Legal News Update
Contributors: Almaida Askandar, S.H., MBA, and Rania Adhara Safira, S.H.
Published on 4 July 2026 by IABF Law Firm, Jakarta, Indonesia.
New Tax Framework for Joint Operations under MOF Regulation No. 79 of 2024
The Indonesian Government has issued Ministry of Finance Regulation No. 79 of 2024 (“MoF Reg. 79/2024“), introducing a comprehensive tax framework for Joint Operations (Kerja Sama Operasi or “KSO“). The regulation provides long-awaited legal certainty by establishing clear rules on the tax treatment of KSOs, including taxpayer registration, VAT registration, corporate income tax, withholding tax, and VAT compliance.
Prior to the issuance of MoF Reg. 79/2024, Indonesia did not have a dedicated regulation governing the taxation of KSOs. Although certain aspects of KSO taxation were addressed under various tax regulations, there was no comprehensive framework governing their tax rights and obligations. MoF Reg. 79/2024 addresses this gap by introducing a unified tax regime for Joint Operations. Under the regulation, a KSO is defined as a joint arrangement in which participating members exercise joint control or hold rights over assets and assume obligations relating to liabilities, regardless of the legal form adopted.
I. Taxpayer and VAT Registration
A KSO is required to obtain a Taxpayer Identification Number (Nomor Pokok Wajib Pajak or “NPWP”) if, under its agreement or in practice, it:
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- delivers goods and/or services;
- receives or obtains income; and/or
- incurs expenses or makes payments to third parties on behalf of the KSO.
Where these criteria are not satisfied, the relevant tax obligations remain with the individual members of the KSO. In addition, a KSO must register as a VAT-able Entrepreneur (Pengusaha Kena Pajak or “PKP“) if it exceeds the applicable VAT registration threshold or if one or more of its members has already been registered as a PKP. Existing KSOs should also review their current tax registrations, as they may be required to update, transfer, or cancel their NPWP to comply with the new regulatory requirements.
II. VAT Treatment
VAT (and luxury sales tax, if applicable) applies to both supplies of taxable goods/services from members to the KSO (Joint Operation) and from the KSO to customers, with the tax becoming due when the KSO delivers to the customer. The tax base for member-to-KSO transfers is the agreed contribution value stated in the cooperation agreement, whereas the KSO-to-customer transfer follows standard VAT rules. The KSO must register for a taxpayer ID and as a taxable entrepreneur, and all income from customers is treated as KSO income subject to either final or non-final income tax. Members must issue tax invoices to the KSO no later than when the KSO issues its invoice to the customer. Input tax may be credited if requirements are met, and luxury goods tax is imposed only once, at the time of supply from the KSO to the customer. Both the KSO and its members are jointly required to remit and report the applicable VAT and luxury tax in accordance with prevailing tax regulations.
III. Corporate Income Tax
Income received by the KSO from customers is treated as the KSO’s income and is subject to either final or non-final income tax per prevailing regulations. For non-final income, taxable income is computed after deducting allowable costs (including member contribution costs, which are recognized as member income when the KSO earns revenue from customers), whereas costs related to final-income activities are non-deductible. After-tax profits or remaining business results distributed to members are generally not taxable and not subject to withholding for domestic taxpayers or permanent establishments (“PE”) (unless the PE does not reinvest the funds in Indonesia), but are subject to withholding for foreign taxpayers.
IV. Tax Losses and Withholding Tax
Losses incurred by the KSO may only be offset against the KSO’s own income and cannot be offset against members’ income (and vice versa, including losses unrelated to the KSO agreement). Both the KSO and its members are required to pay and report their respective income tax obligations in accordance with tax regulations. The income tax withheld, collected, or self-paid serves either as a tax credit for the KSO when calculating its annual non‑final income tax liability, or as a final settlement of its final‑income‑tax obligations, as applicable. Specifically, for income derived from construction services, the withholding or self‑payment rate applied is the highest rate among the KSO’s members, in line with the specific regulations governing income tax on construction services income.
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Disclaimer
This news update is prepared for general informational purposes only. The content does not constitute legal advice, a legal opinion, or counsel from IABF Law Firm. The information contained herein may not reflect the most current developments. Any quotation, distribution, or use of this information for any purpose is solely at the user’s own risk.
