Indonesia has issued Regulation PMK-112/2025, effective from 31 December 2025, overhauling the tax treaty application framework by tightening eligibility, documentation, and anti-abuse rules for both resident and non-resident taxpayers, with enhanced scrutiny of beneficial ownership, substance, and permanent establishment risks.
The Indonesian Ministry of Finance issued Regulation No. 112 of 2025 (PMK-112/2025) on 30 December 2025, introducing a comprehensive update to the framework governing the application of tax treaties in line with international standards.
The regulation provides a comprehensive framework for both domestic and foreign taxpayers to claim tax treaty benefits while preventing the evasion of fiscal obligations. It specifies the mandatory use of Form DGT and Certificates of Domicile to verify eligibility and establish tax residency.
Furthermore, the regulation establishes strict criteria to combat treaty abuse, focusing on identifying beneficial owners and defining the parameters of permanent establishments.
It entered into force on 31 December 2025.
Regulation PMK-112/2025 covers:
Procedures for resident taxpayers
Resident taxpayers can apply for a Certificate of Domicile (COD) to claim treaty benefits in a partner country. The requirements are that the applicant must be a domestic tax subject, possess a taxpayer identification number, and have filed their latest required annual income tax return
Requests are submitted electronically via the tax portal or contact centre. A single application is valid for one partner country, one tax year/period, and one counterparty. The COD is valid until 31 December of the year it was issued.
Procedures for non-resident taxpayers
Non-resident taxpayers must submit a DGT (Director General of Taxes) Form to the Indonesian withholding agent to obtain treaty benefits. The non-resident taxpayer must not be an Indonesian resident, must be a resident of the treaty partner country, and must not abuse the treaty. The DGT Form must be completed correctly, signed by the non-resident taxpayer, and certified by the Competent Authority of the partner country.
A DGT Form is valid for up to 12 months. Specific entities, such as foreign governments, central banks, and certain institutions, are exempt from submitting a DGT Form but must provide a certificate from their local authority.
Anti-abuse and substance requirements
Treaty benefits are denied if there is P3B abuse, defined as efforts to reduce, avoid, or delay tax payments in a way that contradicts the treaty’s purpose.
To qualify, foreign taxpayers/entities must have economic substance, a legal form matching their substance, self-managed business activities, and sufficient assets and personnel.
The recipient must be the beneficial owner, meaning they are not acting as an agent, nominee, or conduit company. For entities, this includes having control over income/assets and not using more than 50% of their income to fulfil obligations to third parties.
Lower treaty rates for dividends often require a minimum 365-day ownership period of at least 25% of shares. Benefits will be denied if it is reasonable to conclude that the main purpose of a transaction or arrangement was to obtain treaty benefits.
Permanent establishment (PE) avoidance
The Director General of Taxes has the authority to prevent the artificial avoidance of PE status. For construction or installation projects, the duration of activities by a non-resident taxpayer and its closely related parties at the same site will be aggregated to determine if a PE exists.
Withholding agent responsibilities
Agents must verify the DGT Form or CODs and check for compliance with substance requirements. They are required to upload the information to the tax portal, issue a receipt to the WPLN, and store all supporting documents.
If requirements are not met, the agent must apply the standard Indonesian Income Tax Law rate. Failure to meet reporting or withholding obligations results in sanctions according to tax regulations.
