Member Article

The Government of the Republic of Indonesia recently issued Minister of Finance Regulation No. 35/PMK.03/2019 (“Regulation 35/2019”) on The Determination of a Permanent Business Establishment (BUT). An increase in the number of cross border business models used in practice which involve foreign tax subjects was one of the reasons why the MOF issued Regulation 35/2019 to provide legal certainty for foreign tax subjects doing business in Indonesia through a BUT regarding their Indonesian tax rights and obligations.

Regulation 35/2019 was drawn up with reference to international practice and benchmarks and came into effect on 1 April 2019. A brief summary of its major provisions is provided below.

Criteria for a BUT under Regulation 35/2019

A business model used by a Foreign Individual or Entity for undertaking business or activities in Indonesia which meets the following criteria is deemed a BUT under Regulation 35/2019

1. It has a place of business in Indonesia

This includes any place, space, facilities or installation, such as for machinery or equipment the Foreign Individual or Entity uses for its business or activities which can be any of the following:

• the domicile of the management;
• a branch office;
• a representative office;
• an office building;
• a factory;
• a repair shop/workshop;
• a warehouse;
• a promotion and sales area;
• a natural resource mining or excavation site;
• a fishery, farm, agriculture, plantation or forestry; and
• a computer, electronic agent or automatic equipment owned, leased or used by the Foreign Individual or Entity to do business through the internet.

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