Toward the end of the 2025 fiscal year, the government introduced a series of strategic tax policies. One of the most significant developments was the issuance of the Minister of Finance Regulation (Peraturan Menteri Keuangan/PMK) Number 112 of 2025, which governs the procedures for implementing double taxation avoidance agreements, commonly known as tax treaties.
These changes were introduced as implementing regulations of Article 50, Paragraph 2, of Government Regulation Number 55 of 2022 concerning Adjustments to Income Tax Provisions, which explicitly mandates that technical rules on tax treaty implementation be set out in a PMK.
Legal Basis for PMK Number 112 of 2025
Before the enactment of PMK Number 112 of 2025, procedures for applying tax treaties were regulated solely under the Director General of Taxes Regulation Number PER-25/PJ/2018.
With the issuance of this PMK, the government has reinforced the legal standing of tax treaty implementation procedures by elevating them from an administrative regulation to a fiscal policy instrument. This shift also reinforces legal certainty for taxpayers by placing tax treaty procedures within a higher regulatory hierarchy.
Structure and Scope of PMK Number 112 of 2025
PMK Number 112 of 2025 comprises five chapters and 29 articles, covering the following areas:
- Chapter I: General Provisions
- Chapter II: Procedures for Tax Treaty Applications by Resident Taxpayers
- Chapter III: Procedures for Tax Treaty Applications by Non-Resident Taxpayers
- Chapter IV: Provisions on the Prevention of Tax Treaty Abuse
- Chapter V: Concluding Provisions
Overall, this structure reflects a more systematic approach compared to previous regulations.
Tax Treaty Benefits under PMK Number 112 of 2025
In contrast to PER-25/PJ/2018, PMK Number 112 of 2025 provides more legal certainty regarding the benefits of tax treaties. Article 2(6) explicitly sets out the following tax treaty benefits:
- Lower withholding tax and tax collection rates than those specified in the Income Tax Law.
- Exclusive taxing rights granted to the country of domicile.
- Exemption from Indonesian income tax.
- A permanent establishment (PE) threshold that differs from that provided under the Income Tax Law.
These provisions—absent in previous regulations—represent a significant advancement in the context of cross-border, increasingly borderless taxation.
PMK Number 112 of 2025 also addresses issues that have often led to disputes, particularly regarding the Certificate of Domicile (CoR). If the CoR issued by a partner country does not specify a validity period, it will only be considered valid for the month of issuance. While this clarification improves legal certainty, it may also increase administrative burdens for taxpayers.
Stricter Anti-Abuse Provisions
PMK Number 112 of 2025 introduces stricter provisions compared to PER-25/PJ/2018. To access tax treaty benefits, non-resident taxpayers must now satisfy several substantive criteria, including:
- possessing genuine economic substance in establishing entities or conducting transactions;
- aligning legal form with economic substance;
- managing business activities through their own management;
- maintaining both fixed and non-fixed assets;
- employing an adequate number of personnel;
- engaging in active business operations beyond merely earning dividend or interest income;
- conducting transactions that are not primarily structured to exploit tax treaty benefits; and
- qualifying as the beneficial owner of the income.
In practice, not all non-resident taxpayers can meet these requirements, which may result in many losing the benefits of tax treaties.
Language Barriers and Administrative Challenges
Another issue arising from PMK Number 112 of 2025 relates to language requirements. The regulation stipulates that a CoR submitted by non-resident taxpayers must be issued in English. This poses a problem for countries where English is not the official language, making it likely that the Indonesian government will not accept the CoR.
In addition, PMK Number 112 of 2025 sets a 10-day deadline for the Directorate General of Taxes (DGT) to approve or reject a resident taxpayer’s CoR application. However, the regulation does not specify any legal consequences should the DGT exceed this time limit.
To mitigate potential inconsistencies, further clarification through a Director General of Taxes Regulation may be required to ensure uniform interpretation and application in practice.
Effective Date of PMK Number 112 of 2025
According to its concluding provisions, PMK Number 112 of 2025 took effect on December 30, 2025. This means that starting from January 2026, taxpayers are required to use the updated DGT Form, as illustrated below:
The changes to tax treaty implementation procedures outlined in PMK Number 112 of 2025 have raised several practical questions. Below are some of the most frequently asked questions.
Does PMK Number 112 of 2025 replace PER-25/PJ/2018?
Yes. The regulation for implementing tax treaties is now established at the PMK level.
When does PMK Number 112 of 2025 take effect?
The regulation is effective from December 30, 2025, and applies starting from January 2026.
Can the old DGT Form still be used?
No. From January 2026 onward, taxpayers must use the DGT Form prescribed under PMK Number 112 of 2025.
