Substance and Anti‑Abuse Requirements for Using Tax Treaties

Indonesia has signed tax‑treaty agreements known as double tax avoidance agreements (P3B) with numerous jurisdictions. The network allows businesses to conduct cross‑border transactions without facing double taxation, either through reduced rates or exemptions in the source country.

To benefit from the treaty rate, a foreign income recipient must provide a Certificate of Domicile (SKD) using the DGT form to the payer, as required by Director‑General of Taxation Regulation No. PER‑25/PJ/2018. The SKD must satisfy four cumulative conditions: not a tax resident of Indonesia, a tax resident of a P3B partner country, no abuse of the treaty, and, when required, be the beneficial owner.

If any condition is unmet, withholding tax (PPh) is applied at the standard rate without treaty benefits. This rule reflects Article 32A of the Income Tax Law and the OECD model treaty, which aim to prevent tax evasion and require genuine economic substance in the source country.