NPWP for All Foreign Businesses Operating in Indonesia

Digital Nomad in Indonesia?  In Bali?  Pay attention to this.

The American Chamber of Commerce (AMCHAM) today reported that Indonesia’s Ministry of Finance recently released Ministerial Regulation no. 35 / 2019 (PMK 35/2019) regarding Determination of Permanent Establishment (Penentuan Bentuk Usaha Tetap [BUT]). Several highlights from the regulation:

  • The PMK requires any Foreign Individual or Foreign Body that conducts business activity in Indonesia in the form of a permanent establishment to register for a Tax ID Number (NPWP) (Article 2(1)) and declare themselves a Taxable Enterprise (Pengusaha Kena Pajak) (Article 3). The PMK also gives the Directorate General of Taxation the right to register Foreign Individuals or Foreign Bodies for an NPWP if they do not register for an NPWP themselves within one month of starting any business activity.

  • Article 4 of the PMK defines a permanent establishment as an establishment run by a Foreign Individual or Foreign Body to conduct business activity in Indonesia that satisfies the following conditions:

Having a “place of business” in Indonesia that is permanent and is used to conduct businesses activities:

“Place of business” is defined as any form of location, place, facility or installation, including machinery, that is used by a Foreign Individual or Body to conduct business activity (Article 5)


But what does this all mean?

The regulation seems to be targeted at the growing number of foreign companies who conduct business in Indonesia through online platforms but do not have a physical presence and thus have not been taxable prior to the release of this regulation. The Government of Indonesia has repeatedly expressed its desire to tax these entities and this might be the first step towards that goal. The regulation also comes after the recent cancellation of PMK 210/2018 on e-commerce taxation.


We need to understand the concept of a Permanent Establishment (“PE“) (“Bentuk Usaha Tetap“/”BUT“). 

The Definition of BUT 

A form of business used by the non-resident may trigger a BUT if the following conditions are met:

  1. There is a place of business in Indonesia;
  2. The place of business is permanent; and
  3. The place of business is utilised by the non-resident to carry out its business or conduct its activities.

PMK-35/2019 confirms that the following form of business, which in nature is not a “place”, will be considered as a part of a place of business:

  1. a construction, installation, or assembly project;
  2. any kind of services provided by employee or any other person, provided that the service is conducted for more than 60 days within a 12-month period;
  3. an individual or a company acting as a dependent agent; and
  4. an agent or an employee of an insurance company established outside of Indonesia and is not domiciled in Indonesia who receives insurance premium or insures certain risks in Indonesia;

A BUT can exist through various form of place of business, either owned, rented, or legally having the right to be used, by the non-residents to carry out business or conduct activities in Indonesia, which may in the following form:

  1. a place of management;
  2. a branch;
  3. a representative office;
  4. an office;
  5. a factory;
  6. a workshop;
  7. a warehouse;
  8. a space for promotion and selling;
  9. a mine and a place of extraction of natural resources;
  10. an area of oil and gas mining;
  11. a fishery, animal husbandry, agriculture, plantation, or forestry;
  12. computer, electronic agent or automatic equipment owned, rented, or used by non-residents to conduct business through the Internet.

PMK-35/2019 defines permanent place of business as continuously utilised and located in a certain geographic location. Further, a place of business will be deemed to be utilised to carry out a business or conduct certain activities if the non-residents:

  1. have unlimited access to carry out its business or conduct activities; and
  2. carry out its business or conduct its activities through such place of business.

However, a non-resident will not be deemed as utilising a place of business if the non-residents:

  1. utilises such place of business only for data storage and/or electronic data processing; and
  2. have limited access to operate such place of business.

In addition, PMK-35/2019 also provides definition of preparatory and auxiliary activities, which are excluded from the scope of BUT based on some applicable tax treaty provisions. 


The regulation went into effect on April 1, 2019.  Offshore parties must now consider carefully their business model.  Key documents in respect of the arrangement with the Indonesian party must also be carefully prepared in case the tax office requests a review of such documents.

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