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Tax Glossary
Tax Treaty (P3B / Double Tax Agreement)
A Tax Treaty (P3B) is a bilateral agreement between two countries to avoid double taxation and prevent fiscal evasion on income sourced in either country. Governed by Article 32A of the Income Tax Law. Indonesia has tax treaties with over 70 countries. Treaties cover: taxation rights over business income, dividends, interest, royalties, and capital gains; PE definitions; and Mutual Agreement Procedure (MAP) for dispute resolution. Foreign taxpayers must present a Certificate of Residence (SKD) to claim treaty benefits.
Tax Glossary
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.