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Phillip B, EA
Phillip B, EA, Enrolled Agent
Category: Tax
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Experience:  Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
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Does PPH 26 apply to a payement by an indonesian corporate

Customer Question

Does PPH 26 apply to a payement by an indonesian corporate to a foreign company against an invoice for services delivered outside indonesia ?
(For example the invoice of a foreign lawyer)
Submitted: 1 year ago.
Category: Tax
Expert:  Phillip B, EA replied 1 year ago.

Thanks for choosing JustAnswer.com! I will do my best to provide you with a clear and concise answer to your tax question.

Income tax Article 26 (PPH Pasal 26) requires 20% to be withheld for taxes to foreign taxpayers receiving payments from an Indonesian entity.

Foreign taxpayers are defined as follows:

  • an individual that is not residing in Indonesia, individual that is staying in Indonesia not more than 183 days within a year/12 months, and a company that is not established or located in Indonesia, that operates its business through a permanent establishment in Indonesia.
  • an individual that is not residing in Indonesia, individual that is staying in Indonesia not more than 183 days within a year/12 months, and a company that is not established or located in Indonesia, that can receive or gain an income from Indonesia not through operating a business through a permanent establishment in Indonesia.

Given the fact that the definition does not provide an "and" for the individual definition (as in the definition does not say "not residing in Indonesia and living in Indonesia for not more than 183 days") PPH 26 appears to apply to any individual receiving income from Indonesian sources regardless of time spent in the country's borders. In regards ***** ***** company definition, PPH 26 is going to tax companies that operate in Indonesia or companies that can simply receive gain or income from Indonesian sources.

In conclusion, PPH 26 (in my opinion) would apply to a foreign company even if the services are rendered outside of Indonesia.

If there are other questions or concerns, please reply to this answer so that I may assist you further. if this answers your question, please rate my answer between OK and Excellent service so that I may receive credit for my work.

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