Criteria for a Business Entity to be Deemed a PE

The three criteria include, first, the existence of a place of business in Indonesia. Second, the place of business is permanent. Third, the place of business is used by the foreign individual or foreign entity to conduct a business or activities.

In addition, other forms of business are deemed permanent establishments even though they do not fulfil these three criteria. Minister of Finance Sri Mulyani Indrawati in the policy states 4 types of business entities deemed permanent establishments without having to fulfil the 3 criteria.

First, construction projects, installation or assembly projects. Second, the provision of services in whatever form by employees or other people, insofar as carried out for more than 60 days within any 12-month period.

Third, persons or entities acting as independent agents. Fourth, the agents or employees of insurance companies that are not established and domiciled in Indonesia that receive insurance premiums or assume risks in Indonesia.

The definition of business or activities, as emphasised in Article 4 paragraph (3) includes all matters conducted to obtain, collect or maintain income.

Foreign individuals or foreign entities that conduct business or activities through PEs are required to register to obtain a Taxpayer Identification Number (TIN). This obligation commences when a foreign individual or foreign entity conducts a business or activities through a PE in Indonesia.

The registration is performed no later than a month after the commencement of a business or activities through a permanent establishment in Indonesia. In the event of a failure to do so, the Director General of Taxes may issue a TIN ex officio for the foreign individual or foreign entity.

Foreign individuals or foreign entities that conduct a business or activities through Permanent Establishments as entrepreneurs – except for small-scale entrepreneurs whose thresholds are determined by the Minister of Finance – are required to report their business to be confirmed as Taxable Persons for VAT Purposes.

The obligation to report business to be registered as Taxable Persons for VAT Purposes is exercised no later than the end of the following month after the month the total gross turnover and/or gross revenues exceed the small-scale entrepreneur thresholds set by the Minister of Finance. (kaw)