Article 26 of Indonesia’s Income Tax Law, also known as Witholding tax Article 26, requires Indonesian withholding agents to withhold tax at source on certain payments made to non-resident taxpayers. The tax is withheld at a rate of 20% on the gross amount of the payment, which is remitted to the Indonesian tax authority.
The types of payments subject to Article 26 include, among others, the following:
- Royalties for the use of intellectual property rights
- Services provided by non-resident individuals or entities
- Dividends paid to non-resident shareholders
- Interest, discount, premium paid to non-resident creditors
- Services ie. Technical services, Management services paid to non resident
The tax withheld under Article 26 is considered final, meaning that the non-resident recipient is not required to file an Indonesian tax return or pay any additional tax on the income. However, if the non-resident taxpayer is entitled to a lower tax rate under an applicable tax treaty, they may apply for a tax treaty benefit through the Indonesian tax authority.
Indonesia has entered into tax treaties with several countries to avoid double taxation and provide tax relief for non-resident taxpayers. The tax treaty provisions may limit or eliminate the withholding tax obligation under Article 26, depending on the specific terms of the treaty and the type of payment involved.
It’s important to note that withholding agents in Indonesia are required to register with the tax authority and obtain a withholding tax number before making payments subject to Article 26. Failure to withhold and remit tax under Article 26 can result in penalties and interest charges.
Overall, Article 26 of Indonesia’s Income Tax Law plays an important role in ensuring that non-resident taxpayers are subject to Indonesian tax on certain types of income, while also providing relief through applicable tax treaty provisions.
Read : PPh Pasal 26 in Bahasa.