How does PMK No. 168 of 2023 regulate tax withholding for freelancers?

PMK No. 168 of 2023 defines a Bukan Pegawai as an individual, other than a permanent or temporary employee, who receives income under any name or in any form for providing services.

The non-employee category includes individuals providing professional or personal services, such as:

• experts and professional advisers;

• artists and entertainers;

• athletes;

• trainers, instructors and speakers;

• presenters and moderators;

• authors, researchers and translators;

• advertising service providers;

• project supervisors and managers;

• intermediaries;

• insurance agents; and

• distributors engaged in multilevel marketing, direct selling or similar activities.

The category may therefore include an individual freelancer who independently performs services under an Assignment.

For income received by a non-employee, the PPh Article 21 withholding amount is generally calculated by applying the progressive personal income-tax rates to:

• 50% of the gross income received or earned during the relevant tax period.

The Regulation no longer applies different calculation methods depending on whether the non-employee receives remuneration continuously or intermittently.

The applicable calculation concerns withholding at the time of payment. It does not necessarily represent the Vendor’s final annual income-tax liability.

PMK No. 168 identifies the parties that may qualify as PPh Article 21 withholding agents. These include:

• employers;

• government agencies;

• pension funds or other bodies paying pensions or similar income;

• entities paying remuneration for services or activities; and

• organisers of activities.

Whether a particular Client must withhold tax depends on:

• the Client’s legal and tax status;

• the identity of the Vendor;

• whether the Vendor is an individual or a legal entity;

• the Vendor’s tax residence;

• the nature of the services;

• which party legally pays or owes the remuneration; and

• whether another withholding provision applies.

The non-employee rules under PMK No. 168 principally concern payments to qualifying individuals.

Different tax treatment may apply where:

• the Vendor is a company or another legal entity;

• the Vendor is not an Indonesian tax resident;

• the payment falls under another withholding-tax provision;

• the income is subject to final tax; or

• a tax treaty affects the treatment of a cross-border payment.

The Client must therefore identify the Vendor’s legal form and tax residence before determining the correct withholding treatment.

Treating an individual as a non-employee for PPh Article 21 purposes does not conclusively establish that the person is an independent freelancer under employment law.

Employment risk may remain where the relationship involves:

• continuing personal work;

• regular wage-like remuneration;

• Client orders or operational instructions;

• mandatory working hours;

• internal supervision; or

• organisational integration.

Conversely, the deduction of PPh Article 21 does not by itself transform a genuine independent service relationship into employment.

Relevant documentation may include:

• the Direct Client–Vendor Service Agreement;

• the relevant Assignment;

• the Vendor’s identity and tax information;

• evidence of the Vendor’s legal form;

• tax-residence information;

• invoices or payment requests;

• evidence of the services provided;

• the gross remuneration;

• the withholding calculation;

• the withholding certificate; and

• payment records.