The Government of Indonesia issued Government Regulation No. 80 Year 2019 (GR-80) on 25 November 20191 to regulate several aspects of e-commerce trading including compliance, legal and tax considerations. GR-80 covers both transactions between business to business (B2B) and/or business to consumer (B2C).
While GR-80 is not a tax regulation, this Tax Alert highlights the potential tax impacts for international e-commerce businesses.1
Introduction of thresholds to deem physical presence for international e-commerce businesses1
International e-commerce businesses that actively offer and/or conduct e-commerce activities to consumers domiciled in Indonesia may be deemed to have a physical presence and carry out business activities in Indonesia if they exceed certain thresholds with respect to:
- Number of transactions
- Transaction value
- Number of shipping packages
- Amount of traffic or access
The thresholds are to be set by subsequent regulations. If the thresholds are exceeded, an international e-commerce business is required to appoint a tax representative in Indonesia.4 Any local and international e-commerce activities in Indonesia are subject to prevailing tax laws and regulations.
The impact of GR-80 is likely to be wide reaching and it is unclear how GR-80 will interact with the current Income Tax Law and in particular, the definition of permanent establishment. The impact will be assessed after the new Income Tax Law is finalized5 which is expected to contain other digital tax changes including the introduction of a value-added tax collection mechanism. International e-commerce businesses should closely monitor these developments and consider the impacts on business models.
Transition period
Any e-commerce businesses that have conducted e-commerce activities in Indonesia before the enactment of GR-80 must comply within two years after the effective date, i.e., by 25 November 2021.