The nation has been actively combating base erosion and profit shifting by strengthening its tax-related laws and regulations

Indonesia is one of the many non-member economies of the Organisation for Economic Co-operation and Development (OECD), but was designated as one of the key partners in 2007, which means the countries are included in enhanced engagement programmes with a view to possible membership. Indonesia has been supportive of the base erosion and profit shifting (BEPS) action plans since 2013. This is reflected by its commitment to implementing some of the action plans into the existing local laws and regulations.

This article discusses action plan implementation in Indonesia, including the latest two-pillar solution to address tax challenges arising from the digitalisation.


Freddy Karyadi
Freddy Karyadi
Lawyer and Member of Indonesia Fintech Association’s Board of Ethics in Jakarta
Tel: +62 818 103 949

The Indonesian government has issued several regulations that target digital transactions, including transactions through fintech providers and in the crypto markets. The key information of such regulations include:

  • Law No. 2 of 2020, as well as its several implementing regulations issued by the Minister of Finance (MOF) and the Directorate General of Taxation (DGT), regulates the basis for imposition of value-added tax (VAT) on intangible taxable goods and/or taxable services from abroad in Indonesia through an electronic system transaction. Foreign parties that have a significant economic presence are subject to income tax or electronic transaction tax. This criteria means a business group with a certain amount of consolidated gross circulation, having sales in Indonesia for a certain amount, and having active users of digital media in Indonesia for a certain amount.
  • MOF Regulation No. 68 of 2022 imposes VAT on crypto assets as intangible taxable goods, services providing an electronic system for crypto assets trading and verification, as well as crypto assets mining pool services. Any income received by crypto market players is also taxable. Income generated from crypto asset trading will be subject to final income tax at: 0.1% of the transaction amount if the electronic system is registered with the authority; or 0.2% of the transaction amount if the electronic system is not registered.
  • MOF Regulation No. 69 of 2022 on VAT and income tax on the implementation of technology focuses on the financial technology market, including peer-to-peer lending and payment services providers. The regulation requires an appointed fintech operator as a taxable entrepreneur to collect the VAT on fees, commissions, merchant discount rates or other incomes obtained from the services provided to the customer. The VAT rate is 11%.


The government has ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS by issuing Presidential Regulation No. 77 of 2019, which implements the convention’s provisions into local laws. The convention regulates application methods for the elimination of double taxation, among other things.


Anastasia Irawati
Anastasia Irawati
Jakarta-based lawyer and Alumni of New York University

The controlled foreign company’s (CFC) action plan has also been implemented in Indonesia by the government through the Income Tax Law, which was amended by Law No. 7 of 2021 or the Tax Harmonisation Act. In general, the CFC regulations in Indonesia define a beneficial owner as one who purchases shares or companies through a special purpose company. The government may determine the time when a dividend is received by the local taxpayer for its capital participation in a foreign entity.

Profit distribution, liquidation proceeds, employee stock ownership from shares premium, free shares, an increase of capital without fund injection, and the shareholders’ personal expense are included as deemed dividends. The differences between the market value and the paid interest, in the case of a shareholder providing a loan to the company with unreasonable interest (hidden dividend distribution), will be deemed as a dividend.


MOF Regulation No. 169 of 2015 sets the maximum amount of debt-to-equity ratio as 4:1. In addition, the Tax Harmonisation Act adds criteria for a loan that can be included for income tax, which states that the loan should have a reasonable debt-to-equity ratio (percentage of the loan compared to the earnings before interest, taxes, depreciation and amortisation, or other methods of calculation).


The DGT has implemented the minimum standard on transparency framework by issuing DGT Regulation No. 24 of 2018, which regulates the procedures for the spontaneous exchange of information in the context of disclosing international agreements.


The government has issued several regulations governing transfer pricing, including: MOF Regulation No. 43 of 2010 (as amended by MOF Regulation No. 32 of 2011); MOF Regulation No. 213 of 2016; and DGT Regulation No. 22 of 2013. The transfer pricing regulations in Indonesia stipulate:

  • The DGT is authorised to recalculate the income, deduction and loan of related parties’ transactions;
  • Taxpayers must submit certain documents for transactions with related parties; and
  • Related parties’ transactions must use the arm’s length principle.

The government also further regulates transfer pricing to minimise tax avoidance under Government Regulation No. 55 of 2022, as the implementing regulation of the Tax Harmonisation Act. In addition, MOF Regulation No. 22 of 2020 expands the definition of an affiliated transaction to transactions that are affected by special connection or relationship, including where the parties have no special connection but one or both transacting parties could determine the transaction price and outcome.


The OECD formulated country-by-country reporting, which requires multinational enterprise groups to file a report in relation to an accounting period where the consolidated group revenue for the preceding accounting period is at least EUR750 million (USD818 million), and the group has constituent entities or operations in two or more jurisdictions. The Indonesian government implements country-by-country reporting through the issuance of MOF Regulation No. 213 of 2016 and its implementing regulation, which sets criteria that taxpayers must submit the report, the mandatory content to be included in the report, and the timing for the submission, among other things.


The Tax Harmonisation Act also regulates mutual agreement procedures, which is a mechanism to resolve double taxation issues arising from tax disputes. The act stipulates any updates on mutual agreement procedure can be conducted with an objection and appeal process simultaneously. This is different from the MOF regulation, which stipulates that mutual agreement procedures will stop if there is a court decision. Ultimately, if there is a conflict between ministerial regulation and national law, the latter generally takes precedence.


The Tax Harmonisation Act mandates global tax consensus, which extends the government’s authority to establish and/or implement taxation agreements and/or memorandum of understanding with partnered countries and jurisdictions for the purpose of double tax avoidance and preventing tax evasion, prevention of tax base erosion and profit shifting, tax information exchange, tax collection assistance and other tax co-operation.

The government plans to implement the consensus by issuing regulations this year. So far, this global tax consensus is regulated under Government Regulation No. 55 of 2022. Long before the Tax Harmonisation Act was enacted, the government also ratified a convention on mutual administrative assistance in tax matters as regulated under Presidential Regulation No. 159 of 2014.


Due to the rapid development of business models, the OECD recently updated the BEPS action plan with a two-pillar solution to address the tax challenges caused by the digitalisation of the economy. Pillar one is about the reallocation of tax rights that offers market jurisdictions new taxing rights over the multinational enterprises to the jurisdictions where the enterprises’ users and customers are located. Pillar two aims to ensure that an appropriate income tax rate is applied to multinational enterprises.

The Indonesian government quickly reacted to this by setting out an underlying regulation to address these two pillars, in Government Regulation No. 55 of 2022. This states that certain multinational enterprises that fulfil requirements can be deemed as taxpayers and be taxed in Indonesia. The regulation also addresses pillar two by stating that multinational groups can be taxed with a minimum global rate in Indonesia. However, further implementation of these regulations will be regulated by the MOF.


Indonesia has proven its support towards the OECD’s action plan to combat BEPS and tax avoidance with the issuance of underlying regulations for the implementation of pillars one and two. However, the authors see that the implementation of pillar one may bring some objections from the original taxing jurisdiction. Thus, Indonesia’s Minister of Finance stated in October last year that to ensure the implementation of these two pillars, the effectiveness of pillar one must be a condition precedent to pillar two.

Lawyer and Member of Indonesia Fintech
Association’s Board of Ethics
Tel: +62 818 103 949