Adapting to the Global Minimum Tax: Implications for Indonesia's Tax Policy and Investment Strategy
Diah Kania Dewi
by Diah Kania Dewi
Overview of Global Minimum TaxThe Global Minimum Tax (GMT) is a globally agreed tax rate on corporate income, established under the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). This initiative is set to be implemented worldwide, imposing a minimum tax rate of 15%. If a country’s effective tax rate (ETR) falls below this threshold, a top-up tax will be applied to meet the minimum requirement. The ETR will be calculated on the basis of a complex formula, ensuring compliance. The GMT will apply to multinational companies with annual revenues exceeding EUR 750 million.
The implementation of the GMT will have a significant impact on mergers and acquisitions (M&A), both within countries and across borders. For companies involved in cross-border operations, GMT introduces higher tax obligations, particularly for multinational enterprises (MNEs) that previously took advantage of low-tax jurisdictions. These increased tax liabilities will likely influence company valuations, especially in industries that have traditionally relied on profit-shifting strategies, as these businesses will now be subject to greater regulatory scrutiny.
Key considerations for implementing the GMT include:
Defining which entities fall within the scope of the tax
Calculating the ETR for each jurisdiction
Determining the top-up tax liability for companies falling below the 15% minimum
Recognizing the top-up tax charge through appropriate financial provisions
Managing both formal reporting and material obligations related to GMT compliance
Certain types of entities fall within the scope of the GMT but are exempt from applying its rules. These include governmental entities, international organizations, non-profit organizations, pension funds, as well as investment funds and real estate investment vehicles that are considered ultimate parent entities. These categories are specifically excluded from the GMT framework due to their unique roles and functions.
GMT in Indonesia
Indonesia is revising its tax regulations to stay competitive while fulfilling international tax commitments. Companies, especially those in sectors where profit-shifting has been prevalent, will need to adjust their operations to minimize tax exposure. This adaptation may involve restructuring or reallocating resources to align with Indonesia's evolving tax policies, ensuring compliance with both domestic laws and the international standards set by the GMT framework.
Indonesia has already introduced Government Regulation No. 55 of 2022 to address the challenges related to BEPS. Multinational group entities operating in Indonesia may now be subject to GMT. The country’s roadmap for implementing GMT will be aligned with the OECD’s GLOBE (Global Anti-Base Erosion) regime. As a result, Indonesian ministries are currently deliberating potential modifications to investment incentives to reduce the impact of GMT on businesses and maintain a favorable investment climate.
Conclusion
The GMT brings both challenges and opportunities for stakeholders. Companies that can adapt by implementing careful tax planning, conducting thorough due diligence, and pursuing strategic restructuring will be in a stronger position to thrive in Indonesia's evolving investment environment.
Diah Kania Dewi serves as a Tax Manager at Protemus Capital and has accumulated 11 years of experience in her field from 2013 to 2024. Her expertise includes tax compliance, tax due diligence, tax review, and tax advisory across a range of industries. Contact Diah Kania Dewi.
GCG member firmProtemus CapitalJakarta, IndonesiaT : +6221 3972 6868
Advisory, Corporate Finance
Protemus Capital specialises in M&A, divestment, and due diligence, crafting business legacies through innovative strategies. Its unique approach and global network empower businesses towards sustainable growth and success.
