TL;DR
A Permanent Establishment (BUT) is the Indonesian tax vehicle used by a non-resident individual or a non-resident entity to run a business or activity in Indonesia. A BUT is treated as a corporate taxpayer and is subject to the corporate income tax rate, plus a Branch Profit Tax (BPT) on the after-tax profit.
Definition of Permanent Establishment
A 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 carry out a business or activity in Indonesia.
The concept is rooted in the international fiscal idea of a permanent establishment as defined in the OECD Model Tax Convention. Indonesia adopts the same construct, with domestic adaptations in the Income Tax Law (UU PPh) and applicable Double Tax Avoidance Treaties (P3B).
Legal Basis
BUT rules sit across several core regulations:
- Article 2(5) UU PPh (Law No. 7 of 1983 as last amended by Law No. 7 of 2021 on Harmonisation of Tax Regulations): definition of BUT and its enumerated forms.
- Article 2(1a) UU PPh: BUT as a tax subject.
- Article 17 UU PPh as amended by the HPP Law: 22% corporate tax rate, equally applicable to BUT.
- Article 26(4) UU PPh: 20% Branch Profit Tax on a BUT's after-tax profit, unless a P3B provides otherwise.
- P3B: each applicable tax treaty may revise the 183-day threshold, lower the BPT rate, or exclude certain activities from PE status.
Forms of BUT
Article 2(5) UU PPh lists various forms that constitute a BUT, including:
- A management seat, branch, representative office, office building, factory, and workshop.
- A warehouse, a space for promotion and sales, mining and natural resource extraction sites, and oil and gas working areas.
- Fisheries, livestock, agriculture, plantations, or forestry.
- Construction, installation, or assembly projects.
- Provision of services in any form by employees or other persons, where the service is rendered for more than 60 days within a 12-month period.
- A person or entity acting as a dependent agent.
- An agent or employee of an insurance company not established and not domiciled in Indonesia that receives insurance premiums or bears risks in Indonesia.
- Computers, electronic agents, or automated equipment owned, leased, or used by an electronic transaction operator to conduct business through the internet.
The last form matters most to global technology companies. Servers, gateways, or automated infrastructure that actively generate revenue in Indonesia can trigger BUT status.
BUT Tax Rates
BUT taxation involves two layers that must be understood separately.
Layer one: corporate income tax on the BUT's taxable income. The rate is 22% from fiscal year 2022 onward, following the Article 17 UU PPh amendment by the HPP Law. Taxable income equals BUT's gross income less deductible expenses, plus income that is attributable to the BUT under the force of attraction principle (Article 5 UU PPh).
Layer two: Branch Profit Tax (BPT). Article 26(4) UU PPh imposes an additional 20% tax on Taxable Income less Corporate Income Tax (i.e., after-tax profit). BPT does not apply if the entire after-tax profit is reinvested in Indonesia in the form of equity in an Indonesian-incorporated company, subject to specified conditions.
An applicable P3B may lower the BPT rate, often to 10% or even 0% in select treaty partner jurisdictions.
How to File BUT Taxes
A BUT carries tax obligations equivalent to those of a domestic corporate taxpayer:
- Holding a NPWP under the BUT name, registered at the relevant KPP (typically the Foreign Investment KPP or KPP Madya).
- Withholding and remitting PPh Articles 21, 23, 26, and VAT according to the transaction type.
- Filing the Annual Corporate Income Tax Return no later than 4 months after the end of the fiscal year.
- Attaching financial statements that reflect BUT activities in Indonesia, separated from head office activities.
- Meeting transfer pricing documentation obligations for related-party transactions with the head office or affiliated entities abroad.
From 2026, annual SPT filings are submitted through DJP's Coretax system, on the same procedures applicable to domestic corporate taxpayers.
Worked Example
PT A is the Indonesian BUT of a foreign technology company. During fiscal year 2026, PT A books taxable income (PKP) of IDR 50 billion.
- Corporate income tax: 22% x IDR 50 billion = IDR 11 billion.
- After-tax profit: IDR 50 billion - IDR 11 billion = IDR 39 billion.
- Branch Profit Tax (BPT): 20% x IDR 39 billion = IDR 7.8 billion (assuming the full domestic rate, no P3B relief).
- Total tax burden: IDR 11 billion + IDR 7.8 billion = IDR 18.8 billion.
If the head office is resident in a treaty partner that caps BPT at 10%, BPT becomes IDR 3.9 billion, and the total burden drops to IDR 14.9 billion. That is why reading the applicable P3B carries serious weight before computing BUT obligations.