An overseas company can generally contract directly with Indonesian counterparties without establishing a local company, provided the underlying transaction can legally be conducted on a cross-border basis. This is possible for many cross-border sales, services, and licensing arrangements.
When Does the Contract Require an Indonesian Company?
A foreign manufacturer can sell goods from overseas to an Indonesian buyer, while a foreign service provider can perform work abroad and deliver it to an Indonesian client. For imported goods, an appropriately registered Indonesian party must handle the Indonesian import process. Indonesian importers use their Business Identification Number (NIB) for import identification and customs access.
MAP Resources Indonesia can assess whether your transaction can remain offshore or requires a local presence. Contact info@mapresourcesindonesia.com
The position changes when the overseas company itself performs activities in Indonesia that require local licensing. Indonesia’s current licensing system assigns business activities to specific classifications and one of four risk levels, which determine the approvals required.
This distinction also applies to contracts combining offshore supply with work in Indonesia. An overseas supplier can sell equipment directly to an Indonesian customer while a licensed Indonesian contractor handles local installation or maintenance. If the overseas supplier performs regulated activities in Indonesia itself, a licensed Indonesian presence may be required.
Can the Overseas Company Be Taxed in Indonesia?
An overseas company can face Indonesian tax even without an Indonesian subsidiary. Specified payments to overseas companies can be subject to 20% withholding tax on the gross amount, although a tax treaty can provide different treatment. A USD 100,000 payment fully subject to the domestic rate would result in USD 20,000 being withheld before any treaty relief.
Services and intangible assets supplied from overseas can also create Indonesian VAT obligations when used in Indonesia. The current calculation of 12% on 11/12 of the relevant value produces an effective 11% charge. A taxable imported service worth USD 100,000 would consequently result in USD 11,000 in VAT.
Performing the contract inside Indonesia can create an additional tax exposure. Under the Indonesia-Singapore tax treaty, for example, a Singapore company providing services through personnel in Indonesia can create a taxable business presence when those activities continue for more than 90 days within 12 months.
Does the Contract Need to Be in Bahasa Indonesia?
Agreements involving an Indonesian private entity must use Bahasa Indonesia. When a foreign party is also involved, the agreement must additionally be written in the foreign party’s national language and/or English.
MAP Resources Indonesia can review the Indonesian requirements affecting your contract. Contact info@mapresourcesindonesia.com
An agreement between an overseas company and an Indonesian company can consequently be prepared in Bahasa Indonesia and English. The parties may specify in the agreement which language will apply if the two versions are interpreted differently.
This requirement applies to the agreement itself regardless of whether the overseas company establishes an Indonesian subsidiary.
Assess Your Indonesian Contract with MAP Resources Indonesia
MAP Resources Indonesia can assess whether a foreign company’s proposed contract can be performed from overseas or requires an Indonesian business presence. Contact us today at info@mapresourcesindonesia.com.
