In its bid to rein in tax revenue from foreign online businesses such as the social media giants, the Indonesian tax authority issued Circular Letter No. SE-04/PJ/2017 on the Determination of Permanent Establishments for Foreign Tax Subjects Which Are Providers of Applications and/or Content Services Through the Internet (“Circular Letter 4/2017”). 

The circular is addressed to Over-the-Top Services (application or content services through the internet). Under the circular, foreign Over-the-Top Services that come within the meaning of permanent establishment under the circular will be subject to Indonesian tax. Permanent establishment within Indonesia includes the following whether owned, leased or used by Foreign OTT Providers for the operation of their businesses or activities:

1. Place for management activities;
2. Branch office;
3. Representative office;
4. Office buildings;
5. Garage or workshop;
6. Warehouse;
7. physical space for promotional and sales activities;
8. Computers, including servers and data centres;
9. Electronic apparatus (i.e. devices which contain computer programs that may perform activities or which may respond based on automatic inputs); and
10. Other automatic devices.

Entities are also considered as permanent establishments if it provides any form of services for period of 60 days or more within any given 12 month period.

There are still several aspects of the circular that requires clarification, namely:

1. Online businesses that does not have any physical assets or activity in Indonesia may not be caught by the first definition of permanent establishment.
2. As for the meaning of “60 days or more”, it is not clear if this is computed in terms of accumulative hours of service on a 24-hour day.

It is hoped that the Government will help to clarify this for foreign online businesses that deliver Over-the-Top services without the need for any permanent establishment. As it is is the rules seem to be wide enough to catch anyone trying to establish an operation within a global digital business.

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