Indonesia Hong Kong Tax Treaty: Rates, Services and Claims

The Indonesia Hong Kong tax treaty caps the 20% that Indonesia otherwise withholds from dividends, interest and royalties paid to Hong Kong. That tax is PPh 26 (Pajak Penghasilan Pasal 26, income tax under Article 26 of the Income Tax Law). A fee for services, other than one that is really a royalty, is taxable only in Hong Kong, unless the Hong Kong company has a permanent establishment (PE) in Indonesia (Article 7(1)). Both reliefs go to a Hong Kong resident that qualifies for the treaty.

The treaty (P3B, Persetujuan Penghindaran Pajak Berganda) is the agreement signed in Jakarta on 23 March 2010, with a protocol that forms part of it. If you are a Hong Kong company with a customer or subsidiary in Indonesia, or the Indonesian company paying one, this is what applies.

The rates under the Indonesia Hong Kong tax treaty

Each cap on dividends, interest and royalties needs the Hong Kong recipient to be the beneficial owner (Articles 10(2), 11(2) and 12(2)). The rates without a treaty come from the Income Tax Law, Article 26(1) and (4), as amended by Law No. 6 of 2023.

One royalty cap covers rights such as copyright, patents, designs and trade marks, information about industrial, commercial or scientific experience (know-how), and the use of industrial, commercial or scientific equipment (Article 12(3)). So paying to use such equipment from a Hong Kong company is a royalty under this treaty, capped at 5%, not a service fee.

Hong Kong then allows the Indonesian tax paid under the treaty as a credit against its own tax on the same income, subject to its own law on such credits, and up to the Hong Kong tax on that income (Article 22(1)).

Which treaty applies, and since when

1. 1
   23 March 2010

   Signed

   The two governments sign the agreement in Jakarta, with a protocol.

2. 2
   28 March 2012

   In force

   It enters into force, as Hong Kong’s Inland Revenue Department records.

3. 3
   1 January 2013

   Applies

   Indonesia applies it to withholding on amounts paid or credited from this date.

Indonesia ratified the agreement and its protocol by Perpres No. 24 Tahun 2012 (Peraturan Presiden, a Presidential Regulation). The agreement was made in English, and that text prevails over the Indonesian translation (Article 2 of the regulation). Indonesia applies it to tax withheld on amounts paid or credited from 1 January 2013 (Article 28(2)(b)(i)).

The treaty is modified by the multilateral instrument for tax treaties (MLI): both Indonesia and Hong Kong list it, and it adds a principal purpose test, set out below.

Service fees and a permanent establishment

A Hong Kong company’s business profits are taxable only in Hong Kong unless it carries on business in Indonesia through a PE (Article 7(1)). A PE is a fixed place of business, such as a place of management, a branch, an office or a factory (Article 5(1) and (2)). The company also has one when its activity in Indonesia passes one of these time tests (Article 5(3)):

The services test covers services, including consultancy, furnished through employees or other personnel engaged for that purpose, for the same or a connected project (Article 5(3)(b)). Indonesia’s own tests, for a country with no treaty, are set out in our guide to permanent establishment in Indonesia.

Selling shares in an Indonesian company

Under the treaty’s general rule, a gain a Hong Kong resident makes on selling shares in an Indonesian company is taxable only in Hong Kong (Article 13(5)).

The exception is a land-rich company. Indonesia may tax the gain on shares of a company that draws more than 50% of its asset value, directly or indirectly, from immovable property in Indonesia. This does not apply where the company carries on its business in that property, or to shares sold or exchanged in a reorganisation, merger, scission or similar operation (Article 13(4)).

Gains on immovable property in Indonesia may also be taxed in Indonesia (Article 13(1)). Indonesia’s own rules are in our guide to capital gains tax on shares.

Who can claim the treaty

The treaty counts a company as a Hong Kong resident if it is incorporated there, or incorporated elsewhere but normally managed or controlled in Hong Kong (Article 4(1)(a)(iii)). The lower dividend, interest and royalty caps go only to a Hong Kong resident that is the income’s beneficial owner.

Through the MLI, the treaty now has a principal purpose test. A benefit under it is not granted in respect of an item of income where it is reasonable to conclude that obtaining the benefit was one of the principal purposes of an arrangement or transaction. The exception is where granting it would be in accordance with the object and purpose of the relevant provisions of the treaty (MLI, Article 7(1)). Indonesia applies the test to tax withheld on events from 1 January 2024. The treaty also leaves each side’s own rules against tax avoidance in place (Article 27).

For the 5% dividend cap, the treaty asks for a company, other than a partnership, holding at least 25% of the capital directly (Article 10(2)(a)). Whether a Hong Kong company should own the Indonesian one at all is a wider question, covered in our guide to holding company structures.

How the treaty rate is claimed

The Hong Kong recipient gives the Indonesian payer a DGT Form (DGT is the Directorate General of Taxes). The payer checks it and uploads it in Coretax, the tax office’s online system (PMK 112/2025, a Minister of Finance regulation, Articles 8 to 10). Where a treaty leaves a service fee with nothing to pay in Indonesia, the payer still needs the form. It also still reports the payment and issues a withholding slip (PMK 112/2025, Article 14(2)).

Payments to Hong Kong sit alongside the company’s other payments abroad, covered in our guide to PPh 26.

Questions people ask

How we help

Under our corporate tax service, we apply the treaty rate through the recipient’s DGT Form and take care of the PPh 26 withholding each month on what your company pays to Hong Kong.