The corporate tax rate in Indonesia is 25%. Lower rates apply where revenues are less than IDR50 billion. A company with gross turnover less than IDR50 billion (approximately USD3.7 million) is eligible for a 50% reduction of the corporate tax rate on the proportion of taxable income which results when IDR4.8 billion is divided by the gross annual turnover. Where gross turnover is below IDR4.8 billion a deemed final tax rate of 1% of revenues applies. Nonresident companies, in the form of a Permanent Establishmen, is liable for branch profits tax of 20%.
OECD TPG i used as reference for formulating transfer pricing policy and regulation and for dispute settlemen. Indonesia has adopted the arm’s-length standard for transactions between related parties. As the tax system is based on self-assessment, the burden of proof lies with the taxpayer, not with the tax authorities. For income tax purposes, the legislation dealing with transfer pricing is found in Article 18 of the 1983 Income Tax Law, as revised by the 1991, 1994 and 2000 Income Tax Laws and further by Income Tax Law No. 36/2008. Article 18 states that the tax authorities may adjust a taxpayer’s taxable income for related party transactions that were not carried out on an arm’s-length basis. In September 2008, Parliament passed Income Tax Law No. 36/2008, which came into effect 1 January 2009. Article 18 (3) of the Income Tax Law provides that the five arm’s-length pricing methodologies from the OECD Guidelines should be used to set or review transfer prices.