PPh 26 in Indonesia: Paying a Foreign Parent or Supplier
PPh 26 is the tax an Indonesian company withholds when it pays someone abroad. Rate, due dates, the VAT beside it and when the cost is deductible.
References (8)
- Income Tax Law, UU No. 7 Tahun 1983, Article 26(1) and (5), as amended by UU No. 6 Tahun 2023. Article 26(1) sets 20% of the gross amount on the listed income paid to a non-resident without a permanent establishment in Indonesia, and when it arises. Article 26(5) makes the withholding final, with two exceptions.
- Income Tax Law, Articles 6(1)(a) and 18(3), as amended by UU No. 7 Tahun 2021 (HPP). The deductible costs, including interest, rent and royalties, and the tax office's power to re-set related-party amounts.
- PMK No. 81 Tahun 2024. Article 94(2)(g) and (i): PPh 26 and the self-assessed VAT paid by the 15th of the following month. Article 171(1)(g) and (2): PPh 26 reported within 20 days, in the unified return or the PPh 21/26 return. Articles 100(1) and 173(1): the next working day. Article 172(3): VAT reporting by a user not registered for VAT.
- PER-11/PJ/2025, Article 15(1) on the unified withholding slip, Article 7 as amended by PER-12/PJ/2026 on the BP26 slip, and Article 85(1)(b) on Lampiran 11C, the report of private debt from abroad.
- PMK No. 112 Tahun 2025 on applying tax treaties, Article 10: the DGT Form checked and uploaded by the payer, or the full domestic rate.
- VAT Law, UU No. 8 Tahun 1983, Articles 3A(3) and 4(1)(d) and (e), as amended by UU No. 42 Tahun 2009. PMK No. 131 Tahun 2024, Article 3: 12% on a base of 11/12, and the VAT creditable as input tax.
- PMK No. 172 Tahun 2023 on the arm's length principle, Article 13(1) on intra-group services and Article 13(3) on intangibles.
- PMK No. 169/PMK.010/2015 on the debt-to-equity ratio. Articles 2 and 3: four to one, the excluded sectors, and arm's length interest to related parties. Article 5: reporting private debt from abroad.
PPh 26 is the withholding tax on payments abroad: the income tax an Indonesian company withholds when it pays a foreign company or person that has no permanent establishment in Indonesia. Its full name is PPh Pasal 26 (Pajak Penghasilan Pasal 26), income tax under Article 26 of the Income Tax Law. The payer keeps back 20% of the gross amount, pays it to the tax office and sends the rest abroad (Income Tax Law, Article 26(1), as amended by UU 6/2023, a Undang-Undang or law). It applies, for example, to a management fee to a foreign parent, a royalty for a group brand or other intangible, interest on a shareholder loan and a fee to a consultant overseas.
For the recipient the tax withheld is final, unless the income is attributable to a permanent establishment in Indonesia or the recipient becomes a resident taxpayer or a permanent establishment here (Article 26(5)). For the Indonesian company, the work is a monthly routine: withhold, pay, report, and keep the papers that support the cost. Within our corporate tax service, we withhold, pay and report it for you each month. Payments to suppliers inside Indonesia follow other rules, set out in our guide to withholding tax on services.
What PPh 26 covers
Article 26(1) sets 20% of the gross amount on the income in its list, which runs from dividends and interest to royalties, rent, and fees for services, work and activities. Any resident company that pays this income withholds it, as do government bodies and permanent establishments. The table shows the three payments this page is about.
| Withheld | |
|---|---|
| Services | 20% of gross |
| Royalties | 20% of gross |
| Interest | 20% of gross |
Dividends to a foreign shareholder are on the same list, and our guide to dividend tax in Indonesia covers them.
When it falls due
The tax arises when the amount is paid, made available for payment or falls due (Article 26(1)), so an invoice that has fallen due is caught even if the money has not left yet. The payer pays the tax by the 15th of the following month and reports it within 20 days after the month ends; when either date lands on a weekend or public holiday, it moves to the next working day (Peraturan Menteri Keuangan, a Minister of Finance regulation, PMK 81/2024, Articles 94(2)(g), 100(1), 171(1)(g) and 173(1)).
Which return it goes in depends on who was paid, and for what:
- A foreign company: the SPT Masa PPh Unifikasi (the unified monthly income tax return), with a withholding slip made in Coretax, the tax office’s online system, through eBupot, its slip module, and given to the recipient (PMK 81/2024, Article 171(2)(b); PER-11/PJ/2025, a Director General of Taxes regulation, Article 15(1), and Article 17, as amended by PER-12/PJ/2026).
- A foreign individual, for work or services: the PPh 21/26 return, with the slip on form BP26, the Withholding Slip Article 26 Income Tax (PMK 81/2024, Article 171(2)(a); PER-11/PJ/2025, Article 7, as amended by PER-12/PJ/2026).
A tax treaty can lower the 20% if the foreign recipient gives you a valid DGT Form (Directorate General of Taxes form), which you check and upload in Coretax; without it you withhold the full rate (PMK 112/2025, Article 10). Our guide sets out how a treaty rate is claimed, and our guide to the Indonesia–Singapore tax treaty gives the rates for a recipient in Singapore.
VAT on the same payment, with an example
A taxable service or intangible from abroad that is used in Indonesia also carries value added tax (VAT), and the Indonesian user accounts for it itself, whether or not it is registered for VAT (VAT Law, Articles 3A(3) and 4(1)(d) and (e), as amended by UU 42/2009, the VAT Law amendment; PMK 81/2024, Article 172(3)). The rate is 12% on a base of 11/12 of the amount (PMK 131/2024, Article 3), and it is paid by the 15th of the following month, like the PPh 26 (PMK 81/2024, Article 94(2)(i)). A VAT-registered company can then credit it as input tax under the ordinary rules (PMK 131/2024, Article 3(4)). Our VAT guide covers when this VAT falls due and how it is reported.
Take an illustrative management fee of IDR 100 million invoiced by a foreign parent, with no treaty claimed and the fee agreed gross, so the tax comes out of it rather than being added on top.
| Description | IDR |
|---|---|
| Management fee | 100,000,000 |
| PPh 26 withheld 20% × 100,000,000 | (20,000,000) |
| Paid to parent | 80,000,000 |
| PPh 26 to tax office by the 15th of the following month | 20,000,000 |
| VAT to tax office 12% × 11/12 × 100,000,000 | 11,000,000 |
| Total paid out | 111,000,000 |
The parent receives a withholding slip showing the tax paid for it. The only amount added to the fee is the VAT, and a VAT-registered company credits that as described above. The figures are round numbers chosen to show the working.
Deducting the cost
The Income Tax Law lists costs for work or services, and interest, rent and royalties, among the business costs a company may deduct (Article 6(1)(a), as amended by UU 7/2021). When the recipient is a related party, such as a parent, the tax office can re-set the amount to what unrelated businesses would have agreed (Article 18(3)).
For a service bought from a group company, the company should be able to show that the service was actually provided, was needed and gave it an economic benefit; the full list is in PMK 172/2023, Article 13(1). For a royalty paid to a related party, the company should likewise be able to show that the intangible exists and benefits the company (PMK 172/2023, Article 13(3)). Our guide to transfer pricing in Indonesia covers the documents that record this.
Outside the excluded sectors, such as banks and insurers, deductible interest is limited to a debt-to-equity ratio of four to one (PMK 169/PMK.010/2015, Articles 2 and 3(1)). Interest on a loan from a related party must also be at arm’s length (PMK 169/PMK.010/2015, Article 3(4)).
A private loan from abroad is reported with the annual return
Private debt from abroad is reported to the tax office in Lampiran 11C (Annex 11C) to the annual corporate return (PER-11/PJ/2025, Article 85(1)(b)). Interest on such a loan that has not been reported is not deductible (PMK 169/PMK.010/2015, Article 5(2)).
Keeping payments abroad in order
Once a company knows what it pays abroad, to whom and for what, PPh 26 becomes a fixed part of the month. We also apply a treaty rate through the recipient’s DGT Form and prepare the refund application if too much was withheld. Invoices and bank statements for each payment abroad go into the company’s bookkeeping. Send us your list of overseas payments and we will tell you what is due.