Withholding Tax in Indonesia:
PPh 23 and PPh 26 Explained

What Is Withholding Tax?

Withholding tax is a mechanism where the payer deducts tax from a payment before remitting it to the recipient, and pays the withheld amount directly to the tax authority. In Indonesia, this is governed by Article 23 (PPh 23) and Article 26 (PPh 26) of the Income Tax Law. The payer is responsible for withholding, reporting, and remitting — not the recipient.

PPh 23: Domestic Withholding Tax

PPh 23 applies to payments made by Indonesian entities to other Indonesian resident individuals and entities. Common items include services (2%), dividends (15%), interest (15%), royalties (15%), and rent (2%). If the vendor does not have an NPWP, the withholding rate is doubled — 4% instead of 2%.

PPh 26: Cross-Border Withholding Tax

PPh 26 applies to payments made to non-resident foreign parties — including foreign parent companies, shareholders, and overseas service providers. The standard rate is 20%. However, Indonesia has tax treaties with over 70 countries that often reduce this rate significantly. To apply a treaty rate, the foreign recipient must provide a valid Certificate of Domicile (SKD).

Common Mistakes to Avoid

• Not withholding at all: The payer is liable for any tax not withheld
• Wrong rate applied: Misclassifying a payment type leads to under or over-withholding
• Missing SKD for treaty claims: Claiming a treaty rate without a valid SKD will be disallowed in audit
• Late reporting: PPh 23/26 must be filed monthly via Coretax by the 20th of the following month