The sweeping bill will consider foreign e-commerce and digital companies with significant economic presence in the country, regardless of where they are based, as permanent establishments, and thus subject to local income and value-added tax (VAT).

The “significant presence” will be determined by gross circulated product, sales and/or active users in Indonesia.

The concept of significant economic presence falls under the first of two pillars in the OECD/G20 Inclusive Framework on BEPS (base erosion and profit shifting), which was developed by a working group that brings together more than 125 countries under the Organization for Economic Cooperation and Development (OECD) to tackle global tax avoidance.

Furthermore, the bill stipulates that in the event such a company cannot be declared a permanent establishment due to Indonesia’s tax treaty with a certain country, the tax office will charge it an electronic transaction tax instead. Further details on the significant presence and tax payment procedures, among other things, will be regulated in a finance ministerial regulation.

The bill also stipulates that the communications and information minister can cut the companies’ access if they fail to fulfill the tax obligations based on the Finance Ministry’s Taxation Directorate General’s request.

Read also: Indonesia’s digital economy 'well on track' to dominate Southeast Asia

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