Indonesia is a capital-importing country that primarily purchases goods and services from other countries. According to the Indonesian Central Statistics Bureau, Indonesia's import value in 2021 will be US$ 196.19 billion. When doing business in Indonesia, a foreign entity may establish a representative office with the purpose of finding a market, maintaining its existing customers, or assisting customers in product selection. The Indonesian Tax Authority, on the other hand, has a special tax regulation for taxing the income of a Foreign Trade Representative Office.
According to Article 15 of the Indonesian Income Law Number 36 of 2008, the existence of a branch office or representative of a foreign company in Indonesia will result in a Permanent Establishment (PE), no matter how simple the activity. Furthermore, in accordance with Article 5 of the Income Tax Law, it is stated that Permanent Establishment is a tax object, so that a foreign trade representative office located in Indonesia will be subject to Corporate Income Tax in Indonesia.
The tax subject in this transaction is a foreign taxpayer with a representative office/liaison office in Indonesia from a country that has not signed a Double Tax Treaties with Indonesia. Meanwhile, the gross export value, i.e., all replacement value or compensation received or obtained by a foreign taxpayer with a trade representative office in Indonesia from the delivery of goods to individuals or entities located or domiciled in Indonesia, is the subject of the tax.
The net income of foreign taxpayers who have a Trade Representative Office in Indonesia is set at 1% of the gross export value. The gross export value in this context is all replacement value or compensation received or obtained by a foreign taxpayer with a Trade Representative Office in Indonesia from the delivery of goods to an individual or entity that is or is domiciled in Indonesia. While the final tax rate for foreign taxpayers with a Trade Representative Office in Indonesia is 0.44% of the gross export value. However, for Trade Representative Offices originating in Indonesia's treaty partner countries, the amount of tax payable is adjusted to the Branch Profit Tax rate of a Permanent Establishment, as referred to in the preceding paragraph.
For example, a foreign entity sells goods to Indonesia amounted $ 100,000. In supporting its operation, the foreign entity established a Trade Representative Office in Indonesia. As a result, if the originating country has not signed a tax treaty with Indonesia, the entity must pay tax of $ 100,000 x 0.44 percent = $ 440.