Article 26 Withholding Tax on Foreign Taxpayers
In previous articles, we have discussed withholding taxes under Articles 21, 22, and 23, as well as the income tax provisions under Articles 24 and 25. This time, we will look into Article 26 withholding tax, covering who it applies to, what income is taxable, and the applicable rates.
Article 26 Withholding Tax on Dividends, Interest, Royalties, and Other Income
Article 26, Paragraph 1, of Law of the Republic of Indonesia Number 7 of 1983 concerning Income Tax, as amended by Law of the Republic of Indonesia Number 7 of 2021 concerning Harmonization of Tax Regulations provides that the following types of income, paid by government bodies, domestic taxpayers, event organizers, permanent establishments (PEs), or representatives of foreign companies, to foreign taxpayers other than PEs in Indonesia are subject to 20% (twenty percent) withholding tax on the gross amount, collected by the payer:
- dividends;
- interest, including premiums, discounts, and remuneration related to debt repayment guarantees;
- royalties, rent, and other income arising from the use of assets;
- remuneration for services, work, and activities;
- prizes and awards;
- pensions and other annuities;
- swap premiums and other hedging transactions; and/or
- gains from debt write-offs.
From the above, it is clear that the subject of Article 26 withholding tax is any foreign taxpayer who does not have a PE in Indonesia. The objects of the tax include dividends, interest, royalties, rent, prizes, pensions, and other similar types of income. The standard rate is 20% of the gross income.
However, it is essential to note that the 20% rate does not apply if the foreign taxpayer provides a valid DGT Form and/or Certificate of Residence (CoR) issued by the tax authority in their country of residence.
If these documents are submitted, the applicable withholding tax rate will follow the reduced rate specified in the tax treaty between Indonesia and the country that issued the CoR.
For example, suppose PT X Tbk distributes dividends to Mr. A, a resident of Singapore, in September 2025. If Mr. A does not provide a DGT Form or CoR, the dividend is subject to 20% withholding tax.
If he does provide valid documentation, the 10% rate applies. If Mr. A also holds a substantial ownership stake in PT X Tbk, the same 10% rate would apply.
Article 26 Withholding Tax on Asset Transfers
In addition to income payments, Article 26 withholding tax also applies to income from the sale or transfer of assets located in Indonesia by foreign taxpayers. This is governed by the Minister of Finance Regulation (Peraturan Menteri Keuangan/PMK) Number 82 of 2009.
Under this regulation, income from the sale or transfer of assets in Indonesia received by foreign taxpayers other than PEs is subject to a final Article 26 withholding tax of 20% (twenty percent) on deemed net income.
The deemed net income is calculated at 25% (twenty-five percent) of the sale price. If the total income from the asset sale is below IDR 10 million, the foreign taxpayer is exempt from Article 26 withholding tax.
Based on the above, the effective Article 26 withholding tax rate on asset transfers is 5% of the selling price, calculated by applying the 20% rate to the deemed net income of 25% of the sale value.
As with other transactions, this rate may be reduced if the taxpayer provides a valid DGT Form and/or CoR.
Article 26 Withholding Tax on the Sale of Shares
PMK Number 258/PMK.03/2008 stipulates that the sale or transfer of shares in a special purpose company or conduit company may be treated as the sale or transfer of shares in a company established or domiciled in Indonesia, and thus subject to 20% withholding tax on deemed net income.
As with asset transfers, the deemed net income is set at 25% of the sale price, meaning that the effective rate applicable to such share sales or transfers is 5% of the sale value.
Legal References
- Law of the Republic of Indonesia Number 7 of 1983 concerning Income Tax, as amended by Law of the Republic of Indonesia Number 7 of 2021 concerning Harmonization of Tax Regulations.
- Minister of Finance Regulation Number 258/PMK.03/2008 concerning Article 26 Withholding Tax on Income from the Sale or Transfer of Shares as Referred to in Article 18, Paragraph 3(c), of the Income Tax Law Received or Obtained by Foreign Taxpayers.
- Minister of Finance Regulation Number 82/PMK.03/2009 concerning Minister of Finance Regulation concerning Article 26 Withholding Tax on Income from the Sale or Transfer of Assets in Indonesia, Except as Regulated Under Article 4, Paragraph 2, of the Income Tax Law Received or Obtained by Foreign Taxpayers Other Than Permanent Establishments in Indonesia.
