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Bali Zero handles visas, company setup, tax and property compliance in Indonesia. Ask us directly on WhatsApp.
Chat with Bali Zero on WhatsAppThe OECD/G20 Inclusive Framework's Pillar Two initiative — formally known as the Global Anti-Base Erosion (GloBE) Rules — establishes a global minimum
The OECD/G20 Inclusive Framework's Pillar Two initiative — formally known as the Global Anti-Base Erosion (GloBE) Rules — establishes a global minimum effective corporate tax rate of 15% for multinational enterprises with annual consolidated revenues of at least €750 million. The framework operates through two interlocking mechanisms: the Income Inclusion Rule (IIR), which allows a parent company's jurisdiction to top up taxes on low-taxed subsidiaries, and the Undertaxed Profits Rule (UTPR), a backstop that permits other group jurisdictions to collect any remaining top-up if the IIR has not been applied.
Indonesia formalized its Pillar Two response through Peraturan Menteri Keuangan (PMK) No. 136 Tahun 2024, which introduces a Qualified Domestic Minimum Top-Up Tax (QDMTT) applicable to fiscal years commencing on or after 1 January 2025. The QDMTT mechanism is strategically significant: by collecting the top-up tax domestically, Indonesia retains the revenue that would otherwise flow to a foreign parent jurisdiction under a third country's IIR. This is the central fiscal sovereignty argument — Indonesia capturing its own base rather than ceding it to, say, Singapore or the Netherlands, where large Indonesian-operating MNE parents are often headquartered.
The tension, however, lies in Indonesia's long-standing investment promotion architecture. Tax holidays of up to 20 years, granted under Government Regulation PP 5/2021 and administered by BKPM/OSS, can reduce effective tax rates to near zero for qualifying pioneer industries. Investment allowances and super-deductions further compress effective rates. Under Pillar Two, these instruments do not disappear — the underlying tax base does not change — but their net economic value to investors is eroded because the 15% floor will be collected somewhere.
This creates a structural policy dilemma. Indonesia has historically competed for foreign direct investment partly on the basis of tax incentives. With the Pillar Two floor now operative for large MNEs, the marginal attractiveness of a tax holiday collapses for any group subject to GloBE: they will pay 15% regardless, the only question being which government collects it. Indonesia's fiscal sovereignty interest now aligns, counterintuitively, with robust domestic enforcement — collecting the top-up domestically is preferable to surrendering it to a foreign IIR jurisdiction.
The implementation challenge is administrative. Indonesia's Directorate General of Taxes (DJP) must develop country-by-country GloBE Information Return (GIR) processing capacity, determine constituent entity identification procedures, and align existing tax treaty provisions with the OECD Commentary on GloBE. The DJP is in active capacity-building, but the regulatory ecosystem surrounding PMK 136/2024 — including guidance on the Substance Based Income Exclusion (SBIE) carve-outs, which partially protect payroll and tangible asset returns from the minimum tax — remains incomplete in implementing detail.
For our clients, the Pillar Two transition is not an abstract international tax debate — it is an immediate due diligence item for any PT PMA structure with a large foreign parent. The €750 million co
nsolidated revenue threshold excludes the vast majority of our SME and HNWI client base, who are entirely outside GloBE scope. However, any client who is a subsidiary or investee entity of a larger mu
ltinational group — private equity-backed businesses, regional holding structures, or joint ventures with listed foreign partners — should conduct a threshold analysis now, not at year-end.
For in-scope clients, the practical implication is not necessarily a higher Indonesian tax bill. The QDMTT means Indonesia collects the top-up rather than the parent's jurisdiction, but the total tax burden to the group is identical. What changes is the strategic value of certain incentive structures: tax holidays in KEK zones or under BKPM pioneer-industry facilities now require re-modelling. The incentive may still have value through non-tax dimensions — customs duty relief, land rights, simplified licensing — but the tax component of the ROI case needs to be rebuilt.
We recommend clients flag this to their group tax teams proactively. The GloBE rules are complex, and the Indonesian QDMTT implementation guidance is still developing. Getting ahead of it — rather than discovering a top-up liability in a foreign jurisdiction — is the right posture.
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