Current as at 13 July 2026.
Indonesia has been exchanging financial account information automatically with partner jurisdictions since September 2018. A bank account in Singapore or Dubai belonging to an Indonesian resident is reported to the Indonesian tax authority by the bank that maintains it. Under the law that authorises this, a person who gives a false statement or conceals information that must be reported faces up to a year in confinement or a fine of up to Rp1,000,000,000.
These obligations attach to the owner rather than to the company, and they arise whether or not the owner was told of them when the offshore company was formed.
An offshore company, for the purpose of this article, means a company incorporated outside Indonesia and owned or controlled from within it, meaning the people who decide for it are in Indonesia, whether that is a Singapore private limited company, a Dubai free-zone entity, or a company anywhere else. It is a lawful and sometimes necessary tool, and the useful question is whether the reason survives the cost, and whether the owner understands what Indonesia requires them to declare once the company exists.
We write this article for the owner of a PT PMDN (Penanaman Modal Dalam Negeri, a limited company under domestic investment status) and for the foreign shareholder behind a PT PMA (Penanaman Modal Asing, a limited company under foreign investment status).
The reasons that withstand examination
We rank the reasons businesses give for incorporating abroad by one test, which is whether the structure they point to would be fit for its purpose.
The strongest reason is exclusion, because where the thing a business needs is closed to Indonesia, it can be reached only from outside Indonesia. Fashion brands selling internationally on Shopify use one to reach a payment rail that Indonesia is shut out of. A payment rail is the card-processing service, tied into the card networks, that lets a business take a customer’s card at checkout. Shopify Payments operates in a defined list of countries that excludes Indonesia. Stripe does not fill the gap, because its Indonesia programme is invite-only and settles only in local currency, without the cross-border card processing a Shopify store needs. No domestic arrangement produces that checkout. We set out those exclusions, checked against the platforms’ own published terms in July 2026, in our article on selling online in Indonesia.
Next comes the requirement that follows the business itself, as when a manufacturer operating across several jurisdictions to control a supply chain owns the parts of that chain in the countries where those parts are located. A service business with foreign counterparties uses an entity abroad to settle the legal jurisdiction its contracts answer to, which is a live question when a dispute would be heard elsewhere. In each case the structure follows an operation that is already outside Indonesia, and the entity records something real.
Weaker, though still legitimate, is the commercial judgement, as when a producer raising capital maintains an entity abroad for the credibility it gives, since investors in certain markets read a familiar jurisdiction as a signal that the accounts and the governance will be recognisable to them. That is a real advantage in a real negotiation, and it remains a preference rather than an exclusion, because capital can be raised domestically. A reason of this kind must be argued on its commercial merits, and it should be tested hardest, because it is the one most often used to dress up a decision that was made for other reasons.
The reason that does not withstand examination
The weak version begins with a want rather than a requirement, and the want is usually phrased as an international bank account. Nothing is being reached that could not be reached at home, no operation exists abroad, and no counterparty requires it.
A structure created to reach a lending product belongs in the same category. Shopify Capital is closed to Indonesian-domiciled sellers. Changing a registered address and a bank account, while the business is still operated and directed from Indonesia, does not make it a foreign company. A lender that later finds the business was still run from Indonesia treats the earlier presentation as a misrepresentation. A genuine relocation brings its own tax and reporting exposure, and whether the deemed-dividend rule still reaches the owner depends on whether that owner remains an Indonesian tax resident. The facility on offer is sized by the store’s own sales, so a seller reaching for it is usually reaching for a modest sum. The yearly cost of maintaining a company abroad routinely exceeds what the facility saves over a domestic alternative across a year.
What the offshore company costs to keep
The incorporation fee is the smallest of the costs involved.
An offshore entity requires annual filings, statutory accounts, an audit in many jurisdictions, and a person answerable for each of them. It requires a registered office and directors who accept the duties of the office. Many jurisdictions now require genuine local substance as well: real premises, resident staff, local expenditure, and activity actually conducted in the place of incorporation, and a company that cannot show that substance faces penalties or removal from the register. It faces bank compliance that is markedly heavier for a company whose operations are elsewhere, and opening the account is frequently harder than opening the company. Trading between the offshore entity and the Indonesian one must be priced at arm’s length, meaning the price unrelated parties would agree. It must be documented in the master and local files Indonesian rules require. A transaction between related parties is examined on its terms rather than accepted on its face, and an assessment that rejects the pricing brings tax and penalties. The other country may examine the same pricing under its own rules, and where the two disagree, the mutual agreement procedure under an applicable treaty is the route to relief from double taxation.
Tax residency is commonly assumed to follow the certificate of incorporation, and Indonesian law does not test it that way. Under Article 2 paragraph (3) of the Undang-Undang Pajak Penghasilan (UU PPh, the Income Tax Law, as last amended by Law Number 7 of 2021 on the Harmonisation of Tax Regulations), a body is a resident tax subject where it is established in Indonesia or domiciled in Indonesia, and the two are alternatives rather than a pair. Article 2 paragraph (6) of the UU PPh then provides that the domicile of a body is determined by the Director General of Taxes according to the actual circumstances. That assessment looks to where the company is really managed: where its directors decide, where its records are kept, where its staff work, and where its core functions are performed. A company incorporated abroad while every decision concerning it is taken in Jakarta or Denpasar is therefore exposed to an assessment of where it is really domiciled, and the answer depends on facts rather than on the certificate of incorporation.
Moving money between Indonesia and the entity has a price, and two separate Bank Indonesia regimes apply, each with its own threshold and each lowered during 2026. The practical point comes first: confirm the current threshold with your bank before every transfer, because a figure that moved several times in a year is one to confirm rather than plan around.
Buying foreign currency against rupiah, which is what funding a company abroad requires, is the first regime. It sets a threshold above which a cash purchase without an underlying transaction needs supporting documentation, and that threshold fell three times in 2026. It was USD 50,000 per market participant, meaning per person or entity transacting, per month from 1 April 2026 under PADG 7/2026. It fell to USD 25,000 from 2 June 2026 under PADG 11/2026. It fell again to USD 10,000 from 1 July 2026 under PADG 15/2026, the third amendment in the same chain.
Transferring foreign currency out of Indonesia is the second regime. It needs supporting documentation above a separate threshold, lowered under Peraturan Anggota Dewan Gubernur Nomor 13 Tahun 2026 (PADG 13/2026, Board of Governors Regulation Number 13 of 2026) to transfers above USD 25,000 from 1 July 2026, with a transitional window that accepts a written statement until 31 July 2026 and the formal documents by 31 October 2026. Clearing the Indonesian threshold does not end the enquiry, because the bank receiving the money abroad runs its own checks. These are qualitative rather than a single number. The receiving bank reviews the source of the funds and screens the beneficial owner against sanctions lists, and for an account linked to Indonesia it may rate the risk high enough to delay the account or decline to open it.
A dividend returning to a non-resident shareholder is a different transaction again, and it is subject to income tax under Pajak Penghasilan Pasal 26 (PPh 26, Article 26 withholding tax on payments to non-residents) at 20 percent. A tax treaty can reduce that rate, and only where Indonesia has one with the country of incorporation. Singapore and the United Arab Emirates have a treaty in force. The pure offshore jurisdictions, such as the British Virgin Islands and the Cayman Islands, do not, so a dividend to a company there attracts the full 20 percent with no reduction to seek. Where a treaty applies, the reduction is still not automatic. The non-resident must provide the Certificate of Domicile required under Minister of Finance Regulation Number 112 of 2025, and the authority abroad issues that certificate only where the company is resident there under that country’s own test. The facts that expose the company to an Indonesian domicile assessment, decisions taken from Jakarta or Denpasar, are the same facts that can lead the other country to refuse the certificate, which leaves the full 20 percent in place.
The largest cost is rarely on an invoice. It is the return the same capital would earn inside the business you already run, and the attention the structure takes from running it. A structure built to reach an end that a third party could reach for less has a cost the maintenance figure never shows.
What Indonesia expects you to declare
An offshore entity is lawful, and an undisclosed one exposes its owner, so the obligations set out below decide which of the two a given structure is.
An Indonesian resident taxpayer is taxed on worldwide income, and residence for tax turns on where a person lives rather than on nationality. A foreign national who resides in Indonesia, or is present for over 183 days in a twelve-month period, is an Indonesian tax resident. An Indonesian national who has genuinely settled abroad can be a non-resident. The test sits in Article 2 of the UU PPh, administered under Peraturan Direktur Jenderal Pajak Nomor PER-23/PJ/2025 (PER-23/PJ/2025, Director General of Taxes Regulation Number 23 of 2025) with effect from 9 December 2025. A foreign shareholder who lives in Indonesia is subject to these obligations in the same way an Indonesian national is.
One limited exception exists for foreign nationals. A foreign national who becomes a tax resident and has certain recognised expertise can be taxed on Indonesian-source income alone for the first four tax years, under Government Regulation Number 55 of 2022. That relief is not automatic, since it must be applied for, it runs for four tax years, and it is lost where the person instead claims residence elsewhere under a tax treaty.
Article 4 paragraph (1) of the UU PPh, read with Article 2, brings within tax any economic benefit received by a resident taxpayer, whether it originates from Indonesia or from outside Indonesia, so the profits of a company abroad are taxable in Indonesia from the outset. The annual return requires the disclosure of assets, and a foreign shareholding and the foreign bank account attached to it belong on that return.
An offshore account is reported to Indonesia whether or not the owner discloses it. This rests on Government Regulation in Lieu of Law Number 1 of 2017, enacted as Law Number 9 of 2017 on Access to Financial Information for Tax Purposes, under the Common Reporting Standard. The technical rules sit in Minister of Finance Regulation Number 70/PMK.03/2017, amended most recently by Minister of Finance Regulation Number 108 of 2025 with effect from 1 January 2026, which extends automatic reporting to electronic-money and crypto-asset accounts. Article 7 paragraph (3) of Law Number 9 of 2017 provides for confinement of up to one year or a fine of up to Rp1,000,000,000 where a person gives a false statement or conceals information that must be reported. This penalty is separate from the tax owed on the income concerned, which remains payable.
Under Minister of Finance Regulation Number 93/PMK.03/2019, amending Regulation Number 107/PMK.03/2017, an Indonesian resident taxpayer who controls a non-listed foreign company can be treated as having received a dividend from that company even where no dividend has been paid. Control means owning at least 50 percent of the paid-up shares, whether alone or together with other Indonesian resident taxpayers, and the rule reaches indirect ownership through a chain of foreign companies as well. The rule reaches an Indonesian tax resident of any nationality who meets the control test, and it does not reach a non-resident. The deemed dividend is calculated on certain categories of that company’s income, which since the 2019 amendment are the passive ones, meaning dividends, interest, rent, royalties, and gains on the sale of assets, taken net of tax. It is reported and taxed in the Indonesian annual income tax return. Tax the foreign company has already paid may be creditable against the Indonesian liability, capped for each country at the lower of the foreign tax paid and the Indonesian tax on that income. A zero-tax jurisdiction leaves nothing to credit, so the deemed dividend is taxed in Indonesia in full. The interaction is worth settling before the structure is built rather than at the first return. The Directorate General of Taxes publishes its own commentary on the controlled foreign company rules.
The rule computes the deemed dividend on the company’s passive income, so its reach depends on how much passive income the company has. An offshore entity that genuinely trades, with its own customers and its own operations abroad, earns mostly active income, which falls outside the passive categories the rule reaches. An offshore entity that exists to receive and park money earns mostly the passive income the rule was written for. The character of the income is tested against the facts rather than by how it is labelled, and the Directorate General of Taxes looks through a passive vehicle presented as a trading company. Because the tax can fall due before any money is distributed, an owner within the rule needs a way to fund it, whether through a distribution policy or a reserve. The structure that withstands examination is the one built for a commercial reason, run as a real business, disclosed on the return, and priced with its tax and compliance obligations included from the start.
We establish the requirement before we discuss a jurisdiction, and we price the Indonesian tax and reporting consequences into the decision rather than after it. We decline any engagement we could not defend before the Directorate General of Taxes, which describes the work we take on rather than assuring any outcome, because the domicile of a company under Article 2 paragraph (6) of the UU PPh rests with the Director General of Taxes. The tests we apply are applied case by case rather than as a determination of any reader’s own position.
Alternatives to an offshore company
Most reasons for an offshore company can be met without forming one, and the payment rail is the clearest. Where the need is a checkout Indonesia is shut out of, a third party already inside a supported country can provide it. A merchant of record sells the product as principal on its own payment infrastructure and remits the proceeds to you, so you supply that merchant rather than incorporate abroad. A marketplace that pays sellers into a local account reaches the rail the same way. A distributor or reseller in the destination market takes on the payment relationship as part of the supply chain. The rail is reached through the chain. The income stays Indonesian and is declared at home, and no second company is formed. Our article on selling online in Indonesia sets out these routes.
Where the reason is growth capital, the alternative is frequently the better one. Our article on raising growth capital in Indonesia sets out the decision that converts a PT PMDN into a PT PMA, which brings foreign investment into the company you already own rather than building a second company somewhere else, and it keeps the operating history, the licences, and the relationships in the entity that earned them.
Where an operation is genuinely conducted abroad, a contract or an agent in that country can record the same activity without an owned entity, until the operation is large enough to justify one. Where the reason is credibility for a raise, audited accounts and a recognised domestic structure persuade many investors on their own. The question in each case is the opportunity cost: the capital and the attention an offshore company takes are not spent on the business that already earns, so an alternative that reaches the same end for less leaves both at work at home.
Deciding the structure
This is the sequence we take an owner through before a company is formed.
State the requirement in one sentence, without using the word offshore. If the sentence describes something Indonesia excludes you from, or an operation genuinely conducted abroad, you have a reason. If the sentence describes a preference, you have a commercial judgement that must be argued on its merits.
Price the whole obligation rather than the incorporation. Obtain a written quotation for each of the annual filings, the statutory accounts, the audit where the jurisdiction requires one, the registered office, the resident director or company secretary, the bank account maintenance, the genuine local substance where the jurisdiction requires it, the transfer-pricing documentation on dealings with the Indonesian company, the Indonesian tax reporting of the shareholding, and the professional fees to keep all of it current. Add them into a single yearly figure. Set that figure as a percentage of the capital the structure ties up, and test that percentage against the return the same capital earns inside the Indonesian business, or against a deposit or lending rate where you have no closer benchmark.
Settle the Indonesian tax position before the company exists. Establish what will be disclosed on the annual return, whether the deemed-dividend rule reaches the income the company will earn, and how money will come home and at what cost.
Decide who will run it before you form it, because a company with a registered office and no one attending to its obligations becomes a liability in its second year, and the cost of unwinding a structure exceeds the cost of building it correctly. Deciding who runs it also answers the offshore jurisdiction’s own requirements, because many jurisdictions require a resident director or genuine local management, and whoever fills that role must actually be resident there.
This describes how we work through the decision, and it is general guidance rather than advice on your own facts. This pricing and tax-position work is what we complete with clients before a company is formed, and you can begin it with a consultation.
How TraceWorthy helps
Our team does this work alongside you, establishing what the business actually requires, building the structure that answers it, and putting the Indonesian disclosure and reporting in place from the first day rather than the first audit.
This is advisory work, not a registration service. A registration service files the incorporation and stops. We establish whether the structure is the right one, build it to fit the business rather than to a template, and stay with the tax position, the reporting, the filings, and the route money takes home after the company exists.
The TraceWorthy team are Indonesian lawyers, accountants, tax specialists, and compliance professionals whom Founder Tracy Wilkinson recruited and trained to a standard set against international practice. Tracy’s own contribution is the business model and the strategy.
If you are considering a company abroad, speak with the TraceWorthy team. We will establish whether you need one, and help you to build it properly if you do. Where you do not, we design the supply chain or the domestic structure that meets the need without one.
Our team is your team.
This article is general information current at the date of publication. Tax rules, foreign-exchange rules, and Indonesian regulation change, and the position for any business depends on its own facts, so obtain advice for your own situation before you act. It is not legal, tax, immigration, or financial advice, and it does not create an advisory relationship or reach any conclusion on a particular reader’s position.
Frequently Asked Questions
Is it legal for an Indonesian to own a company abroad?
Yes. An Indonesian resident, whether an individual or a company, may own a company in another country, and many legitimate businesses do. Residence for tax turns on where a person lives rather than on nationality, so a foreigner living in Indonesia is an Indonesian tax resident and is subject to the same obligations. The foreign shareholding and the foreign bank account are declared on the Indonesian annual tax return, the resident is taxed on worldwide income, and the deemed-dividend rule can attribute certain income of a controlled foreign company to the Indonesian owner. An undisclosed structure is where the exposure begins.
What is the deemed dividend rule?
Under Minister of Finance Regulation Number 93/PMK.03/2019, which amends Regulation Number 107/PMK.03/2017, an Indonesian resident taxpayer who controls a non-listed foreign company can be treated as having received a dividend from that company even where none was paid. It reaches an Indonesian tax resident of any nationality, and not a non-resident. Control means owning at least 50 percent of the paid-up shares, alone or together with other Indonesian resident taxpayers, and indirect ownership through a chain of foreign companies is also caught. The deemed dividend is calculated on the passive income of that company, meaning dividends, interest, rent, royalties, and gains on the sale of assets, net of tax, and it is reported in the Indonesian annual return.
Does an offshore company reduce my tax?
That is the wrong question to build a structure on, and the answer is frequently no. An Indonesian resident is taxed on worldwide income, the deemed-dividend rule reaches passive income in a controlled foreign company, and dividends to a non-resident attract 20 percent income tax under Article 26 unless a treaty reduces it. A structure built to reduce tax rather than to answer a commercial requirement is the structure most likely to be examined.
Do I need an offshore company to sell internationally?
Usually not. Shopify Payments does not operate in Indonesia, and Stripe offers only an invite-only, local-settlement programme there, as at July 2026. That rules out an international card checkout built on your own account, and it does not mean you need a company abroad. That checkout is reached through a third party already inside a supported country, such as a merchant of record that sells as principal and remits to you, so the income stays Indonesian and no second company is formed. Whether you need an offshore company turns on how you structure the route to market, not on the platform. We set out these routes in our article on selling online in Indonesia.
What does an offshore company actually cost to keep?
Far above the incorporation fee. Budget for annual filings, statutory accounts, an audit where the jurisdiction requires one, a registered office, directors who accept the duties of the office, genuine local substance where the jurisdiction requires it, bank compliance that is heavier for a company whose operations are elsewhere, transfer-pricing documentation on dealings with the Indonesian company, and the professional fees to maintain all of it. Set that yearly figure against the benefit you are buying before the company is formed rather than afterwards.
Which jurisdiction should I use?
The jurisdiction is the last decision rather than the first, and it follows the requirement. A payment provider dictates which countries it supports. An operation abroad dictates the country where that operation is conducted. A capital raise dictates the market the investors recognise. Choosing a jurisdiction before establishing the requirement is how a business ends up with a company it maintains for years and cannot explain.