The Minister of Finance (MoF) of Indonesia published a regulation No. 192/PMK.03/2018 regarding the implementation of tax credits on overseas income. PMK-192 is more comprehensive than the previous regulation regarding foreign tax credits (FTC).
For calculating maximum allowable foreign tax credit (FTC) taxpayers can select the lowest of:
1) The actual tax paid in a specific country;
2) The quantity of tax payable due to income from that country; and
3) Tax amount in the context of an income tax agreement between Indonesia and the source-of-income country, assuming that taxpayers resident in Indonesia are considered as non-residents of the country of origin and are taxed at non-resident tax rates in the origin country; If this amount is lower than the other two options mentioned above, the maximum amount of the foreign tax credit is limited to this amount. If the income tax agreement provides that a particular type of income is taxable only in Indonesia, no foreign tax credit is allowed. This is a new norm presented by Prescription No. PMK-192.
PMK-192 clarifies that foreign losses are generally not deductible for Indonesia tax purposes when calculating taxable income, including business losses at a foreign branch or foreign representative office.
PMK-192 is in effect as of 31 December 2018 and applicable starting from the 2018 tax year.
