Permanent Business Form as A Domestic Tax Subject
Adzaniar Dwi Fortuna, S.H.
• General Corporate • 31 May 2021

Globalization, along with the development of information and technology in the era of industrialization 4.0, has an impact that can be perceived in various fields, in which the business sector where the era of free markets or trade liberalization is known which transformation, penetration, modernization, and investment will characterize that the world is not recognized by territorial boundaries again.  Therefore, one form of activity that can be carried out is by doing a business. Indonesia has the potential to bring foreign businessman for doing business in Indonesia, which is abundant natural resources, young and skilled manpower, large and growing domestic market, and has government support. Thus, the rise of foreign companies running business in the Indonesia’s territory. One form of the foreign company can be in the form of a Permanent Business Form.


Based on Article 5 Law Number 25 of 2007 concerning investment, stated that foreign investment must be made in form of  limited liability company under Indonesian Law, and domiciled within the territory of the state of the Republic of Indonesia, shall be done by subscribing shares at time of limited liability company is established; purchasing shares; and taking another method in accordance to provisions of laws and regulations. However, there is an alternative form that can be used by foreign companies that are headquartered abroad and wish to run their business in Indonesia territory, named Permanent Business Form.

What is Permanent Business Form? What is the purpose of establishing Permanent Business Form? What are the regulations?

In principle, Permanent Business Form used in order to avoid double taxation on income received or obtained by residents of treaty partner countries in Indonesia, which used as a criterion for whether Indonesia has the right to tax the income of the business concerned. Based on the regulation of the Minister of Finance of the Republic of Indonesia No. 35/PMK.03/2019 concerning Determination of a Permanent Business Form, Permanent Business Form is a form of business used by private person or foreign entities to run a business or carry out  activities in Indonesia. Furthermore, based on Article 2 Law Number 36 of 2008 concerning Fourth Amendment of Law Number 7 of 1983 concerning income tax, stated that a Permanent Business Form is an establishment used by :

  1.              An individual who does not reside in Indonesia;
  2.               An individual who has been existed in Indonesia for not more that 183 days within any period of 12 months;
  3.             An entity which is established out side Indonesia and is not domiciled in Indonesia conducting business or carrying out activities.

Therefore, if there is a foreign company wishing to run a business in the territory of the Republic of Indonesia, it may take the form of a Permanent Business Form, while the foreign individual must consider to the period of existence of foreign individual concerned. Thus, the Permanent Business Form is a company whose headquarter is abroad, while the Permanent Business Form is treated as a domestic tax subject.

Then, the Permanent Business Form must have several criteria, in which:

  1.              There is a place of business in Indonesia;
  2.            The place of business is permanent; and
  3.            The place of business is used by foreign individuals or foreign entities to run a business or carry out activities.

However, there are exceptions to the criteria as mentioned above, namely the construction, installation, or assembly project business forms; providing services in any kind of form by an employee or other person, as long as it is carried out more than 60 days within a 12 month period; a person or body acting as an agent whose position is not free; and agents or employees of insurance companies that are not established and domiciled in Indonesia who receive insurance premiums or bear risks in Indonesia. Thus, In order to establish a Permanent Business Form, a foreign person or entity conducting business in the territory of Indonesia must observe the criteria as listed above.

Based on the description above, a Permanent Business Form is determined as a separate Tax Subject that is separate from the legal entity. Therefore, the taxation treatment is the same as that of a legal entity tax subject, but for the imposition of income tax, Permanent Business Form has its own existence apart from the definition of a legal entity. The purpose of establishing Permanent Business Form is to avoid double taxation and prevent differences between two different tax law bases of the two countries.

This Article is generally made for the purpose of ANR Law Firm publication only and should not be treated as legal advice for your legal problem. Shall you have any further questions regarding this topic, you may contact the Advocate who composed this article at

Author : Adzaniar Dwi Fortuna, S.H.