Minister of Finance Regulation (PMK) Number 136 of 2024 establishes the legal and technical framework for implementing the Global Minimum Tax (Pillar Two) regime in Indonesia in accordance with the Global Anti-Base Erosion (GloBE) Rules developed under the OECD/G20 Inclusive Framework. This article examines the regulation’s principal provisions, including its scope of application, the operation of the Income Inclusion Rule (IIR), Undertaxed Payment Rule (UTPR), and Domestic Minimum Top-up Tax (DMTT), as well as the methodology for calculating the Effective Tax Rate (ETR), excess profit, and the Substance-Based Income Exclusion (SBIE). It also discusses the safe harbour provisions, the implications for existing tax incentives, and the administrative and reporting obligations applicable to multinational enterprise groups. The discussion highlights that the implementation of Minister of Finance Regulation No. 136 of 2024 introduces not only a framework for imposing top-up tax in accordance with international standards, but also greater expectations regarding data readiness, reporting quality, and cross-border tax governance. Accordingly, a sound understanding of the regulation’s technical requirements and implementation framework is essential for investors and businesses seeking to maintain compliance while effectively managing tax risks within the evolving global tax architecture.
Following Indonesia’s adoption of the Global Minimum Tax regime through Minister of Finance Regulation (PMK) Number 136 of 2024 concerning the Imposition of Global Minimum Tax Based on International Agreement, discussions surrounding “Pillar Two” have moved beyond the conceptual framework established by the OECD. For investors and multinational enterprise groups, the questions have now become more practical: is the group within the scope, which mechanisms apply, when do the obligations become effective, how are tax incentives affected, and what legitimate tax planning opportunities remain available?
PMK No. 136/2024 represents Indonesia’s response to the Global Anti-Base Erosion (GloBE) Rules developed by the OECD/G20 Inclusive Framework. In essence, these rules are designed to ensure that large multinational enterprise groups pay a minimum effective tax rate of 15% in every jurisdiction in which they operate. As Adam Smith wisely observed, taxation should provide certainty rather than ambiguity: “The tax which each individual is bound to pay ought to be certain, and not arbitrary.”
The legal foundation originates from Government Regulation No. 55/2022, which mandates the further regulation of the Global Minimum Tax. This mandate was subsequently implemented through PMK No. 136/2024. The regulation was enacted and promulgated on 31 December 2024 and became effective on 1 January 2025. However, one specific date warrants particular attention: the Undertaxed Payment Rule (UTPR) becomes effective on 1 January 2026.
The primary scope of application is set out in Article 2. The GloBE Rules apply to Constituent Entities of a Multinational Enterprise (MNE) Group where the group’s annual consolidated revenue, based on the Ultimate Parent Entity’s consolidated financial statements, reaches at least EUR750 million, provided that this threshold is met in at least two of the four fiscal years preceding the GloBE tax year. Consequently, the assessment is not limited to Indonesian entities but rather considers the group’s consolidated global scale.
Article 3 provides exemptions for certain entities, including governmental entities, international organizations, non-profit organizations, pension fund entities, investment fund entities that qualify as Ultimate Parent Entities, and real estate investment vehicles that qualify as Ultimate Parent Entities. Nevertheless, these exemptions should not be interpreted too broadly, as exempt entities are still included when calculating the group’s consolidated revenue threshold. As Indonesia’s Investment Gateway, SW Indonesia assists investors in understanding regulatory requirements, structuring cross-border operations, maintaining compliance, and identifying business value within an increasingly integrated global tax landscape.
Three Core Mechanisms: IIR, UTPR, and DMTT
Article 4 confirms that Indonesia’s Global Minimum Tax framework operates through three mechanisms: the Income Inclusion Rule (IIR), the Undertaxed Payment Rule (UTPR), and the Domestic Minimum Top-up Tax (DMTT). These mechanisms are not independent alternatives but rather interconnected layers designed to impose top-up tax where profits are subject to an effective tax rate below the minimum standard of 15%.
The IIR is principally regulated under Articles 14 to 16. Under this mechanism, the obligation to pay top-up tax rests with a domestic parent entity in respect of constituent entities that are subject to low taxation in other jurisdictions. For Indonesian groups expanding internationally, this provision is particularly significant: foreign profits that appear tax-efficient may be subject to additional taxation in Indonesia if the Indonesian parent entity falls within the scope of the GloBE Rules.
The UTPR is governed under Articles 17 and 18 and becomes effective on 1 January 2026. It serves as a backstop mechanism where top-up tax has not been fully collected under the IIR. Indonesia’s UTPR allocation is determined based on two equally weighted factors: 50% based on the number of employees in Indonesia relative to other UTPR jurisdictions, and 50% based on the value of tangible assets located in Indonesia relative to those jurisdictions. As a result, employee and tangible asset data become strategic tax considerations rather than merely administrative information.
The DMTT is regulated under Articles 52 and 53. In practical terms, the DMTT functions as a jurisdictional defense mechanism. Where an Indonesian constituent entity of an MNE Group is subject to an effective tax rate below 15%, Indonesia may impose the domestic top-up tax before another jurisdiction applies its IIR. This is particularly important for preserving Indonesia’s taxing rights over profits generated within its territory.
Key Calculation Elements: ETR, Excess Profit, and SBIE
Article 5 stipulates that the Effective Tax Rate (ETR) is calculated on a jurisdictional basis rather than on an entity-by-entity basis. The fundamental formula consists of adjusted covered taxes divided by Net GloBE Income. Article 6 subsequently links the ETR to the top-up tax calculation. The top-up tax percentage equals the minimum rate of 15% less the applicable ETR, while the tax base consists of excess profit, calculated as Net GloBE Income less the Substance-Based Income Exclusion (SBIE).
The SBIE under Article 7 constitutes one of the most significant relief provisions. It grants exclusions based on payroll expenses and the carrying value of tangible assets. From a policy perspective, this demonstrates that Pillar Two is not intended to penalize genuine business activities. Investments supported by employees, manufacturing facilities, productive assets, and substantial operational presence generally have greater mitigation opportunities than structures that merely shift profits without economic substance.
Safe Harbour: Administrative Relief, Not an Aggressive Tax Planning Opportunity
Chapter XII introduces several safe harbour provisions. Article 54 provides that a safe harbour may reduce the top-up tax liability of a constituent entity to zero. Article 55 establishes permanent safe harbours through de minimis, routine profits, or ETR tests. Article 56 introduces a Transitional Country-by-Country Reporting (CbCR) Safe Harbour for fiscal years beginning on or before 31 December 2026 and ending on or before 30 June 2028.
Particular attention should be given to the consequences of failing a safe harbour test. If a group fails to satisfy a specified test during the applicable period, the CbCR Safe Harbour may no longer be available for subsequent years until the end of the transition period. In other words, safe harbours are data-driven compliance facilities that must be managed proactively from the outset rather than evaluated only when tax authorities request clarification.
The Debate and Implications for Tax Incentives
One of the most significant debates concerns the interaction between Pillar Two and tax incentives such as tax holidays, tax allowances, super deductions, and special economic zone incentives. On the one hand, these incentives remain available under domestic tax law, provided taxpayers satisfy the applicable requirements. On the other hand, for groups within the scope of Pillar Two, reduced tax rates or tax reductions may lower a jurisdiction’s ETR and consequently trigger top-up tax obligations. Therefore, while incentives are not automatically eliminated, their economic benefits must be reassessed within the GloBE framework.
Sound tax planning is no longer focused solely on achieving the lowest possible tax rate. Instead, it involves managing ETR transparently, ensuring the reliability of CbCR data and financial reporting, evaluating the impact of DMTT and IIR before cross-border expansion, and strengthening economic substance through payroll and tangible assets that qualify under the SBIE framework. Conversely, structures lacking genuine substance, profit-shifting arrangements based solely on contractual allocations, or accounting arbitrage strategies will become increasingly difficult to sustain.
Administrative Obligations and Key Considerations for Investors
Article 65 establishes administrative obligations, including the submission of the Annual GloBE Income Tax Return, Annual DMTT Income Tax Return, and/or Annual UTPR Income Tax Return. Domestic Ultimate Parent Entities are required to submit both the Annual GloBE Income Tax Return and the GloBE Information Return (GIR) no later than 15 months after the end of the fiscal year. In addition, every constituent entity of an MNE Group located in Indonesia must submit a notification within the same 15-month period.
For the first year in which a group falls within the scope of the GloBE Rules, Article 69 extends the GIR filing deadline to 18 months after the end of the fiscal year. Article 70 further provides relief from administrative penalties during a specified transition period. However, these transitional concessions should not delay preparation efforts. The greatest challenge lies in data readiness, including the identification of constituent entities, reconciliation of covered taxes and deferred taxes, CbCR reporting, tangible asset information, payroll data, and the quality of financial statements that serve as the basis for GloBE calculations.
Pursuant to Article 66, administrative sanctions relating to the submission of Annual GloBE, DMTT, and UTPR tax returns, as well as the payment of top-up tax obligations, are governed by Indonesia’s General Tax Provisions and Procedures Law. Furthermore, Article 70 provides relief from administrative sanctions for fiscal years commencing on or before 31 December 2026 and ending on or before 30 June 2028.
Conclusion
PMK No. 136/2024 marks a fundamental shift in the way cross-border investments are assessed. Tax is no longer determined solely by statutory tax rates, but increasingly by effective tax rates, economic substance, profit allocation, and governance quality. For foreign investors entering Indonesia and Indonesian businesses expanding into international markets, these considerations should be incorporated at the investment structuring stage rather than addressed only after transactions have already been implemented.
