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Tax Credits on Overseas Income of Domestic Taxpayers in Indonesia

In the current era of globalization, international trade activities are a source of state income for the country. One of the essential aspects that needs to be considered by business actors in the field of international trade is taxation. In accordance with Law No.36 of 2008 jo. Law No.7 of 2021 (“Tax Law“) of regulation in Indonesia, income tax is any additional economic capability received or obtained by the taxpayer, both from Indonesia and/or overseas, which adds up to increase the wealth of the taxpayer concerned by any name and in any form. Thus, for all forms of international trade that benefit the taxpayer, income tax is levied. Under the law in Indonesia, this type of tax is regulated in Article 24 of the Income Tax Law.

The concept of this income tax is that the tax paid or payable overseas received or earned by a domestic taxpayer may be credited against the tax payable under this law in the same tax year, which means the tax that has been paid in a year can be deducted from income tax when calculating the amount of tax payable for one tax year. The amount of the tax credit is the amount of income tax paid or payable overseas, but may not exceed the calculation of the tax owed, further regulated in the Income Tax Law.

Further regulated in the Minister of Finance Regulation No. 192/PMK.03/2018 (“MoFR 192/2018“), in calculating the taxable income, domestic taxpayers must combine income received or obtained from overseas sources abroad with income received or obtained from domestic income sources in Indonesia. The amount of income received or earned from overseas sources of income is determined as follows:

  1. Income, including income from branches or representatives of domestic taxpayers abroad, is considered net income;
  2. Income originating from overseas trusts is net income or a share of net income earned by the domestic taxpayer; and
  3. Other income is equal to net income.

If you have inquiries related to taxation law, Schinder Law Firm is one of many corporate law firms in Indonesia that is proficient in this field, with many experienced and professional civil lawyers and tax law attorneys in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.

Author: Dewi Susanti