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April 19, 2021

Indonesia issues implementing regulations for Job Creation Law

The implementing regulations for the Job Creation Lawwere issued via Government Regulation No 9/ 2021 (GR-9)and regulation No. 18/PMK.03/2021 (PMK-18)3 (the Regulations). The Regulations provide further details and guidance on income tax, value added tax (VAT) and general tax provisions and procedures. The Regulations became effective on their respective issuance dates.

This Alert summarizes the key aspects of the Regulations.

Reduced withholding tax rate on bond interest

The statutory withholding tax (WHT) rate on bond interest4 paid to nonresident bond holders is reduced from 20% to 10% (or the applicable tax treaty rate if lower). The reduced rate is effective six months after the enactment of GR-9, i.e., from 1 August 2021.

Tax exemption for dividend income received by corporate resident shareholders

Domestic dividend income received by a corporate resident shareholder is exempt from tax if the dividend is distributed based on a decision made during a general shareholders meeting or an interim dividend policy, or a similar meeting. This broadens the previous exemption which required 25% shareholding.

The whole amount of a dividend paid by an offshore unlisted company (i.e., a company not listed on a stock exchange), or the net profit after tax of a permanent establishment of an Indonesian company, is exempt from tax if at least 30% of the net profit after tax (NPAT) of the offshore company/permanent establishment is distributed and then invested in Indonesia. The investment must be in the form of 1 of 12 prescribed investment types5 and made by the end of the fourth month in the year following the year that the dividend was distributed. If the investment amount is less than the 30% NPAT threshold, the difference is subject to corporate income tax (CIT), currently 22%, less any foreign tax credits.

In the case of offshore listed companies, the 30% NPAT threshold does not apply. Only dividends reinvested in Indonesia are exempt. Any dividend income that is not reinvested is subject to CIT at 22%, less any foreign tax credit.

Other guidance on VAT and general tax provisions and procedures

The implementing regulations also outline updates on VAT including: 1) the conditions for in-kind contributions and consignment transactions to qualify for VAT-free treatment; 2) changes in the administrative requirements for VAT invoices; and 3) improvements in VAT credit mechanisms (including in pre-operation phases).

The implementing regulations also provide guidance on general provisions and procedures including: 1) conditions to obtain tax rewards for overpayments; 2) clarification of procedures and statutes of limitation for tax crimes; 3) validity of electronic signatures; and 4) clarification of tax audit procedures.


For additional information with respect to this Alert, please contact the following:

EY Indonesia, Jakarta

Ernst & Young LLP (United States), Indonesia Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York



  1. See EY Global Tax Alert, Indonesia enacts Job Creation Law, dated 7 December 2020.

  2. Issued by the Indonesian Government on 2 February 2021.

  3. Issued by the Minister of Finance (MoF) 17 February 2021.

  4. Bond interest includes:

  • The interest received from a bond paying coupon(s) during the bond holding period.
  • The discount from a bond with coupon(s), which is the difference between the sales price or nominal value and the acquisition price of the bond, not including accrued interest.
  • The discount from a non-coupon bond, which is the difference between the sales price or nominal value and the acquisition price of the bond.

  5. The 12 prescribed investment types are:

  • Indonesian Government’s securities including sharia securities.
  • State Owned Company’s bond or sukuk, trades of which are supervised by the Financial Service Authority (OJK).
  • State owned financial institutions’ bond or sukuk, trades of which are supervised by OJK.
  • Financial investments in tax payment banks (bank persepsi) including sharia banks.
  • Private company’s bond or sukuk, trades of which are supervised by OJK.
  •  Joint venture between the Government and corporates for infrastructure investment.
  • Investment in the real estate sector based on priorities determined by the Government.
  • Capital contribution into a newly established company residing in Indonesia, as a shareholder.
  • Capital contribution into an existing company residing in Indonesia, as a shareholder.
  • Collaboration with an investment management institution.
  • Loan to micro and small-scale businesses in Indonesia in accordance with the prevailing laws on micro and small medium scale businesses.
  • Other legitimate investments in accordance with the prevailing laws.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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