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Set Up a Permanent Establishment in the Oil and Gas Industry

A Permanent Establishment (Bentuk Usaha Tetap) is a business form used by an individual who does not reside in Indonesia or is present in Indonesia for no longer than 183 (one hundred and eighty-three) days within a period of 12 (twelve) months, or an entity which is not established and not domiciled in Indonesia, to conduct businesses or carry out activities in Indonesia which can be in a form of a management’s domicile, a company’s branch, a representative office, an office building, a factory, a workshop, a warehouse, a space for promotion and sale, mining and excavation of natural resources, a working area of oil and gas mining, and etc.

A Permanent Establishment is not a new concept in the oil and gas industry. The Law No. 2 of 2001 on Petroleum and Natural Gas provides that Upstream Business Activities can be managed by a Permanent Establishment in accordance with Articles 18 (1), which stipulates:

“A Permanent Establishment is a business entity established and with legal entity status outside the territory of the unitary state of the Republic of Indonesia that conducts activities in the territory of unitary state of the Republic of Indonesia and is obliged to comply with the laws and regulations that are in force in the Republic of Indonesia.”

It can be categorized as a type of foreign business because in general a Permanent Establishment has a head office located outside of Indonesia. The requirements for establishing a Permanent Establishment are as follows:

  1. There is a business’s domicile;
  2. The business that is conducted must be permanent;
  3. There are characteristics of dependency.

If foreign investors are doing business in Indonesia through a Permanent Establishment, it means that the company is not an Indonesian legal entity. Thus, a Permanent Establishment is not a Resident Taxpayer. The Law on Income Tax stipulates a Permanent Establishment as a separate tax subject. Under the Law on Income Tax, besides subject to income tax on income received or earned in a fiscal year, a Permanent Establishment is also required to deduct the branch profit tax as stipulated in Article 26 (4) on taxable income after deducted by income tax of the Permanent Establishment and must deposit it into the state treasury before the Annual Income Tax Return is submitted.

As for a Permanent Establishment which is used to run a business or activity by a non-resident tax subject who is a resident of a country that is bound by a Double Tax Avoidance Agreement (Tax Treaty) to Indonesia, then for such Permanent Establishment tax provision under the Tax Treaty applies. Tax provision that is stipulated in the Tax Treaty takes precedence over the provision of the Law on Income Tax.



SMART Legal Consulting has extensive experience in helping to Set Up a Permanent Establishment in the Oil and Gas Industry in Indonesia. If you need immediate assistance, please contact the SMART Help Desk at:


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