Indonesia does not impose one universal capital gains tax rate on foreign investors. The treatment depends on the asset being sold, the seller’s tax residence or status, the transaction structure, and whether an applicable tax treaty changes Indonesia’s taxing rights.
How Indonesia Taxes Capital Gains
Gains from disposing of investments are generally dealt with under Indonesia’s income tax system rather than through a single capital gains tax regime.
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Some transactions are subject to final income tax calculated on the gross transaction value, while others are taxed based on the actual taxable gain. Non-resident investors can also be subject to Article 26 withholding tax on specified Indonesian-source income.
Selling Unlisted Shares in an Indonesian Company
A foreign shareholder selling unlisted shares in an Indonesian company is generally subject to Article 26 withholding tax.
The tax is calculated by applying the 20% Article 26 rate to deemed net income equal to 25% of the selling price:
20% × 25% × selling price = 5% of the gross selling price
If a foreign investor sells shares for USD 5 million, the domestic tax would generally be USD 250,000 before considering any applicable tax treaty.
How Are Listed Shares Taxed?
Shares sold through the Indonesian stock exchange are generally subject to final income tax of 0.1% of the gross transaction value.
Founders are also subject to an additional final tax of 0.5% on the value of founder shares.
How Are Gains From Bonds Taxed?
Indonesian tax rules treat bond discounts as part of bond interest income. Depending on the type of bond, this can include the difference between the selling price or nominal value and the acquisition price.
For a foreign taxpayer other than a permanent establishment, Indonesian bond interest is generally subject to 10% income tax or the applicable tax treaty rate.
Selling Indonesian Land and Buildings
Transfers of rights over Indonesian land and buildings are subject to final income tax of 2.5% of the gross transfer value, although different rates or exemptions can apply to specified transactions.
Selling Other Indonesian Business Assets
Where an Indonesian company sells machinery, equipment, intellectual property, or other business assets, any taxable gain generally forms part of the company’s taxable income and is subject to the ordinary corporate income tax regime.
This differs from a share sale, where the shareholder sells its ownership in the company.
Can a Tax Treaty Change the Indonesian Tax?
Where a foreign investor is entitled to treaty benefits, the relevant treaty’s capital gains provisions determine whether Indonesia retains the right to tax the disposal.
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The outcome depends on the treaty and the asset being transferred. Foreign investors claiming treaty treatment must also satisfy Indonesia’s requirements for obtaining treaty benefits.
Can Indonesia Tax Offshore or Indirect Transfers?
Indonesia has provisions covering transfers involving certain foreign conduit or special-purpose companies connected with Indonesian companies or permanent establishments. Where the relevant conditions are met, a transfer of shares in a foreign company can be treated as a disposal of the underlying Indonesian interest.
This does not make every offshore sale of a holding company with an Indonesian subsidiary taxable in Indonesia. The ownership structure, parties, jurisdiction of the foreign entity, and applicable tax treaty can affect the treatment.
Plan Your Indonesian Investment Exit with MAP Resources Indonesia
MAP Resources Indonesia assists foreign investors with the tax implications of share transfers, property disposals, business restructurings, and investment exits in Indonesia. Contact us at info@mapresourcesindonesia.com.
