Selling shares in an Indonesian PT PMA can create an Indonesian tax liability for the seller. The treatment depends primarily on the seller’s tax residence, whether the shares are listed or unlisted, and whether a tax treaty limits Indonesia’s taxing rights.
How Indonesia Taxes Foreign Shareholders Selling PT PMA Shares
For foreign shareholders selling unlisted shares, the relevant rule is Indonesia’s Article 26 withholding tax, which applies to specified Indonesian-source income received by non-resident taxpayers.
Contact info@mapresourcesindonesia.com for support with Indonesian tax and compliance requirements
Article 26 generally produces an effective final tax of 5% of the gross selling price. 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 selling price
The tax is based on the selling price rather than the seller’s actual capital gain.
If a foreign shareholder sells PT PMA shares for USD 10 million, the domestic tax would generally be USD 500,000, subject to any applicable tax treaty relief.
Can a Tax Treaty Reduce the 5% Tax?
Where the seller is resident in a country that has a tax treaty with Indonesia, the treaty’s capital gains provisions determine whether Indonesia retains the right to tax the share sale.
The seller must also satisfy the applicable requirements for claiming treaty benefits.
Tax treaty treatment can materially change the seller’s net proceeds. A foreign shareholder should establish whether Indonesia retains taxing rights under the relevant treaty before the transaction closes rather than automatically applying the domestic 5% rate.
How Withholding Affects the Share Transfer
Where the buyer is responsible for withholding, the applicable Article 26 tax is deducted from the payment to the foreign seller.
If the buyer is also a foreign taxpayer, the Indonesian company whose shares are being transferred is generally responsible for collecting the applicable tax.
The Indonesian company generally cannot record the deed transferring the shares until the seller provides evidence that the applicable Article 26 tax has been paid.
Where treaty relief applies, the supporting documentation should establish the appropriate tax treatment before the transfer is recorded.
Can Indonesia Tax an Offshore Share Transfer?
Certain indirect offshore transfers can fall within Indonesia’s tax rules.
Indonesia has specific provisions covering transfers of shares in certain foreign conduit or special-purpose companies connected with an Indonesian company or permanent establishment. Where the relevant conditions are met, the transaction can be treated as a transfer of the underlying Indonesian interest.
This does not mean every sale of a foreign holding company owning an Indonesian subsidiary is automatically taxable in Indonesia. The structure, parties, jurisdiction of the intermediary company, and applicable tax treaty can affect the outcome.
How Intra-Group Share Transfers Are Treated
Transferring PT PMA shares between companies within the same corporate group does not automatically remove Indonesian tax consequences.
Related-party transactions can be examined under Indonesia’s arm’s-length rules. The tax authorities may review whether the transfer value reflects an arm’s-length price.
Email info@mapresourcesindonesia.com for assistance with Article 26 and tax treaty considerations
This is relevant where shares are transferred at book value, nominal value, or another internally determined price as part of a group restructuring. The tax treatment should be assessed based on the applicable rules even where the transfer forms part of an internal reorganization.
What About Indonesian Resident Shareholders?
The 5% Article 26 treatment applies to qualifying non-resident sellers and is not the general tax rate for every PT PMA share transfer.
An Indonesian tax-resident corporate shareholder is generally taxed under the ordinary corporate income tax framework on taxable gains from selling unlisted shares. The taxable gain is generally determined by reference to the sale proceeds and the tax basis of the shares.
Share Sale or Asset Sale?
An asset sale has different tax consequences from a share sale. Instead of the shareholder disposing of its ownership, the Indonesian company sells the assets itself.
The resulting income is generally recognized by the company for corporate income tax purposes, while VAT or other taxes may apply depending on the assets and transaction.
Manage PT PMA Share Transfer Tax with MAP Resources Indonesia
MAP Resources Indonesia assists foreign shareholders and investors with the tax and compliance aspects of PT PMA share transfers, including Article 26 withholding, treaty considerations, transaction structuring, and supporting documentation. Contact us at info@mapresourcesindonesia.com.
