Indonesia’s Ministry of Finance issues a regulation to implement BEPS 2.0 Pillar Two

• On 31 December 2024, Indonesia issued Implementing Regulations on Global Minimum tax under BEPS 2.0 Pillar Two, which includes Income Inclusion Rules, Domestic Top-up Tax, and Undertaxed Payment Rules.
• The regulation is effective for fiscal years beginning on or after 1 January 2025. There will be obligations to submit a Top-up Tax Return for GloBE, DMTT, and/or UTPR, a GloBE Information Return (GIR), and a Notification.

Executive summary

On 31 December 2024, the Indonesian government enacted the Implementing Regulations on Pillar Two (i.e. Top-up Tax) through Ministry of Finance Regulation No. 136 Year 2024 (the “Regulation”).

This Regulation implements the Global Anti-Base Erosion (GloBE) Rules, part of the Organisation for Economic Co-operation and Development's (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two framework. The new Regulation mandates a supplementary tax for in-scope multinational enterprises (MNEs) operating in jurisdictions where the effective tax rate (ETR) of their constituent entities (CEs) falls below the 15% threshold.

In-scope MNEs

The legislation applies to all CEs in Indonesia that are members of an MNE group with an ultimate parent entity (UPE) that has consolidated revenues in Indonesian Rupiah equivalent to €750m or more in at least two of the four preceding fiscal years.

Effective Date

The Regulation is effective for fiscal years beginning on or after 1 January 2025.

Top-up tax charging mechanisms

The Regulation establishes three principal mechanisms for the levy of top-up taxes in accordance with the OECD Model Rules. The legislation also furnishes specific details, including safe harbours, elections and administrative obligations.

1. Domestic Minimum Top-up Tax (DMTT): All CEs in Indonesia will be liable to pay top-up tax under the DMTT if Indonesia's ETR is lower than 15%. The DMTT is intended to be a Qualified Domestic Minimum Top-Up Tax (QDMTT) under the OECD Model Rules.
2. Income Inclusion Rules (IIR): An Indonesian UPE, Intermediate Parent Entity, or Partially Owned Parent Entity in Indonesia (as the case may be) will be liable for the top-up tax under the IIR if one or more CE’s in foreign jurisdictions in which it holds direct and indirect ownership are low-taxed jurisdictions (i.e., jurisdictions where the ETR is lower than 15%).
3. Undertaxed Payment Rules (UTPR): All CEs in Indonesia will be liable for the allocated top-up tax under the UTPR if the top-up tax in low-taxed foreign jurisdictions has not been fully paid, either under a QDMTT or IIR in those jurisdictions. The UTPR is deemed to be 0 (zero) if the MNE Group is in the initial phase of international activity and fulfil the following requirements:

• it has a CE presence in no more than 6 (six) countries/jurisdictions, and
• where net book value for tangible assets outside the “reference jurisdiction” are no more than €50m.

The application of UTPR based on the Regulation will be applied from 1 January 2026.

Safe Harbors

The Regulation also provides safe harbour provisions, including permanent safe harbours, transitional CbCR safe harbour, UTPR safe harbour, and simplified calculation safe harbours for non-material constituent entities.

The safe harbour will be applied where one of the three tests is met: (1) revenue and income must be below the de-minimis threshold; (2) the ETR must equal or exceed an agreed rate; or (3) no excess profits may remain after excluding routine profits (i.e., the amount of "substance-based income exclusion" is higher than the profit before taxes). If one of the three tests is met, the top-up tax is set at zero.

The DGT has the authority to conduct compliance tests on the application of safe harbours through the issuance of a request for clarification letter.

Filing obligations

All CEs in Indonesia are required to submit the following to the Directorate General of Tax (DGT):

• Top-up Tax Return

The UPE of an in-scope MNE Group, which is an Indonesian tax resident, must submit the Top-up Tax Return for GloBE, DMTT, and/or UTPR to the DGT.

o   GloBE Return must be submitted by the Indonesian UPE;

o   DMTT Return must be submitted by the Indonesian CEs;

o   UTPR Return must be submitted by the Indonesian CEs if there is any tax payable based on UTPR in Indonesia.

Further details on the form, guidance, payment, and reporting on the Top-up Tax Return will be further regulated by the DGT.

• GloBE Information Return (GIR)
  In addition to the Top-up Tax Return, the Indonesian UPE must also submit a GIR, which consists of detailed information on the CEs, the MNE Group organization structure, and the detailed top-up tax computation. The Indonesian CE will be required to file a GIR with the DGT if the non-Indonesian UPE appoints such Indonesian CE as a designated filing entity or if the Filing Constituent Entity is in a country/jurisdiction that does not have a qualifying competent authority agreement in effect with Indonesia.
• Notification of the in-scope MNE
  All CEs in Indonesia that are members of an in scope MNE, must submit a Notification to the DGT. An exemption applies if the Indonesian CE has submitted GIR to the DGT. The notification must include detailed information about the UPE, detailed information of the Indonesian CEs and the designated CE responsible for filing the GIR.

Filing and payment deadlines

Where top-up tax is payable (DMTT, IIR or UTPR), this is due by the end of the following fiscal year. The GIR and Notification filings with the DGT must be submitted within 15 months after the end of the UPE's fiscal year. The Top-up Tax Return must be submitted 4 months after the end of the fiscal year in which the top-up tax becomes payable – i.e. with the payment due 12 months after year end, the Top-Up Return is due 16 months after year end.

For the first fiscal year in which the MNE group is subject to the top-up tax under this regulation, there is a three-month extension (to 18 months) for the GIR and a two-month extension for the Top-up Tax Return. Thus, the first payments are due 31 December 2026, and the first wave of filings will be due by 30 June 2027 for in-scope MNE groups with a fiscal year ending on 31 December 2025.

Surcharge and penalties

Surcharges and penalties will apply for non-submission or late submission of the Top-up Tax Return, as well as for unpaid or late payments of the Top-up Tax, in accordance with the surcharges and penalties regulated under the General Procedure and Provision of Tax Law (KUP Law).

Next steps

Actions for in-scope MNEs to consider include:

• Evaluate the impact of the Top-Up Tax on their groups, including DMTT and/or IIR for Indonesian-based in-scope MNEs, and DMTT for foreign-based in-scope MNEs with an Indonesian subsidiary, especially where the Indonesian subsidiary has been granted a Tax Holiday.
• Consider an assessment of qualification for safe harbours, as it could help significantly reduce the complexity of ETR calculation and release top-up tax burdens.
• Consider top-up tax provisioning (if any) and comply with the relevant financial reporting obligation (e.g., disclosure requirements).
• Companies liable for DMTT should revisit existing tax incentive regimes and observe new relief measures (e.g., cash grants) for future investment planning. An incentive feasibility study in light of the Pillar Two implementation should also be conducted.
• MNEs considering group restructuring, mergers or acquisitions should account for the potential impact of these transactions on their Pillar Two profiles.
• Include new Notification filings into compliance systems and monitoring.