Royalty
A Royalty is compensation paid to rights holders for the use of copyrights, patents, trademarks, formulas, designs, or confidential information. Royalties are taxable income under Article 4 paragraph (1)(h) of the Income Tax Law. Royalties paid to domestic taxpayers are subject to Article 23 withholding at 15% of the gross amount. Royalties paid to foreign taxpayers are subject to Article 26 withholding at 20% of gross, unless a lower tax treaty rate applies. Arm's-length royalty expenses paid by the payer are deductible per Article 6 of the Income Tax Law.
This article is for education, not tax advice.
Example
A local company uses software from a US company and pays Rp 500 million/year in royalties. Under the Indonesia-US tax treaty, PPh 26 on royalties = 10%. PPh 26 withheld = Rp 50 million.
Source: Article 4 paragraph (1)(h) UU PPh No. 36/2008
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