RSM Indonesia Client Alert – 21 January 2026

The Minister of Finance (MoF) issued MoF Regulation No 112 Year 2025 concerning The Procedure for Implementing the Tax Treaty (PMK-112) dated 30 December 2025. As a higher Minister-level regulation, PMK-112 strengthens the existing regulations related to use of tax treaties by foreign taxpayers and requests for Certificates of Domicile by domestic taxpayers.¹

WHEN DOES IT APPLY?

It is applicable on 31 December 2025.

WHAT IS THE SUBSTANCE OF PMK-112?

In general, PMK-112 regulates two important matters: 

  • Administrative procedures regarding the implementation of tax treaties.
  • Strengthening provisions preventing the misuse of tax treaties.

A) ADMINISTRATIVE PROCEDURES FOR IMPLEMENTATION OF TAX TREATIES

PMK-112 repeats the provisions stipulated by PER-25 and PER-28. In addition, PMK-112 ‘polishes’ certain provisions while addressing gaps/uncertainties that might have existed under PER-25 and PER-28.

The tables below summarize key provisions for domestic taxpayers (that request evidence of tax residence to reduce/avoid foreign taxation of foreign income, as regulated by PER-28), and for foreign taxpayers (that wish to obtain tax treaty benefits on income sourced from Indonesia, as regulated by PER-25).

 

 

 

NOTE 1:

As previously regulated by PER-25, misuse of a tax treaty is not considered to occur if all of the following conditions are met in relation to the transaction/structure and/or entity (as appropriate):

  1. has economic substance in the incorporation of the entity or the implementation of transactions;
  2. has the same legal form as the economic substance in the incorporation of the entity or the implementation of transactions;
  3. carries out business activities under its own management and the management has sufficient authority to carry out transactions;
  4. owns fixed assets and non-fixed assets, which are sufficient and adequate to implement business activities in the tax treaty partner, in addition to the assets that generate income from Indonesia;
  5. has a sufficient and adequate number of employees with certain expertise and skills in accordance with the line of business that the company is engaged in;
  6. carries out active activities or business other than only receiving income in the form of dividends, interest and/or royalties sourced from Indonesia;
  7. conducts transactions not for the principal or main purposes of, either directly or indirectly, obtaining the tax treaty benefits as referred to in Article 2 paragraph (6) of PMK-112; and

  8. is the beneficial owner of the income, which further requires:

    -  If an individual, that individual is not acting as an agent or nominee;

    - If an entity, that entity is not acting as an agent, nominee or a conduit company and that entity, within the context of receiving tax treaty benefits: 

    i. has control to use or enjoy the funds, assets or rights that generate income from Indonesia; 

    ii. does not use more than 50% of the income in whatever name and form as well as from whatever source, according to the non-consolidated financial statements of the foreign taxpayer, to fulfil liabilities to other parties, except for giving remuneration to employees as reasonable to be given in the course of employment; and to other parties, for other expenses as customarily incurred by the foreign taxpayer in the course of its business; 

    iii. assumes any risks on their assets, capital or liabilities; and 

    iv. does not have any obligation, either written or otherwise, to pass on part or all of the income received from Indonesia to other parties.

 

For entities, these tests are explicitly stated on the DGT Form. For individuals, the relevant tests are addressed by a general question whether the purpose of the transaction is to obtain a benefit directly or indirectly that is contrary to the object and purposes of the tax treaty, and a specific question whether the individual is acting as an agent or nominee.

Compared to PER-25, the beneficial owner tests must now be satisfied for all types of income. 
PER-25 only required these to be satisfied for foreign taxpayers that received dividends, interest or royalties.

 

B) STRENGTHENING PROVISIONS PREVENTING THE MISUSE OF TAX TREATIES 

Under PMK-112, the DGT is authorized to review compliance and avoidance of abuse based on: 

  • any provision in the tax treaty; or
  • the Income Tax Law if there are no provisions in the tax treaty. 

If violations are found, the DGT will determine the tax payable based on the Income Tax Law. 

PMK-112 stipulates how certain anti-abuse provisions contained in a tax treaty should be interpreted (including adopting certain provisions of the OECD’s Multilateral Instrument – MLI), as per the table below:

 

RSM COMMENTS

While Indonesia’s tax treaties themselves remain unchanged, the way treaty benefits are accessed, reviewed, and potentially denied has shifted materially. PMK-112 moves treaty relief away from a predominantly administrative exercise toward a substance-based, risk-managed process, supported by clearer procedures and explicit anti-abuse principles. Through release of a MoF regulation rather than relying on the DGT regulations, PMK-112 provides stronger legal authority, broader applicability, and greater weight in audits, objections, and tax court proceedings. Taxpayers and withholding agents should, therefore, expect higher scrutiny, stricter controls, and increased emphasis on commercial substance, particularly in light of the formal confirmation of the PPT.

  • Treaty relief now requires proactive management. Formal compliance alone is insufficient; successful treaty positions will increasingly depend on clear commercial narratives and demonstrable substance.
  • Withholding agents have become central to treaty compliance because these agents may face under-withholding assessments; administrative penalties; and commercial disputes with foreign counterparties. Therefore PMK-112 positions Indonesian taxpayers as the first layer of defense against treaty abuse, making treaty application a matter of governance and internal control.
  • Anti-avoidance rules targeting PE avoidance, including aggregation of project duration across closely related parties and a broader assessment of project unity are strengthened under PMK-112. Groups involved in construction, EPC, or long-term service projects should reassess PE exposure carefully, as contract splitting alone is unlikely to be sufficient to avoid creation of PE.
  • Structures relying on interposed entities or fragmented activities face heightened vulnerability under a combined beneficial ownership and PPT analysis. Intermediate holding companies, treasury centers, and IP vehicles are likely to face increased scrutiny, particularly where: income is largely passed through to other group entities; strategic decisions are made elsewhere; or the entity performs limited active functions. Therefore, economic reality will carry more weight than legal form.
  • Although PMK-112 now adds ministerial ‘strength’ to the previous DGT regulation stating that CoD can be provided during a tax audit, this does not override the domestic taxpayer’s obligation to have carefully reviewed the CoD and substance of the transactions to ensure there is no treaty abuse.
  • Domestic taxpayers cannot request a CoD 
    (to obtain tax treaty benefits on foreign sourced income) if the relevant tax year is not the current tax year or the previous tax year.  Therefore, if the relevant period is, for example, more than 2 years ago, then it is not possible to obtain a CoD.

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