Permanent Establishment (BUT)
A Permanent Establishment (BUT, Bentuk Usaha Tetap) is the form used by a non-resident individual who is not domiciled in Indonesia or who stays in Indonesia for no more than 183 days within a 12-month period, or by an entity not established and not domiciled in Indonesia, to conduct a business or activity in Indonesia. Governed by Article 2(5) of the Income Tax Law (UU PPh), a BUT is treated as a corporate tax subject. A BUT can take many forms: a branch office, a representative office, a factory, a workshop, a construction project, services rendered for more than 60 days in a 12-month period, a dependent agent, or even computers or automated equipment used to conduct business through the internet in Indonesia. The tax consequences are twofold: a BUT is subject to the 22% corporate income tax on taxable income, plus a 20% Branch Profit Tax on after-tax profit (Article 26(4) UU PPh), unless an applicable Double Tax Avoidance Treaty (P3B) provides otherwise.
This article is for education, not tax advice.
Example
A technology company resident in Singapore opens a Jakarta branch that actively earns revenue from SaaS services for Indonesian clients. The branch meets the BUT definition because it is a foreign entity conducting business in Indonesia. On taxable income of IDR 10 billion, corporate income tax of 22% applies (IDR 2.2 billion). The after-tax profit of IDR 7.8 billion is then subject to Branch Profit Tax. The default BPT rate is 20% (IDR 1.56 billion), but the Indonesia-Singapore tax treaty may reduce the BPT rate to 15%, lowering the BPT to IDR 1.17 billion.
Source: Article 2(5) of Law No. 7 of 1983 on Income Tax as last amended by Law No. 7 of 2021 on the Harmonisation of Tax Regulations (UU HPP).
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