New Tax Rule Caps Interest Cost, Adds Affiliate Loan Clause

The Indonesian Directorate General of Taxes (DGT) announced a new regulation that caps interest expense and includes a special clause for loans from affiliated parties. The announcement was made at an International Fiscal Association (IFA) Indonesia Branch seminar in Jakarta on 3 December 2025.

The rule requires that interest costs on affiliate loans be set according to the arm's length principle (the standard for pricing transactions between independent parties). DGT is evaluating two limiting instruments: a debt‑to‑equity ratio (DER) of 4 to 1, in force since fiscal year 2016, and an interest‑to‑EBITDA ratio authorized by Law No 7/2021 and Government Regulation No 55/2022 but not yet applied.

Adopting the interest‑to‑EBITDA ratio signals Indonesia’s shift from thin‑capitalisation rules to an earnings‑stripping limitation in line with BEPS Action 4, a commitment reflected in the OECD transfer‑pricing country profile and a dedicated attachment in the corporate annual tax return form PER‑11/PJ/2025.