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Exa: satvika.co.id
Exa: satvika.co.id
Bali Zero handles visas, company setup, tax and property compliance in Indonesia. Ask us directly on WhatsApp.
Chat with Bali Zero on WhatsApp**Indonesia's Directorate General of Taxation (DJP) has moved to quell widespread confusion by issuing a formal explanation of how limited partnerships **
Indonesia's Directorate General of Taxation (DJP) has moved to quell widespread confusion by issuing a formal explanation of how limited partnerships — known locally as CVs, short for Commanditaire Vennootschap — are to be taxed following the implementation of the Tax Harmonization Law (Undang-Undang Harmonisasi Peraturan Perpajakan, or UU HPP, Law No. 7 of 2021). The core message from the DJP is unambiguous: CVs are now classified as non-individual corporate taxpayers (Wajib Pajak Badan) and are therefore subject to the 22% corporate income tax (PPh Badan) on their net profits.
The clarification was prompted by widespread alarm among Indonesian small-business owners, many of whom had operated CVs under the assumption that these entities remained fiscally transparent — meaning that profits flowed through to individual partners who paid progressive personal income tax (PPh Orang Pribadi) on their respective shares. Under that old paradigm, a CV owner earning a modest income could have faced an effective rate as low as 5–15%. The shift to a flat 22% entity-level tax therefore represents a significant recalibration for the bottom tier of corporate Indonesia.
The legal underpinning of the change lies in UU HPP itself, which reclassified the roster of entities that qualify as corporate tax subjects. CVs, along with general partnerships (firma) and other non-company business associations, were brought formally into the Wajib Pajak Badan category. The DJP's clarification reaffirms that this reclassification was not an administrative error or overzealous enforcement — it is the law as written and intended.
The controversy the DJP was responding to stems in part from the fact that UU HPP was enacted in 2021 but its full operational implications have been filtering into practice gradually, with some tax authorities at the local level applying the new rules inconsistently. Many CV owners received assessments or notices referencing the 22% rate and initially disputed them, prompting the DJP to produce its explanatory guidance.
A secondary layer of complexity involves what happens when a CV distributes profits to its partners. Under the old transparent treatment, there were no dividends as such — there was simply a share of partnership income. Under the new regime, distributions from a now-corporate-taxed CV to individual partners are treated as dividends. Under UU HPP, dividends paid to individual residents are exempt from income tax only if they are reinvested in Indonesia within a prescribed period; otherwise, they attract a 10% final withholding tax. The cumulative effective rate on distributed CV profits — 22% at the entity level plus 10% on distributions — can therefore approach 29.8% in a full-distribution scenario, materially higher than the old pass-through treatment for most small-business income levels.
This clarification matters enormously for the expat and investor community in Bali, even though foreigners cannot directly own a CV under Indonesian law. The CV has long been the default business wrap
per for Indonesian partners, local contractors, and service providers — and many foreign-invested structures in Bali sit on top of a CV at some point in their supply chain or ownership stack. If your
Indonesian business partner, nominee, or local operating entity is a CV, their cost base and profit-sharing dynamics have materially changed.
For clients considering a new venture, this DJP clarification effectively narrows the sensible entity choice to the PT (Perseroan Terbatas) for anything beyond sole-trader scale. The PT and the CV now face the same headline 22% corporate rate, but the PT offers legal personhood, clearer governance, limited liability, and — critically — it is the only structure eligible for PMA (foreign investment) licensing. There is no longer a tax-efficiency argument for choosing a CV over a PT.
For existing operations that rely on CV structures, this is a moment to run a full entity audit. The tax treatment has changed but it is not retrospective in a punitive way — forward compliance is what matters. Clients should ensure their Indonesian CV partners have registered or updated their corporate taxpayer status with DJP and are filing PPh Badan returns correctly. Non-compliance risk is real: the DJP does not typically lead with amnesty when it has already issued a public clarification.
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