The Government, through the Minister of Finance (“MoF”), has issued a Regulation Number 35/PMK.03/2019 (“PMK-35”) regarding the Determination of Permanent Establishment (“PE”) which became effective starting from 1 April 2019. PMK-35 is intended to provide legal certainty for foreign tax subjects doing business in Indonesia through a PE in performing their tax rights and obligations, given the increase in cross-border business models in Indonesia. The key points of PMK-35 are as follows:

1. Definition of PE

PE is a business model used by a foreign individual or corporate entity to carry on business or activities in Indonesian, which meets the following criteria:

  • There is a place of business (owned or rented) in Indonesia;
  • The above place of business is permanent (used continuously); and
  • The above place of business is used to carry on business activities. This means that the foreign individual or entity has unlimited access to the place.

The following business activities shall be deemed to be a PE, even if they do not meet the criteria as mentioned above:

  • Construction, installation, or assembly projects;
  • Provision of any kind of service by an employee or other person, provided the services are performed for more than 60 days within a 12-month period;
  • An individual or entity that acts as a dependent agent; and
  • An agent or employee of an Insurance company which is not established or domiciled in Indonesia but receives insurance premiums or insures risks in Indonesia.

Nonetheless, the following places do not fall under the definition of “place of business”:

  • If the business place is used only to store data and/or process data electronically; and
  • the foreign individual or entity has limited access to operate the place of business.

For the purpose of Tax Treaty implementation, places that fall under the definition of “place of business” but are used only for its preparatory or auxiliary activities are exempted from the definition of PE. The above exception does not apply if the foreign individual or entity is performing the preparatory and auxiliary activities for another party.

2. Tax Obligations

PMK-35 stipulates the PE’s tax obligation as follows:

  • The obligation to register to obtain a Tax ID Number (“NPWP”) starts from when the PE starts doing business. The deadline for registration and obtaining a NPWP is 1 (one) month after the PE starts to carry on business in Indonesia.
  • If the PE delivers VATable goods/services, the PE is also obliged to register its business to be a VATable entrepreneur (“PKP”). The deadline to register and obtain PKP is no later than the end of the following month after its revenue exceeds the maximum threshold as a small-scale business (current threshold is IDR 4,8,000,000).

3. Deregistration of NPWP and PKP

Deregistration to cancel or revoke NPWP and PKP can be done if the PE stops doing business in Indonesia or the PE no longer meet the criteria as a VATable entrepreneur, respectively. The cancellation of NPWP or PKP can be based on the PE’s application or officially cancelled by the ITA.

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