Tax on royalties and franchise fees in Indonesia

Article 26 withholding tax

• Royalties paid to a non-resident are subject to 20% Article 26 income tax withheld on the gross amount, unless a tax treaty lowers the rate. Official · DJP, Article 26 income tax, 2026-03-17
• Since 31 December 2025, treaty relief follows Minister of Finance Regulation PMK-112/2025, which replaced PER-25/PJ/2018. The foreign franchisor gives the Indonesian payer a completed DGT Form, certified by its home tax authority or accompanied by an English certificate of domicile, and the payer uploads it to the Coretax system. Official · DJP, Article 26 income tax, 2026-03-17

VAT on offshore royalties

• Royalties for the use of offshore franchise or trademark rights are VAT-able as the use of intangibles from outside the customs area. The Indonesian licensee self-assesses and pays. Under PMK 131/2024, from 1 January 2025 the rate is 12% on a base of 11/12 of the value, an effective 11%. Official · DJP, PMK 131/2024, 2025-01-06

Planning points

1. Collect the certified DGT Form before the first royalty payment; without it the payer must withhold the full 20%.
2. Decide in the agreement whether royalties are quoted gross or net of withholding tax, and who bears the VAT.
3. Check the treaty between Indonesia and your home country for the royalty rate and any beneficial-ownership test.

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