Indonesia has said that overseas companies that have a significant presence in its booming internet economy must appoint a representative in the country and pay all applicable taxes, according to a new regulation made public on Wednesday.
Indonesia’s internet economy is the largest and fastest-growing in the region, on track to cross the $130 billion mark by 2025, according to an October report by Google, Singapore state investor Temasek Holdings and global business consultants Bain & Company.
The new regulation, effective immediately after it was passed on Nov. 25, calls for foreign-based companies that actively trade in goods or services electronically in Indonesia to be considered as equal to having a physical presence in the country and thus, must follow all tax rules accordingly, a copy of the regulation obtained by Reuters showed.
This applies to all companies that meet certain criteria, including generating significant traffic from Indonesia or reaching a certain number of transactions in value or in volume, according to the regulation. No details were given.
Such companies will be required to appoint a representative within Indonesia’s jurisdiction who can act on its behalf, it said.
“This was designed to create a fair, if we can’t have a level, playing field,” said Susiwijono Mugiharso, secretary of the economic affairs ministry.
“All this time we have only been a market. But now, if they are actively capitalising on our market, they must also be present here,” he said.
Finance Minister Sri Mulyani Indrawati said on Nov. 22 she would file a bill in parliament this month that would allow authorities to recognise any big internet company with significant economic presence as an Indonesian tax resident, who must pay value added and corporate taxes.
Indonesia’s e-commerce association also welcomed the measure, describing the move as fair to local players, its chairman Ignatius Untung said.
“The old tax rules are no longer relevant in the current conditions,” Untung said.
The new regulation also covers broader rules for local online businesses, such as requiring them to protect customer data, provide customer service and to share data with authorities for statistical purposes.
The Indonesian government is struggling to meet its tax revenue target this year due to falling export earnings.