Past iadvisory Questions and Answers: Indonesia

What are the tax requirements when setting up a representative office in Indonesia? Is a license is required to set up a representative office? How does one obtain such a license? Read on to find out.

1. Please advise if there is any tax imposed for setting up a Representative Office (RO) in Indonesia? (eg. tax on expenses)

We are assuming that the RO is engaged in marketing or purchasing activities and not revenue generation.

There are several types of taxes due in relation to a RO;
• "Corporate" tax based on imports (if the RO is involved in marketing and is not from a country with a Tax Treaty);
• Tax on salaries and benefits (health, schooling, housing etc) paid for employees.

2. Is a bank account required when setting up a RO in Indonesia?

The bank account is not required as part of the establishment process but the absence of a bank account might make it more difficult to settle the monthly taxes (e.g. re-payments of salaries, rent and services, which are subject to withholding tax).

3. What type of license is required for setting up the RO in Indonesia? How can we submit the relevant documents for the RO application?

Assuming the RO will either market products (NOT services) or be involved in sourcing of products, the application is then made to the Department of Trade. There are other ROs (which are licensed by other Departments) that handle activities in construction/public works or supervision of investment activities.

My company provides IT services to an Indonesian company in Indonesia. The IT services include software, professional development services. If so, are there any tax exemptions for Singapore companies in Indonesia?

We shall assume your company is not a permanent establishment in Indonesia.

If the transaction is regarded as the provision of intellectual property (which is defined as a royalty) then it will be subject to withholding tax. The base tax rate is 20%, however, this can be to 15% reduced under the Singapore-Indonesia Tax Treaty - a Certificate of Tax Residence must be provided.

If the transaction is for services (and the services are provided in Singapore or in Indonesia but for less than the period specified in the Tax Treaty) then the standard rate of 20% is reduced to 0% under the Tax Treaty. Again, the Certificate of Tax Residence must be provided.

If the transaction is regarded as a sale of a product then we would need to look more closely as to whether it is truly a product sale (which might have no withholding tax at all) or a sale of copyright/intellectual property (which is still taxable as a royalty, subject to the above reduction under the Tax Treaty).

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