Tax for Representative Ofiice in Indonesia- A Brief

Indonesia, as a country with a population of over 200 million, is an attractive market for foreign companies
to expand its business for trade, services or other industry demands. In order to improve and secure the
domestic products, the Ministry of Trade issued a regulation Number 10/M-DAG/PER/3/2006, which
stipulates that foreign companies cannot trade in goods in Indonesia except throught an investment and
make a foreign investment company.
These foreign companies can only make Foreign Representatives in the form of Sales Agent (selling
agent), and / or agent factory (Manufactures Agent) and / or the purchasing agent (buying agent.) in
Indonesia. These representatives are prohibited from trading activities and sales transactions, either from
the beginning up to completion such as submitting tenders, signing contracts or settling.
Representation of foreign trade enterprises may only :
a) conduct activities to introduce, promote and develop the marketing of goods produced by a foreign
company or combined foreign companies, as well as providing explanations or instructions for the use of
or import regulations to industries / users;
b) perform market research and sales supervision in marketing goods from a foreign company or
combined foreign companies;
c) perform market research on goods needed by a foreign company or combined foreign companies also
linking and providing indications about the conditions of exporting goods to companies in the country;
d) closing the contract for and on behalf of the foreign company in the country in order to export.
How is the taxation of the representative office in Indonesia? Also, are these representative offices equall
to permanent establishments (BUT)?
In accordance with Income Tax Law No. 36 of 2008 on the fourth amendment to No. 7 of 1983 on, in
article 2, paragraph (5) stated that a permanent establishment is an establishment used by an individual
who does not reside in Indonesia, an individual who has been present in Indonesia for not more than 183
(one hundred and eighty-three) days within any period of 12 (twelve) months, and an
entity which is established out side Indonesia and is not domiciled in Indonesia
conducting business or carrying out activities which may include: a place of management; a branch; a
representative office; an office; a factory; a workshop; a warehouse; a space for promotion and selling; a
mine and a place of extraction of natural resources; an area of oil and gas mining; a fishery, animal
husbandry, agriculture, plantation, or forestry; a construction, installation or assembly project; any kind of
services provided by employees or any other persons, provided that the services were done in more than
60 (sixty) days within a period of 12 (twelve) months; an individual or entity acting as a dependent agent;
an agent or employee of insurance company which is established outside Indonesia
and is not domiciled in Indonesia, receiving insurance premium or insuring risk in Indonesia; and
computer, electronic agent or automatic equipments owned, rented, or used by any electronic transaction
provider to conduct business through internet.
In accordance with Tax Treaty (P3B), almost all treaties, mentioned in the article 5, : Notwithstanding the
preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include:
the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the
enterprise; the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the
purpose of storage or display; the maintenance of a stock of goods or merchandise belonging to the
enterprise solely for the purpose of processing by another enterprise; the maintenance of a fixed place of
business solely for the purpose of purchasing goods or merchandise or of collecting information, for the
enterprise; the maintenance of a fixed place of business solely for the purpose of advertising, or for the
supply of information; the maintenance of a fixed place of business solely for the purpose of carrying on,
for the enterprise, any other activity of preparatory or auxiliary character; the maintenance of a fixed
place of business solely for any combination of activities mentioned above, provided that the overall
activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary
character. (Treaty with China)

But, according to the Director General of Tax Decree Kep-667 / PJ / 2001 of Norm of Net Income for
taxpayers who have foreign trade representatives in Indonesia, each trade representative office is taxed
at 1% of the gross export value, and the net payment of income tax is 0.44% of the gross export value
and are final (uncreditable)
This is furthermore asserted through the Director General of Tax Circular Letter SE-02 / PJ / 2008, that
the rate of 0.44% is for firms from countries that do not have a treaty in Indonesia, and to companies that
have, the calculation adapted to the branch profit tax rate is as listed in the treaty.
The important question is, could foreign representative offices be taxed in Indonesia, while according to
the treaty these activities does not constitute a Permanent Establishment? Is it possible that the
Indonesian government does not heed any treaties and is still taxing the representative offices in
Indonesia?
If the Indonesian government continues to tax, are the tariffs on SE-02 / PJ / 2008 already appropriate?
Given the details in calculating the rates on circular letter still uses the rate of 30%, while the corporate
income tax rate is 28% in 2009 and 25% for years thereafter.
There are several key points in the matter, if you are interested in marketing products in Indonesia
through a Representative Office, consider discussing it with us at Taxprime. Dont hesitate to call us.
Thank & Regard,
Tommy Hendharto Oetomo
Partner
TaxPrime - Tax Consulting Firm
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Jakarta 12940, Indonesia
Phone : +6221 3001 5691
Fax : +6221 300 5690
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www.taxprime.net