Indonesia Tax Treaties

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Developments in the Implementation of Tax Treaties in Indonesia

On 31 December 2025, the Indonesian Ministry of Finance (“MoF”) issued several new regulations – one of which pertains to the Procedures for the Implementation of the Tax Treaty through the issuance of MoF Regulation No. 112 of 2025 (“MoF-112”).

Generally, the prevailing Indonesian tax regulations stipulate that in order to utilize tax treaty benefits in Indonesia, strict Indonesian tax treaty access requirements must be fulfilled and adequately demonstrated upon request and/or challenge from the Indonesian Tax Office (“ITO”). In general, these include fulfilling the substance and beneficial owner (BO) tests and having a duly completed Certificate of Domicile (“CoD”) and DGT Form available and submitted to the ITO’s portal.

While the provisions in MoF-112 generally remain consistent with the previous regulations, several key updates include:

Updates to the procedures in implementing the Tax Treaty benefits

• Where not explicitly stated, the Certificate of Domicile of the foreign taxpayer will be valid only for the month in which it is issued.
• The new template of the DGT Form no longer limits BO tests disclosures to recipients of income in the form of dividends, interest and royalties. Accordingly, all recipients of income from Indonesia are now required to complete this disclosure.
• MoF-112 confirms that tax treaty benefits may still be utilized if the DGT form is submitted during a tax disputes process (i.e. audit, objection, and/or request for reduction/cancellation of tax assessment letters), provided that the income recipient is substantively entitled to such treaty benefits (i.e. fulfils Indonesian tax treaty requirements).

Prevention of Tax Treaty Abuse

MoF-112 defines tax treaty abuse as any effort to lower, avoid, or defer payment of income tax that is already due, which contradicts the objective and purpose of the Tax Treaty (i.e. eliminate double taxation without creating opportunities for double non-taxation or tax reduction through avoidance or evasion).

With respect to such prevention, MoF-112 aligns several definitions and rules from the Organisation for Economic Co-operation and Development (OECD) Multilateral Instrument (MLI). As you are aware, not all tax treaties adopt similar rules to the MLI. However, MoF-112 does not explicitly limit the application of its anti-abuse rules only to cases where the tax treaty adopts the MLI provisions. In this case, such limitation is merely “implied” through the case examples in the Appendix of MoF-112.

The anti-abuse rules regulated under MoF-112 include:

• BO tests: Identification of the party who actually enjoys the income
• Reduced Withholding Tax (“WHT”) rates on dividends: Where 2 (two) WHT rates on dividends are stipulated in a Tax Treaty (generally based on percentage of ownership), the lower WHT rate can only be applied if
  • the corporate income recipient is the BO of the dividend; and
  • holds a certain percentage of shares with a minimum holding period of 365 calendar days, including the dividend payment date. This provision is adopted from Article 8 of the MLI and Article 10 of the current OECD Model.If these conditions are not satisfied, the higher tax treaty WHT rate will apply, provided that the corporate income recipient is the BO of the dividend.
• Taxing rights on capital gains on transfer of shares/rights of entities with significant immovable properties: Capital gains tax may be imposed in Indonesia on transfer of shares or rights of an Indonesian entity whose value of immovable property exceeds the percentage threshold of its total assets as specified in the tax treaty, at any time during 365 days preceding the transfer. This provision is adopted from Article 9 of the MLI and Article 13 of the current OECD Model.
• Artificial avoidance of Permanent Establishment (PE) status: MoF-112 provides the following anti-abuse rules to combat artificial avoidance of PE status through:
  • Commissionaire arrangement: A PE will be deemed to exist if a dependent agent plays a principal role in concluding contracts that are typically finalized without material modification by the foreign taxpayer;
  • Specific activity exemptions: MoF-112 ensures that activities carried out by a foreign taxpayer or its closely related persons in Indonesia are genuinely preparatory or auxiliary in nature, and do not constitute core business operations.
  • Contracts splitting arrangements – The PE time test is determined by aggregating the period of presence of the foreign taxpayer and its closely related persons, provided that each presence exceeds 30 days and all projects are carried out at the same site.Where artificial avoidance of PE status is identified, the ITO may issue a tax registration on an ex officio basis for the “deemed” PE.
• Limitation on benefits: Eligibility to claim the tax treaty benefits will be determined based on the specific criteria set out in the relevant Tax Treaty.
• Principal Purpose Test (PPT): Tax Treaty benefits cannot be claimed if the principal or one of the principal purpose of a transaction arrangement is to obtain Tax Treaty benefits, directly or indirectly. The PPT applies when other anti-abuse provisions are inapplicable and/or where there are indications that Tax Treaty benefits have been secured through arrangements designed primarily to obtain such benefits.

In light of the above, we recommend conducting a thorough assessment and closely monitoring your compliance with the relevant requirements when applying tax treaty benefits to cross-border transactions. Further, you may also need to consider the level of justification available to substantiate the adherence to the requirements, to minimize risk of challenge from the ITO. Compliance to these requirements and the justification may have a material impact to the applicable taxation on payments made to non-Indonesian tax residents (i.e. whether the available benefits can be utilized).

On top of that, assessments of the potential existence of a permanent establishment in Indonesia may also be relevant for businesses that are planning to initiate operations in Indonesia, as well as for those that already have contracts and/or arrangements in place involving activities performed in Indonesia.

As the regulation was issued only recently, the level of enforcement strictness by the ITO has yet to be tested.

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