In light of the above context, the Government of Indonesia has issued several regulations to tackle the above issues, such as:
a. Updated procedures of implementation of the Tax Treaty, that has been regulated in DGT regulation number PER-25/PJ/2018. This DGT regulation provides the requirements for the taxpayer in order to be eligible to use the facility in the Tax Treaty. The foreign taxpayers need to fulfill several administrative conditions, e.g., certain forms to be prepared, namely Form DGT-1 and/or COD/COR. There are also other “substantive” requirements, e.g., no Tax Treaty abuse, fulfilling the criteria of a Beneficial Owner.
b. New implementing regulation of the determination of a Permanent Establishment in the Ministry of Finance Regulation Number 35 /PMK.03/2019. In line with the OECD and UN commentaries, this MoF regulation outlines the “preparatory or auxiliary” activities that will not trigger a PE in Indonesia. Further, this MoF regulation also provides specific details on a construction PE, service PE, insurance PE, as well as the determination of a dependent and independent agent.
c. Introduction of a digital tax and VAT collector appointment for digital products and services provider. Indonesia has just recently introduced the electronic transaction tax / digital tax, as well as the VAT collector appointment for digital products and services providers. The new VAT collector appointment for digital products and services is planned to be implemented in the third quarter this year. As for the electronic transaction tax/digital tax, it is currently under further discussion.
In principle, Indonesia adopts a destination principle in collecting the Value Added Tax. This is further elaborated in the Ministry of Finance Regulation Number 48/PMK.03/2020. The digital product or service provider that has an obligation to collect and report VAT will be determined based on criteria, such as the total value of the transaction in a 12-month period, and/or total traffic in a 12-month period. According to this Ministry of Finance Regulation, the digital goods and services providers may also appoint a representative in Indonesia for the VAT reporting obligations. In this case, the Value Added Tax will be collected from customers by the digital goods and service providers or their representatives in Indonesia that will be appointed by them.
At the time of writing, the detailed criteria of the digital products or services providers that will be required to collect and report VAT in Indonesia will be elaborated further in a Director General of Tax regulation. The system or application for reporting in the DGT system is also currently being developed.