Tax Avoidance Comparative Guide

1. Legal and enforcement framework

1.1 Which legislative provisions govern tax avoidance in your jurisdiction?

Indonesia does not have specific regulations concerning tax avoidance. Tax avoidance regulations are set out in several laws, including:

• Law 7/1983 on Income Tax, as most recently amended by Law 7/2021 on the Harmonisation of Tax Regulations and Government Regulation in Lieu of Law 2/2022 on Job Creation ('Income Tax Law'); and
• Law 6/1983, as most recently amended by the Job Creation Law.

In general, the tax avoidance rules in Indonesia mostly relate to the Specific Anti-Avoidance Rules.

The laws on tax avoidance are further supplemented by government regulations, including:

• Government Regulation 55/2022 on the Adjustment of Provisions in the Field of Income Tax; and
• several other minister of finance regulations.

1.2 Which bilateral and multilateral instruments on tax avoidance have effect in your jurisdiction?

Indonesia's tax avoidance framework is governed by a range of bilateral and multilateral instruments. One notable multilateral development is Indonesia's signing of the Multilateral Instrument Subject to Tax Rule in 2024, which introduced provisions that will be integrated into the country's double tax avoidance agreements (DTAAs).

Indonesia has entered into approximately 70 DTAAs with various jurisdictions. These agreements are primarily designed to eliminate double taxation on income and to curb tax avoidance in cross-border transactions. According to Circular Letter SE-52/PJ/2021 of the Director General of Taxes on General Guidelines for the Interpretation and Application of Provisions in Double Tax Avoidance Agreements, Indonesia's DTAAs are generally modelled on:

• the Organisation for Economic Co-operation and Development Model Convention; and
• the United Nations Model Double Taxation Convention between Developed and Developing Countries.

1.3 What authorities are responsible for enforcing the applicable laws and regulations? What statutory powers do they possess?

The primary authority responsible for enforcing tax laws and regulations in Indonesia is the Directorate General of Taxes (DGT), which operates under the auspices of the Ministry of Finance (MoF). The DGT derives its mandate from various statutory instruments, including but not limited to Law 6/1983 on General Tax Provisions and Procedures, as most recently amended by the Harmonisation of Tax Regulations Law and the Job Creation Law. The DGT's core authorities include, among others:

• conducting administrative reviews and tax audits to ensure compliance;
• issuing administrative tax decisions; and
• cooperating with third parties in the execution of its tax-related duties.

1.4 What is the general approach of these authorities in enforcing the applicable laws and regulations?

The general approach of the DGT in enforcing applicable tax laws and regulations emphasises:

• effective and transparent audits to ensure fairness in the application of such laws and regulations; and
• collaboration with third parties for information exchange related to taxation.

Currently, pursuant to MoF Regulation 15/2025 concerning Tax Audits, the regulation establishes norms for risk-based tax audits. Meanwhile, in enforcing anti-tax avoidance rules, the DGT prioritises the application of the substance over form principle, which emphasises the importance on the economic substance of a transaction rather than its formal structure or the underlying documentation.

Government Regulation 55/2022 sets out several guidelines for the DGT in combating tax avoidance practices in Indonesia by authorising it to:

• determine the time of dividend receipt and the basis for calculating it by domestic taxpayers for capital participation in foreign business entities other than business entities that sell their shares on the stock exchange;
• re-determine the amount of income and deductions, and determine debt as capital for calculating taxable income, conducted by the director general of taxes by applying the arm's-length principle;
• determine the party purchasing shares or company assets through another party or an entity established for such purpose, provided that the pricing is unfair;
• determine the party selling or transferring shares between companies established or domiciled in countries that provide tax protection;
• re-determine the amount of income earned by domestic individual taxpayers from employers that transfer all or part of the domestic individual taxpayer's income in the form of fees or other expenses paid to companies not established or domiciled in Indonesia;
• recalculate the tax that should be owed based on a comparison of financial performance with that of taxpayers in similar business activities, for taxpayers that report:
• • business profits which are too small compared to the financial performance of other taxpayers in similar business fields; or
  • unreasonable business losses even though the taxpayer has conducted commercial sales for five years and reported fiscal losses for three consecutive years;
• set limits on the amount of borrowing costs that can be deducted for tax calculation purposes; and/or
• recalculate the amount of tax that should be owed without deducting payments made by domestic taxpayers to foreign taxpayers as expenses that reduce income resulting from the use of differences in tax treatment of an instrument or entity that may have more than one characteristic in the country or jurisdiction where the taxpayer is domiciled.

1.5 To what extent do these authorities cooperate with international counterparts and other agencies in enforcing the applicable laws and regulations?

Indonesia's prevailing tax regulations actively promote cooperation between the DGT and both international counterparts and domestic agencies. Under Law 6/1983, the DGT is authorised to collaborate with government institutions, legal entities and other parties for the purpose of information exchange in connection with investigation and prosecution, subject to written approval from the MoF granted to the designated official. Furthermore, institutions, agencies, legal entities and third parties – including banks, notaries, tax consultants, accountants and other relevant parties – are legally obliged under Law 6/1983 to provide any information or evidence requested by the DGT. The MoF also has the authority to engage in international cooperation for tax collection purposes, provided that such cooperation is based on reciprocal international agreements.

Indonesia has also ratified the Convention on Mutual Administrative Assistance in Tax Matters, which establishes a legal basis for collaboration with other signatory countries in relation to matters such as:

• tax collection;
• information exchange; and
• administrative support.

2. Tax avoidance activities

2.1 What activities constitute tax avoidance in your jurisdiction?

In Indonesia, 'tax avoidance' encompasses a range of practices that are designed to minimise tax liabilities by exploiting gaps in the tax system. The following are key activities that may constitute tax avoidance under Indonesian law.

Transfer pricing: 'Transfer pricing' refers to the practice of setting prices in related-party transactions that do not adhere to the arm's-length principle, with the intent of shifting profits to low-tax jurisdictions.

Indonesia's most recent regulatory update on transfer pricing is set out in Ministry of Finance (MoF) Regulation 172/2023 on the Application of the Arm's-Length Principle in Transactions Influenced by Special Relationships. This regulation consolidates various norms and provisions into a single, comprehensive framework governing transfer pricing compliance.

Thin capitalisation: Thin capitalisation involves the excessive use of debt financing over equity to maximise deductible loan expenses to reduce taxable income. This results in a capital structure that is disproportionately lower than debt.

Under MoF Regulation 169/PMK.010/2015 on the Determination of the Debt-to-Equity Ratio for Income Tax Calculation Purposes, Indonesia imposes a maximum debt-to-equity ratio of 4:1. Any expenses on debt exceeding this ratio are not deductible for tax purposes.

Offshore special purpose vehicles (SPVs): Anti-avoidance measures related to offshore SPVs are reflected in Government Regulation 55/2022. Under this regulation, the transfer of shares in an offshore special purpose company affiliated with an Indonesian entity may be reclassified as a domestic share transfer if the SPV is established or domiciled in a tax haven.

Tax havens/low-tax jurisdictions: Shifting income from Indonesia to tax havens or low-tax jurisdictions remains a common tax avoidance strategy. To address this, the Indonesian government enacted MoF Regulation 136/2024 on the Imposition of a Global Minimum Tax Based on International Agreements. This regulation implements Indonesia's G20 commitment to adopt Pillar 2 of the OECD Global Anti-Base Erosion (GloBE) Rules, targeting multinational enterprises that meet specific thresholds to ensure a minimum effective corporate tax rate of 15%.

Controlled foreign companies (CFCs): CFCs are also recognised as a tax avoidance concern. The legal framework addressing CFCs is set out in the Income Tax Law in conjunction with Government Regulation 55/2022, which authorises the MoF to determine the timing of dividend recognition for Indonesian taxpayers holding equity in foreign entities.

Reporting of consistent losses: Another indicator of potential tax avoidance is the repeated reporting of fiscal losses without reasonable justification. Under Government Regulation 55/2022, the Directorate General of Taxes (DGT) is empowered to reassess tax obligations by benchmarking the taxpayer's financial performance against other companies in the same industry. This applies particularly when a taxpayer:

• has been operational for at least five years; and
• has reported fiscal losses for three consecutive years.

Base erosion and profit shifting (BEPS): Indonesia has actively undertaken efforts to incorporate the BEPS actions into its regulatory framework. Among other things, these initiatives have addressed:

• tax challenges arising from digitalisation (please see question 7.1);
• neutralisation of the effects of hybrid mismatch arrangements, under Presidential Regulation 77/2019;
• CFCs;
• the limitation on interest deductions (thin capitalisation);
• harmful practices, under DGT Regulation PER-10/PJ/2025;
• permanent establishment status;
• transfer pricing;
• country-by-country reporting;
• the mutual agreement procedure, under Law 7/2021 on the Harmonisation of Tax Regulations; and
• multilateral instruments, under the Law 7/2021 on the Harmonisation of Tax Regulations.

Recently, the Indonesian government also issued a new regulation concerning the global minimum tax in accordance with the Pillar 2 regulations (see question 4.3).

2.2 Are there any restrictions or thresholds (e.g., in terms of parties, asset type or transaction value) that serve to limit the types of activities that constitute tax avoidance?

The Indonesian tax regulations establish several criteria and thresholds to identify and limit activities that may constitute tax avoidance, including the following.

Related party: The assessment of tax avoidance practices involving CFCs, reporting consistent losses, special purpose vehicles and transfer pricing generally focuses on the existence of a relationship between the transacting parties (related party). The related party test is essential for determining the application of the arm's-length principle. The government, through Article 33 of Government Regulation 55/2022, as further regulated under MoF Regulation 172/2023, has comprehensively defined and outlined the scope of related parties, which are categorised into several groups, including:

• ownership or capital participation of at least 25% (whether direct or indirect);
• control; or
• family relationships.

Debt-to-equity ratio: The government has established a maximum debt-to-equity ratio (thin capitalisation rule) in relation to thin capitalisation tax avoidance practices, which is set at a maximum of 4:1. If the debt exceeds the permitted ratio, the corresponding interest expense cannot be treated as a deductible expense for tax purposes.

Substance over form: In addition to the thresholds set out above, the government strongly emphasises the substance over form principle in preventing tax avoidance. Under this principle, the DGT is authorised to examine the economic substance of a transaction even if, in formal terms, the transaction appears compliant. Accordingly, the application of the substance over form principle provides the DGT with broad discretion to prevent tax avoidance practices.

2.3 What specific concerns and considerations should be borne in mind in relation to the following activities to avoid falling foul of the tax avoidance rules?

(a) Transfers of assets abroad

Key considerations in the transfer of assets abroad include compliance with transfer pricing regulations and the arm's-length principle, particularly where the transfer involves affiliated parties or CFCs.

(b) Transfers of income streams

Article 32 of Government Regulation 55/2022 also targets the transfer of income streams, such as dividends, whereby the DGT may determine the timing of dividend recognition from capital participation in foreign entities. Such transfers must be supported by proper documentation and appropriate underlying agreements that reflect the arm's-length principle. Royalties are also targeted by the DGT for transactions between related parties. Please refer to question 4.3 for details of the transfer pricing documentation. Indonesia has no specific rules on income stripping; thus, a holding period for certain financial assets is not specifically required.

For individual taxpayers, there is an anti-tax avoidance rule in Government Regulation 55/2022 on re-determining the amount of income earned by domestic individual taxpayers from employers that transfer all or part of the domestic individual taxpayer's income in the form of fees or other expenses paid to companies that are not established or domiciled in Indonesia

(c) Securities transactions

Transactions involving shares traded on the Indonesian Exchange are subject to a final income tax of 0.1%. Consequently, listing companies on the market is frequently employed as a legal strategy for shareholders to circumvent the substantial tax burden associated with the sale and purchase of their shares.

(d) Land transactions

In principle, land transactions in Indonesia should be less risky as the government has stipulated the final income tax rate (2.5%) for such transactions and the basis of the calculation, which should be the higher of:

• the taxable object sales value (NJOP); or
• the sale price.

As the NJOP is a government-assessed value of a property, the value of land transactions should be considered as the arm's-length price.

(e) Trade

One key aspect to consider in trade activities is transactions conducted between affiliated parties, as such arrangements may have transfer pricing implications. In this context, it is essential to prepare all transfer pricing documentation in accordance with the requirements discussed in question 4.3. Where an international trade company sells products to Indonesia or has a representative office in Indonesia, the permanent establishment rule may need to be observed, since its activities or assets may trigger the presence of a permanent establishment in Indonesia.

(f) Cross-border tax planning

Indonesia has selectively adopted the GloBE rules, which are closely related to cross-border taxation. For further details on the implementation of GloBE in Indonesia, please refer to question 4.3. In addition, taxpayers should ensure that their actions will not be classified as tax avoidance transactions by, among other things, considering the factors outlined in 2.1.

(g) Other

In general, taxpayers should carefully observe the application of the economic substance over form principle in all transactions to ensure that they comply with this standard. This is particularly important as the scope of tax avoidance assessment in Indonesia has been broadened to include the evaluation of substance over form.

3. Scope of application

3.1 Are there differences in treatment for civil and criminal tax assessments?

Yes, there are several distinctions between civil and criminal tax assessments in Indonesia, as follows.

Indicator	Civil	Criminal * Criminal tax assessment may be preceded by a preliminary evidence tax audit prior to the investigation.
Purpose	To test the taxpayer's compliance with tax obligations.	Conducted when there are indications of a tax crime.
Timeframe	The audit to test compliance must be conducted within: five months for a comprehensive audit; three months for a focused audit; and one month for a specific audit. However, the above timeframes may be extended for taxpayers within the same group and those engaged in transfer pricing.	The preliminary evidence audit must be completed within 12 months of the date on which the notification letter of preliminary evidence audit is issued.
Outcome of assessment	Audit report that serves as the basis for the issuance of a tax assessment letter.	Proceeds to the investigation stage.

3.2 Can both individuals and companies be prosecuted under the tax avoidance legislation?

Yes, the prevailing tax avoidance regulations in Indonesia apply and are effective against both individual taxpayers and entity taxpayers insofar as such parties have tax obligations and rights in accordance with the tax laws and regulations of Indonesia.

3.3 Can foreign companies be prosecuted under the tax avoidance legislation?

Generally, the explanation in question 1.4 can also be addressed to any foreign companies involved in those types of transactions without proper justification of tax purposes.

Further, a foreign company may be deemed to have a permanent establishment in Indonesia if it has a physical presence in Indonesia to conduct business activities, which may include, among other things:

• a domicile;
• an office;
• an agent;
• the provision of services;
• a construction project;
• a work site;
• a warehouse;
• a workshop;
• a factory;
• a representative office;
• a branch; or
• another business location.

Ministry of Finance (MoF) Regulation 61/2023 also stipulates that tax collection may be enforced against a tax bearer of a corporate taxpayer, and a shareholder may be deemed to be one of the parties considered as such a tax bearer. In the case of a permanent establishment, the relevant shareholders include:

• the head of the representative office;
• the parent company;
• any person with decision-making authority; and/or
• the capital owner.

For other types of entities, the shareholders in question include:

• the director or someone in an equivalent position;
• any person with decision-making authority; and/or
• the capital owner.

3.4 Does the tax avoidance legislation have extraterritorial reach?

The transfer pricing rules, together with the advance pricing agreement (APA) and mutual agreement procedures (MAP), are the main rules relating to tax avoidance with extraterritorial reach. The APA is a mechanism that can resolve transfer pricing issues prior to the occurrence of a dispute, whereby the transfer price is agreed in advance between the DGT and the taxpayer or the competent authority of the treaty partner country, as reflected in Article 55 of MoF Regulation 172/2023. Meanwhile, the MAP is a dispute resolution method in cases of double taxation, which will be agreed upon by the DGT and the competent authority of the treaty partner country, in accordance with Article 41 of MoF Regulation 172/2023.

The DGT may also deem a foreign company to be an Indonesian tax resident. Essentially, pursuant to DGT Regulation PER-43/PJ/2011:

• domestic tax subjects include entities that:
• • are established or domiciled in Indonesia; and
  • receive income sourced either from within or outside Indonesia; and
• a foreign company may be considered to have a permanent establishment in Indonesia as outlined in question 3.3.

The controlled foreign company (CFC) rules also have extraterritorial reach. The CFC rules apply to foreign entities that are directly or indirectly controlled by domestic taxpayers, but their primary target is domestic taxpayers that receive income through a CFC.

Further, Indonesia participates in various bilateral and multilateral agreements that facilitate information exchange, enabling the DGT to obtain data and records related to Indonesian taxpayers from other jurisdictions. This is reinforced under DGT Regulation PER-02/PJ/2020 on Procedures for Conducting Tax Examination Abroad in the Context of Information Exchange Based on International Agreements. Under this regulation, DGT representatives may, upon request, be present during the search or collection of information conducted by foreign tax authorities, subject to reciprocity.

Finally, the provisions on the indirect transfer of an Indonesian company held by an offshore special purpose vehicle (SPV) have extraterritorial reach. The anti-avoidance measures relating to offshore SPVs are set out in Government Regulation 55/2022. Under this regulation, the transfer of shares in an offshore SPV affiliated with an Indonesian entity may be reclassified as a domestic share transfer if the SPV is established or domiciled in a tax haven jurisdiction.

3.5 Does the tax avoidance legislation extend to parties that promote or facilitate tax avoidance?

The Indonesian tax avoidance legislation does not explicitly extend to parties that promote or facilitate tax avoidance; its primary focus is on the Indonesian taxpayer. However, in the context of criminal tax offences, Article 43 of Law 6/1983 on General Provisions and Procedures of Taxation, as most recently amended by the Harmonisation of Tax Regulations Law and the Job Creation Law, provides that criminal tax provisions also apply to representatives, attorneys, employees of the taxpayer or other parties that instruct, encourage, assist or participate in committing a tax crime. Therefore, if tax avoidance actions may be deemed to constitute a tax crime under Indonesian tax law, the party promoting or facilitating such tax avoidance actions may also be prosecuted under such provision.

4. Compliance

4.1 What best practices should a taxpayer follow to mitigate the risk of tax avoidance violations?

Best practices that taxpayers may adopt to mitigate the risk of tax avoidance violations include:

• seeking legal certainty from the Directorate General of Taxes (DGT) regarding the application of the tax regulations;
• applying the arm's-length principle in all transactions;
• maintaining complete records and supporting tax documentation prepared in accordance with applicable standards; and
• carefully select the jurisdiction for the SPV.

Records and documentations: To avoid tax avoidance violations, companies should maintain accounting records in accordance with applicable accounting standards and tax regulations. Taxpayers must retain all supporting tax records and documentation, including accounting books, for a minimum period of 10 years. If a transaction may be regarded as a related-party transaction, the parties should also prepare and submit the transfer pricing documentation as required by the prevailing laws and regulations.

Request for affirmation, guidance or clarification from the DGT: If a taxpayer is uncertain about the interpretation or procedures of taxation, it may request consultation, affirmation, guidance or clarification from the DGT to obtain legal certainty. This process may be conducted:

• through formal written correspondence; or
• by visiting the help desk at the Tax Service Office where the taxpayer is registered.

For evidentiary purposes, formal written correspondence is preferable. However, it may take some time for the DGT to issue its response.

Regarding transfer pricing matters, Article 45 of Government Regulation 55/2022 provides that domestic taxpayers may submit a request for a transfer pricing agreement to the DGT.

Application of the arm's-length principle: In general, all transactions conducted by taxpayers with affiliated parties should be carried out in accordance with the arm's-length principle to mitigate the risk of inquiries or audits by the DGT.

Location of a special purpose vehicle (SPV) in a tax haven: Where feasible, when establishing an SPV, it is advisable to select a jurisdiction with favourable tax treaties rather than opting for a tax haven. This approach minimises the risk of increased scrutiny from the DGT. Additionally, it is crucial to ensure that the SPV engages in active business operations with actual employees rather than merely serving as a holding company.

4.2 Are taxpayers obliged to report instances of potential tax avoidance or other irregularities?

Taxpayers must complete their tax returns accurately and completely. However, there is no obligation to report irregularities. That said, a duty to report irregularities and potential tax avoidance is imposed on certain institutions, such as financial institutions.

4.3 What other concerns and considerations should be borne in mind from a compliance perspective?

Transfer pricing documents: Parties engaging in affiliated transactions must prepare transfer pricing documents containing supporting information which confirms that the transactions between the related parties accord with the arm's-length principle. The documents must include:

• a master file;
• a local file; and
• a country-by-country report.

The master file and local file must be prepared if the taxpayer conducting affiliated transactions:

• had gross revenue in the previous fiscal year exceeding IDR 50 billion;
• had an affiliated transaction value in the previous fiscal year exceeding:
• • IDR 20 billion for tangible goods; or
  • IDR 5 billion for the provision of services/interest/intangible goods; or
• has affiliated parties located in countries or jurisdictions with a lower income tax rate than Indonesia.

A country-by-country report must be prepared if the taxpayer is part of a business group with consolidated gross revenue of at least IDR 11 trillion.

Global minimum tax: Another aspect that should be considered by taxpayers in Indonesia is the implementation of Pillar 2 of the Organisation for Economic Co-operation and Development Global Anti-Base Erosion Rules (GloBE) through Ministry of Finance Regulation 136/2024. The GloBE rules require taxpayers that are part of a multinational enterprise group with annual gross revenues of at least €750 million to be subject to a minimum effective tax rate of 15%. The methods of global minimum taxation currently applicable in Indonesia include:

• income inclusion rules;
• domestic minimum top-up tax; and
• undertaxed payment rules (specifically, the undertaxed payment rules will take effect from 1 January 2026, while the other rules took effect from 1 January 2025).

Constituent entities that meet the GloBE criteria must submit a GloBE information in return to the DGT.

5. Enforcement

5.1 Can taxpayers that voluntarily report tax avoidance violations or cooperate with investigations benefit from leniency in your jurisdiction?

Although there is no regulation that explicitly provides for leniency in cases of voluntary reporting or cooperation related to tax avoidance, in the past the government has established opportunities for taxpayers to disclose unreported or underreported net assets to the Directorate General of Taxes (DGT) through tax amnesty programmes.

Such tax amnesty programmes were governed by:

• Law 11/2016 on Tax Amnesty, which was effective from 1 July 2016 to 31 March 2017; and
• Law 7/2021 on the Harmonisation of Tax Regulations, which introduced a second tax amnesty programme from 1 January 2022 to 30 June 2022.

Both instruments provided for lower tax rates for taxpayers that made voluntary disclosures in accordance with the applicable legislation. However, these programmes are no longer in effect.

5.2 What defences are available to taxpayers charged with tax avoidance violations?

In principle, several defence mechanisms are available to taxpayers charged with tax avoidance violations, as follows.

Submission of transfer pricing documentation: If the transactions constitute a related-party transaction, the taxpayer can argue that:

• it has prepared transfer pricing documentation; and
• the transfer pricing method being used in such documentation is the most appropriate method.

Therefore, any accusation against the taxpayer should be unfounded.

Economic substance argument: Article 32(4) of Government Regulation 55/2022 underscores the importance of the substance over form principle in assessing tax avoidance practices. Taxpayers may argue and demonstrate to the DGT that the transaction in question:

• had a genuine economic substance; and
• was not designed for tax avoidance purposes.

Proving losses of the company: If the DGT deems that the losses calculation of a company is inaccurate based on comparisons with other similar entities, the taxpayer should be able to demonstrate that its calculation is indeed correct and that the comparison is not appropriate due to differences in the nature of the businesses.

Request for an administrative sanction waiver: Under Article 36 of Law 6/1983, the DGT may, either on its own initiative or upon request by the taxpayer, waive administrative sanctions if those sanctions were imposed due to taxpayer oversight rather than deliberate fault.

Taxpayers may settle losses of tax revenue and accept applicable penalties, which may result in the termination of criminal tax investigations. Please see question 6.1 for further details.

5.3 Can taxpayers negotiate a pre-trial settlement through plea bargaining, settlement agreements or similar?

Yes, taxpayers may settle tax disputes with the competent authorities prior to trial. The available pre-trial settlement mechanisms in Indonesia include the following.

Filing an objection to the tax assessment letter: Taxpayers that receive a tax assessment letter from the DGT may file a written objection regarding the tax calculation as determined by the taxpayer. This objection must be submitted within three months of the date on which the tax assessment letter was issued.

Voluntary correction of tax returns: Taxpayers may voluntarily correct previously submitted tax returns by submitting a written statement. However, this mechanism is available only if the DGT has not yet commenced an audit.

Settlement of criminal tax investigations: Article 44B of Law 6/1983 provides that criminal investigations in the field of taxation may be terminated if the taxpayer settles the state revenue loss along with the applicable administrative penalty in the form of a fine. If the case has already been referred to court, the taxpayer may still settle the state revenue loss and administrative penalty, and such settlement may be considered as a mitigating factor to avoid the imposition of a sentence of imprisonment.

5.4 What penalties can be imposed for tax avoidance?

Penalties for tax avoidance in Indonesia are generally divided into administrative sanctions and criminal sanctions.

Administrative sanctions may include, among others:

• interest, which is calculated monthly at the reference interest rate plus 15%, divided by 12. This interest penalty may be imposed on underpaid tax as stated in the tax underpayment assessment letter;
• fines, which are imposed for various violations, such as:
• • failure to submit a tax return;
  • voluntary disclosure by the taxpayer of incorrect tax return content; or
  • failure to issue complete tax invoices; and
• increases, which are imposed if:
• • the DGT issues an additional tax underpayment assessment letter within five years of the tax due date; or
  • new data is discovered that results in an increase in the amount of tax payable following an audit.

Criminal sanctions may include imprisonment and fines.

These sanctions apply specifically to tax crimes as detailed in Article 39 in conjunction with Article 39A of Law 6/1983, which include, among other things:

• failure to submit a tax return
• presentation of false documents related to bookkeeping or recording;
• failure to maintain books or records;
• refusal to undergo an audit; and
• other violations.

5.5 What is the statute of limitations for prosecuting tax avoidance in your jurisdiction?

Indonesian law sets out clear time limits for prosecuting tax avoidance violations. Under Article 40 of Law 6/1983, the statute of limitations for prosecuting tax crimes is 10 years from:

• the date on which the tax was due; or
• the end of the relevant tax period.

Article 15 of Law 6/1983 provides that the DGT has a maximum of five years from the date on which the tax was due or the end of the tax period to issue a tax assessment letter.

6. Alternatives to prosecution

6.1 What alternatives to prosecution are available to enforcement agencies that find tax avoidance?

A taxpayer may settle losses to state revenues and accept fines as an alternative to prosecution and criminal tax court proceedings. Under Article 44B of Law 6/1983, the Ministry of Finance (MoF) may request the public prosecutor to close a tax crime investigation if the taxpayer settles the following:

• losses to state revenues as referred to in Article 38, plus an administrative penalty in the form of a fine which is equal to the losses to state revenues;
• losses to state revenues as referred to in Article 39, plus an administrative penalty in the form of a fine of three times the losses to state revenues; or
• the amount of taxes specified in a tax invoice, withholding receipt and/or tax payment slip as referred to in Article 39A, plus an administrative penalty in the form of a fine of four times the amount of taxes in the tax invoice, withholding receipt and/or tax payment slip.

6.2 What procedures are involved in concluding an investigation in such a way?

Based on Article 22 of MoF Regulation 17/2025 on the Investigation of Criminal Acts in the Field of Taxation, an investigation of a taxpayer on the basis of a settlement request may be terminated before the matter and evidence are handed over to the public prosecutor. Termination of the investigation involves the following procedure:

• A representative of the corporate taxpayer submits a request for termination to the minister of finance through the Directorate General of Taxes (DGT).
• The taxpayer submits a written request to determine the amount to be paid and the DGT provides a written response within one month.
• The taxpayer makes the payment.
• The DGT conducts an investigation into the request to terminate the investigation.
• The DGT submits the results of the investigation and provides a written recommendation to the MoF.
• The minister submits a request to terminate the investigation to the public prosecutor.
• The public prosecutor issues a decision on the request to terminate the investigation within six months of the date of the request letter.
• The MoF issues a notification letter of approval and the investigation process against the taxpayer is terminated.

6.3 What factors will determine whether such an alternative to prosecution is to be offered by an enforcement agency to those who have been involved in tax avoidance?

There are no factors which are explicitly stipulated for the termination of tax crime investigations on the basis of settlement by the taxpayer. If the taxpayer submits a request to settle, the MoF will request that the investigation be terminated. However, termination is at the discretion of the public prosecutor.

6.4 How common are these alternatives to prosecution?

There is no data available on the settlement of tax crimes through the settlement of state losses and the acceptance of fines by taxpayers, as is data is not made public.

6.5 What reasons, if any, could lead to an increase in the use of such alternatives?

There is no official information on what might lead to an increase in the use of such alternatives. However, as stated in question 6.2., once the settlement has been transferred to court, settlement may only be used as consideration for prosecution without any sentence of imprisonment.

7. Cyber and crypto-assets

7.1 How does the tax avoidance regime dovetail with cyber law in your jurisdiction?

The Indonesian government has taken significant steps to modernise its tax administration in response to the evolving digital economy:

• Article 66 of Government Regulation 50/2022 on Procedures for the Implementation of Rights and Fulfilment of Obligations of Tax regulates the utilisation of electronic/digital systems, allowing a taxpayer to fulfil its obligations through electronic systems and acknowledging e-signatures.
• Article 52 of Government Regulation 55/2022 stipulates that the Directorate General of Taxes is authorised to conduct and implement agreements with other tax authorities in other jurisdiction to address obstacles in taxation due to the digitalisation of the economy.

Crypto-assets and transactions in an online platform are subject to tax in Indonesia (both income tax and value-added tax (VAT)). Additionally, the president recently enacted Presidential Regulation 68/2025 on the Tax Collection System for Foreign Digital Transactions, which aims to optimise VAT revenue from digital transactions abroad.

7.2 Does the tax avoidance regime extend to crypto-asset activity and if so, how?

The prevailing regulations have not yet regulated tax avoidance carried out through cryptocurrency transactions. However, under Indonesian law, cryptocurrency is not recognised as legal tender but rather as a commodity.

7.3 What specific considerations, concerns and best practices should companies be aware of with regard to tax avoidance and the cyber sphere?

The government has issued multiple regulations in relation to taxation in the cyber sphere, addressing multiple aspects such as:

• simplifying tax reporting process;
• automating the tax collection of transactions in the cyber sphere; and
• requiring the reporting of digital assets in the annual tax report.

Please see question 4.1 for best practices.

8. Trends and predictions

8.1 How would you describe the current tax avoidance landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Indonesia's tax avoidance regulations are well developed and are keeping pace with current trends, particularly in terms of addressing the challenges posed by the digitalisation of the economy. For example:

• Presidential Regulation 68/2025 is aimed at optimising value-added tax collection from digital and cross-border transactions; and
• Minister of Finance Regulation 37/2025 on the Appointment of Other Parties as Collector of Income Tax and Procedures for the Collection, Deposit, and Reporting of Income Tax Collected by Other Parties on Income Received or Earned by Domestic Merchants via the Mechanism of Electronic System-Based Trading Activities requires e-commerce platforms to collect a 0.5% income tax from domestic sellers.

At present, there are no new legislative reform plans in the field of taxation. However, there was recently a change in the Ministry of Finance's position in Indonesia. This may affect the view and the approach of the Directorate General of Taxes in pursuing tax avoidance matters in Indonesia.

9. Tips and traps

9.1 What are your top tips for ensuring full compliance with the tax avoidance regime and what potential sticking points would you highlight?

The most essential tip is always to locate one's most valuable assets and activities in low-tax jurisdictions, since the tax office will always refer to function, assets and risks as the main tool to measure on how big the tax obligation of the taxpayer is. A robust offshore organisational structure for collecting offshore source income can minimise the effective tax rate for this type of income.

All affiliated-party transactions should be executed through written documents with a very detailed itemisation of the delivery of goods and/or services, so that the tax authority has no scope to allege any hidden value in certain items.

Thorough preparation of supporting documentation, information and reports is vital. These materials should be compiled in accordance with prevailing laws and relevant standards, as they will serve as the taxpayer's primary defence when responding to inquiries or audits by the Directorate General of Taxes (DGT).

Another key recommendation is to proactively utilise the consultation services and special rulings available from the DGT, especially in case of uncertainty regarding the interpretation or the application of tax regulations. Engaging with these resources can help to clarify any ambiguities and reduce the risk of non-compliance due to misinterpretation.

For further details on best practices and additional tips, please refer to question 4.1.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.