Indonesia US Tax Treaty: Rates, Services and Who Qualifies
The Indonesia US tax treaty caps what Indonesia withholds from US companies, sets when US services become taxable here, and limits who can use it.
References (6)
- Convention between the Government of the United States of America and the Government of the Republic of Indonesia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, with Protocol, signed in Jakarta on 11 July 1988, as amended by the Protocol signed in Jakarta on 24 July 1996. Article 5, permanent establishment. Article 8(1), business profits. Article 11(2) and (4), dividends and branch profits. Article 12(2) and (3), interest. Article 13(2) and (3), royalties. Article 14(1) and (2), gains. Article 15(1), independent personal services. Article 16(2), employment. Article 28(6) to (8), limitation on benefits. Protocol of 1996, Articles 1 to 3, the new caps, and Article 5, entry into force and effect.
- Keppres No. 44 Tahun 1988 (Presidential Decree), set and promulgated on 31 October 1988, Lembaran Negara 1988 No. 32. Indonesia’s ratification of the 1988 Convention and Protocol.
- Keppres No. 88 Tahun 1996 (Presidential Decree), set and promulgated on 20 November 1996, with the 1996 Protocol annexed. Indonesia’s ratification of the Protocol.
- OECD, Indonesia’s consolidated position under the Multilateral Instrument (MLI), covered agreement No. 22: the 1996 Protocol in force on 23 December 1996. OECD, Signatories and Parties to the MLI, status as of 15 September 2026: the United States is not listed.
- Income Tax Law, UU No. 7 Tahun 1983, Article 26(1) and (4), as amended by UU No. 6 Tahun 2023. The 20% withheld from a non-resident, and branch profit tax.
- PMK No. 112 Tahun 2025 on applying tax treaties. Articles 8 to 10, the DGT Form and the payer’s upload; Article 10(4), the full rate without it. Article 14(2), reporting where nothing is withheld under a treaty. Article 18(3), the tax office’s checks on a treaty claim.
The Indonesia US tax treaty caps the 20% that Indonesia otherwise withholds from dividends, interest and royalties paid to the United States (US), under 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 exempt from Indonesian tax unless the US company has a permanent establishment (PE) in Indonesia (Article 8(1)). Both reliefs go to a US resident that qualifies for the treaty.
The treaty (P3B, Persetujuan Penghindaran Pajak Berganda) is the Convention signed on 11 July 1988, as amended by a second protocol signed on 24 July 1996. If you are a US company with a customer or subsidiary in Indonesia, or the Indonesian company paying one, this is what applies. Article numbers refer to the Convention as amended in 1996.
The rates under the Indonesia US tax treaty
| Without treaty | Treaty cap | |
|---|---|---|
| Parent dividends | 20% | 10%, to a company owning at least 25% of the voting stock directly |
| Other dividends | 20% | 15% |
| Interest | 20% | 10%, or nil where the US Government, its central bank or a financial institution the Government owns or controls receives the interest |
| Royalties | 20% | 10% for rights such as copyright, patents and trade marks, for know-how, and for the use of industrial, commercial or scientific equipment |
| Branch profits | 20% unless reinvested | 10% of profit after income tax, and of interest allocable to the branch |
| Service fees | 20% | Nil, unless there is a permanent establishment in Indonesia or the fee is really a royalty |
Each cap on dividends, interest and royalties needs the US recipient to be the beneficial owner (Articles 11(2), 12(2) and 13(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 13(3)). So renting industrial, commercial or scientific equipment from a US company is a royalty under this treaty, at 10%, not a service fee.
Which treaty applies, and since when
-
Signed
The two countries sign the Convention in Jakarta, with a protocol.
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Amended
A second protocol lowers several of the caps.
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Applies
Under Protocol Article 5, the lower caps apply to amounts paid or credited from this date.
Indonesia ratified the Convention by Keppres No. 44 Tahun 1988 (Keputusan Presiden, a Presidential Decree) and the second protocol by Keppres No. 88 Tahun 1996.
The protocol entered into force on 23 December 1996, as Indonesia’s notification to the Organisation for Economic Co-operation and Development (OECD) records. It applies to amounts paid or credited from the first day of the second month after that (Protocol Article 5). It lowered several caps, so check that any calculation uses the rates in the table above.
The United States is not among the signatories and parties on the OECD’s list for the multilateral instrument for tax treaties (MLI), status as of 15 September 2026. DJP (Direktorat Jenderal Pajak, the Directorate General of Taxes) and the US tax authority publish the Convention and the 1996 protocol, and this guide follows that text.
Service fees and a permanent establishment
Under the treaty, a qualifying US company’s business profits are exempt from Indonesian tax unless it carries on business in Indonesia through a PE (Article 8(1)). A PE is a fixed place of business, such as a branch, an office, a factory or a warehouse (Article 5(1) and (2)). So a fee an Indonesian company pays a US company for services, other than one that is really a royalty, is not taxed in Indonesia unless that company has a PE here. It also has one when its activity in Indonesia runs past the time limits below. For services, there is none in a taxable year with fewer days than the floor (Article 5(2)(i) and (j)):
The services test counts services, including consultancy, through employees or other personnel, for the same or a connected project. A dependent agent who habitually concludes contracts for the US company can also create a PE. An independent broker or agent acting in the ordinary course of business does not (Article 5(4) and (5)). 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
The treaty exempts a US resident from Indonesian tax on gains from selling capital assets, other than the real property that Article 14(1) covers (Article 14(2)). Indonesia may tax such a gain in two cases:
- The shares belong to a PE. The shares are effectively connected with a PE or fixed base the seller has in Indonesia.
- The seller stays here. The seller is an individual present in Indonesia for 120 days or more during the taxable year.
Gains on real property in Indonesia, or on an interest in real property there, may be taxed in Indonesia (Article 14(1)). Indonesia’s own rules are in our guide to capital gains tax on shares.
Who can claim the treaty
The lower dividend, interest and royalty caps go only to a US resident that is the income’s beneficial owner. A company, or any other person that is not an individual, must also pass the treaty’s limitation-on-benefits test for any relief under it, the service-fee exemption included (Article 28(6) to (8)). It passes in any of three ways:
- Ownership. More than half of each class of its shares is owned, directly or indirectly, by individuals resident in either country, US citizens, companies that meet the Listing test below, or the two States. Its income is also not used in substantial part to meet liabilities, such as interest or royalties, to anyone outside those groups.
- Listing. Its principal class of shares is substantially and regularly traded on a recognised stock exchange.
- Purpose. Obtaining treaty benefits was not a principal purpose of setting up, acquiring or keeping the company, or of how it operates.
For the 10% dividend cap, the treaty states the test as a company owning directly at least 25% of the voting stock of the Indonesian company (Article 11(2)(a)). When a lower dividend rate is claimed, the tax office may check the percentage held and how long it has been held (PMK 112/2025, Article 18(3)).
How the treaty rate is claimed
The US recipient gives the Indonesian payer a DGT Form (DGT is the Directorate General of Taxes), which the payer checks and uploads in Coretax, the tax office’s online system (Peraturan Menteri Keuangan, a Minister of Finance regulation, PMK 112/2025, Articles 8 to 10). Even where nothing is due in Indonesia, the payer still needs the form. It also still reports the payment and issues a withholding slip (Articles 10 and 14(2)).
Payments to the US sit alongside the company’s other payments abroad, covered in our guide to PPh 26. Dividends are covered in our guide to dividend tax.
The form comes first
Without a valid DGT Form, the payer withholds the full domestic rate of 20% (PMK 112/2025, Article 10(4)). Our guide to claiming a treaty rate sets out the steps, and also covers tax withheld in excess.
Questions people ask
Does owning an Indonesian company (Perseroan Terbatas, PT) make the US parent a permanent establishment?
Is an employee who is a US resident taxed in Indonesia for work done here?
Is a self-employed consultant from the US taxed in Indonesia?
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 the US.