BDO Corporate Tax News

Indonesia’s Minister of Finance issued new guidance on 30 December 2025 (Regulation No. 112 Year 2025) which updates the rules governing the implementation of double taxation avoidance agreements, specifically in the context of the procedure for claiming benefits under applicable treaties. Notably, the updated regulation introduces more robust anti-abuse measures aligned with the OECD BEPS minimum standards, including a principal purpose test (PPT) and expanded rules to prevent the artificial avoidance of permanent establishment (PE) status.

Regulation No. 112 replaces the 2018 guidance and adopts a more substance-driven approach to determining eligibility for tax treaty benefits.

Summary of the Regulation

Eligibility

Under Indonesia’s tax treaty network, nonresident taxpayers may obtain reduced withholding tax rates or exemptions if they submit the Directorate General of Tax (DGT) form, along with a Certificate of Domicile issued by their relevant local tax authority.

Nonresident persons seeking treaty relief must submit the DGT form through the Indonesian withholding agent’s Coretax account. Through this form, the nonresident confirms that it:

• Is not an Indonesian domestic taxpayer;
• Is a tax resident of the treaty partner; and
• Does not engage in tax treaty abuse.

The final point introduces a substantive threshold: taxpayers must demonstrate genuine economic presence, such as active business operations, assets, employees, beneficial ownership, etc. Treaty benefits will be denied where the main purpose of a transaction is to obtain treaty benefits, in which case the standard 20% Indonesian withholding tax rate will apply.

Anti-abuse measures

Regulation No. 112 includes the following anti-abuse measures:

• Beneficial ownership: An income recipient must be the beneficial owner of the Indonesian-source income. The regulation clarifies how to determine whether the recipient is the ultimate beneficial owner.
• Limitation on benefits provisions: Specific criteria are provided to assess eligibility for treaty benefits based on criteria in the relevant treaty. One key indicator is that the income recipient must not be obligated to transfer more than 50% of the income to other parties.
• Principal purpose test (PPT): The PPT is used to ensure that tax treaty benefits are not granted where the purpose of a transaction or arrangement (including agreements, MOUs, schemes or a series of transactions) is merely to directly or indirectly obtain treaty benefits.
• Avoidance of PE status: Detailed measures aim to prevent the artificial avoidance of PE status, for example, via commissionaire arrangements and the splitting of contracts, which include closely related persons that hold more than 50% of the share ownership under common control. The regulation also clarifies the specific activity exemptions for activities that typically are classified as “preparatory or auxiliary.”

Changes to the DGT form

The changes to the DGT form as compared to the 2018 guidance are summarised as follows:
 

Topic	Old guidance	New guidance
Simplification of the form	Seven sections	Reduced to six sections. Substance-related and beneficial ownership questions (previously in Nos. 12 to 16) are consolidated in Part V (previously in Part VI)
Terminology	Used the terms “double taxation convention” and “country”	Updated to “double taxation agreement” and the terms “country”’/“jurisdiction” to align with international standards
Tax treaty abuse	Not explicitly addressed	Nonresidents must confirm that they are not engaged in tax treaty abuse. Clearer indicators are added, including economic substance, legal form, assets, employees, active business activities and beneficial ownership

Practical Considerations

The Indonesian tax authorities do not conduct an immediate review of the accuracy or completeness of the DGT form. Responsibility rests with the nonresident taxpayer to ensure that:

• All requirements for treaty benefits are met;
• No treaty abuse is involved; and
• All relevant information is accurately disclosed in the DGT form.

Failure to meet these standards may result in the denial of treaty benefits and the imposition of the 20% withholding tax.

Irwan Kusumanto
Octa Surya Fatra
Suwenny Leonardi
BDO in Indonesia