Foreign investors selling shares in an Indonesian foreign-owned company (PT PMA) may be subject to Indonesian income tax, even if the transaction takes place overseas. Unlike taxes calculated on capital gains, Indonesia’s domestic withholding tax rules can impose tax on the total selling price, regardless of whether the investor makes a profit or incurs a loss. Applicable tax treaties may provide relief, making the shareholder’s tax residency an important consideration before completing the sale.
What Taxes Apply When Selling PT PMA Shares?
Foreign Shareholders
Under Indonesia’s Income Tax Law, Article 26 governs withholding tax on certain income earned by non-resident taxpayers. Qualifying sales of unlisted Indonesian company shares by foreign individuals and overseas corporate shareholders without an Indonesian permanent establishment are generally subject to a final tax equivalent to 5% of gross sale proceeds.
This effective rate is calculated by applying the statutory 20% withholding tax rate to deemed net income equal to 25% of the selling price. Consequently, the tax is calculated on the selling price rather than the shareholder’s actual profit.
Get advice on your Indonesian tax obligations. Contact MAP Resources Indonesia at info@mapresourcesindonesia.com
A foreign investor who purchases PT PMA shares for IDR 8 billion (USD 500,000) and subsequently sells them for IDR 10 billion (USD 625,000) earns a gain of IDR 2 billion (USD 125,000). However, assuming the domestic 5% effective tax applies, the Indonesian tax amounts to IDR 500 million (USD 31,250).
The same treatment can apply when shares are sold at a loss. If the investor instead sells the shares for IDR 7 billion (USD 437,500), the tax will amount to IDR 350 million (USD 21,875), despite the investor incurring a loss of IDR 1 billion (USD 62,500).
Indonesian Tax-Resident Shareholders
For Indonesian tax-resident corporate shareholders, gains from selling privately held PT PMA shares are generally included in taxable income and subject to the standard corporate income tax rate of 22%, unless an applicable concession or special provision changes the treatment.
Resident individuals are generally subject to progressive personal income tax rates. Taxable gains are ordinarily calculated by deducting the relevant tax acquisition cost from the sale proceeds.
Can Foreign Shareholders Claim Tax Treaty Relief?
Indonesia’s double taxation agreements may restrict its right to tax gains earned by foreign shareholders selling PT PMA shares. Some treaties allocate taxing rights to the seller’s country of residence, while others permit Indonesia to tax the transaction, including where the shares derive substantial value from Indonesian immovable property.
Foreign shareholders seeking treaty relief must satisfy the relevant treaty conditions, including applicable anti-abuse provisions. They generally need to submit Form DGT, which documents their tax residency and supports their eligibility for treaty benefits.
The Indonesian withholding agent must verify the documentation and submit it electronically through Indonesia’s Coretax administration system. Previously issued Form DGT documents that remain valid under the applicable transitional provisions may continue to be used.
This version removes the regulatory reference, improves the transition and retains the practical information relevant to foreign investors.
Who Is Responsible for Paying and Reporting the Tax?
When an Indonesian tax-resident buyer purchases shares from a foreign shareholder, the buyer is generally responsible for withholding the applicable tax. If the buyer is based overseas, the Indonesian company whose shares are being transferred generally assumes this responsibility.
The purchase agreement should establish whether withholding tax is included in the agreed selling price and which party is responsible for meeting the payment and reporting requirements.
Before recording the share transfer, the Indonesian company generally requires evidence that the applicable tax has been paid. Where treaty relief applies, the relevant documentation must support the tax treatment claimed.
What Tax Risks Should Foreign Investors Consider Before Selling?
Related-Party Share Transfers
The Indonesian tax authorities may examine whether share transfers between related parties reflect an arm’s-length value. Supporting valuation documentation can substantiate the agreed transaction price.
Offshore Holding Company Transfers
Selling shares in an overseas holding company instead of transferring PT PMA shares directly may trigger Indonesian anti-avoidance provisions.
Find out whether treaty relief applies to your share sale. Email info@mapresourcesindonesia.com
The treatment depends on the ownership structure, the intermediary company’s jurisdiction, applicable domestic rules, and relevant tax treaty provisions.
Outstanding Corporate Tax Liabilities
A shareholder’s sale does not ordinarily generate taxable income for the PT PMA itself. However, existing corporate tax liabilities remain with the company following the ownership transfer.
Unresolved tax assessments, unpaid taxes, and historical compliance issues may affect negotiations. Buyers and sellers can address identified liabilities through tax warranties, indemnities, or purchase price adjustments.
Get PT PMA Share Sale Tax Advice from MAP Resources Indonesia
Planning to sell your shares in an Indonesian PT PMA? Contact MAP Resources Indonesia at info@mapresourcesindonesia.com to assess your tax exposure and determine whether treaty relief is available.
