Indonesia has adopted the Global Minimum Tax (GMT) of 15%, affecting multinational companies with consolidated global revenues of over €750 million. Although Indonesia’s corporate tax rate is 22%, above the GMT threshold, certain industries may face additional taxes due to specific tax structures.
GMT Effect Assessment on Indonesian Entities
According to the OECD statistics and anonymous Country-by-Country (CbC) reports from 2021, 46 domiciled ultimate parent entities (UPE) in Indonesia and approximately 2,669 Indonesian grantor entities with effective tax rates between 0% and less than 15% were identified.
Industries such as construction, housing, shipping, and aviation, which are subject to final tax systems based on gross income with rates between 1.2% and 4%, are particularly vulnerable to the GMT because they would become taxed on their net profits, thus generating additional tax payments.
Increasing Transfer Pricing Importance
The introduction of GMT in Indonesia has increased the relevance of Transfer Pricing. Regulation No. 136 of 2024 of the Ministry of Finance (PMK-136) requires all related party transactions to adhere to the Arm’s Length Principle, aligning with the Indonesian practice of implementing it for all these transactions. Companies should re-evaluate their Transfer Pricing policies to ensure compliance with the GMT and consider possible operational restructurings.
Future of Tax Exemptions in the GMT Context
Indonesia has historically used tax exemptions to attract foreign direct investment. Conversely, the GMT implementation may affect the effectiveness of some of these incentives for entities under the Pillar Two scope, as they may be subject to supplementary taxes if their effective tax rate is lower than 15%. The government has issued Ministry of Finance Regulation No. 69 of 2024 to align tax incentives with the GMT rules.
Call to Action
Given the complexity and GMT effects, multinational companies operating in Indonesia must review and adjust their tax strategies and business structures to ensure compliance and optimize their financial position.
For expert advice and customized solutions on Transfer Pricing and tax compliance in Indonesia, TPC Group is the best option. Our professional team is at your disposal to assist you in navigating this new tax landscape and keeping a competitive advantage in the Indonesian marketplace.
Source: ITR