister II Thomas Djiwandono stated that the introduction of the global minimum tax is expected to generate additional annual tax revenue for Indonesia between IDR 3.8 trillion and IDR 8.8 trillion through the top-up tax mechanism on multinational companies paying below the 15 % minimum rate. This directive introduces new compliance requirements that could impact tax liabilities on intragroup payments, and requires companies to assess entities within their group that may be subject to additional tax obligations.

Our team is ready to assist you in reviewing your compliance status and ensuring adherence to the latest regulations. Please contact us for a detailed discussion and tailored solutions on how GMT might affect your business.