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Business organizations available to foreigners

Liaison Office or Representative Office

General Under some ministerial regulations a foreign company may set up a representative office. (‘Rep. Office’). Usually, a Rep. Office may only perform auxiliary services: acting as an intermediary, handling promotional activities and gathering information for a head office abroad. Generally it is not permitted to perform operational business or trading activities including entering into transactional contracts. Rep. Office licensed by the Coordinating Capital Investment Board/Badan Koordinasi Penanaman Modal (BKPM). Rep. Office licensed by the Ministry of Trade. Rep. Office licensed by the Ministry of Public Works (MoPW)and  Ministry of Energy and Mineral Resources (ESDM). MoPW regulations allow foreign construction and construction consulting companies to set up a Rep. Office. In cooperation with Indonesian companies they may:
  • explore possible markets for construction consulting services and construction works,
  • participate in tenders,
  • submit proposals, and
  • carry out projects to completion

Branch office

Generally this designation is not in use.

Limited liability company (PT)

The PT is commonly the limited liability company established for enterprises. Laws and administrative practices (i.e. tender procedures) in many economic sectors require that a PT be established as a legal entity to accommodate such interest. A PT is a corporate legal entity initially stated as such in the Commercial Code, which has now been replaced by Law No 40 year 2007 concerning Limited Liability Companies. The Deed of Establishment comprising the articles of association must be in notarial deed form and approved by the Minister of Law and Human Rights. Law No 40 year 2007 provides only basic provisions with respect to the most important aspects, from incorporation through to dissolution. The notarial Deed of Establishment usually provides details on matters pertaining to the existence of the PT and the rights and duties of its shareholders, the name of the company, its purpose, duration, domicile, amount of authorized capital and amount of each share, number of shares subscribed by the founders, management, the financial year and other important matters. Law No. 40 year 2007 differentiates between private and public limited companies. Public listed companies are also governed by regulationsof the Ministry of Finance, while non-public listed companies are governed only by Company Law. Basic features of a limited liability company
  • A PT company is a limited liability company or legal entity having shares, with its shareholders having only limited liability.
  • The day-to-day operations of a PT aremanaged by a Board of Directors that is supervised by a Board of Commissioners. The Board of Directors and the Board of Commissioner are responsible to aGeneral Meeting of Shareholders.
  • There shall be a minimum of two shareholders.
  • Joint and several liabilities of shareholders exist until the Deed of Establishment has been approved by the Minister of Law and Human Rights.
  • The minimum authorized capital of a PT is 50 million Rupiah. However this amount is not applied for foreign investment where the required amount of capital investement will be advised by BPKM in accordance with the business activity of the company

Foreign-investment corporation or PMA company

The Foreign Capital Investment Law regulates foreign capital investment and operation of foreign companies in Indonesia. In general, the stipulated form for foreign investors is known as a PMA company, which can be a joint venture with an Indonesian partner in the form of a PT company, or 100% foreign owned depending on the business sector. Foreign capital investment is governed primarily by the Capital Investment Coordinating Board (BKPM), which administers and approves foreign capital investment in the majority of economic sectors, excluding oil and gas and other mining, banking, finance and insurance industries. BKPM is the one-stop government agency for a foreign investor with respect to all approvals and permits required to establish or expand a PMA Company, and to receive fiscal facilities, grants and other incentives as mentioned in the laws and regulations. Basic features of a PMA company
  • Only approved activities may be undertaken.
  • Generally not permitted to be involved in retail business.
  • The maximum initial foreign shareholding can be up to 100% for certain business activities.
  • Although there is no written regulation stipulating the minimum investment, the minimum usually required by BKPM is US$ 250,000, comprising loan and equity capital, and the same for consultancy services, which requires US$ 250,000 for equity only. In the manufacturing sector, meanwhile, at least US$ 1 million is usually stated as the requirement.
  • Facilities are available for import duties, VAT on the purchase of capital goods and repatriation of funds, but not for the service line of business.

Setting up and running business organizations

Establishing and running a representative office

Including legalization of deed of statutory head office.
  • Preparation of application forms.
  • Obtain business licences of Rep. Office (SIUP3A).
  • Registration with the relevant Ministry.
  • Obtaining tax registration number (NPWP).
  • Obtaining a letter of assertion in regard to the utilization of office space.
  • Obtaining a letter of domicile.

Establishing and running a foreign-investment corporation 

There are three phases for setting up a PMA company:
  • Preparation of PMA application and submission of the application to BKPM through to completion on obtaining the initial business approval.
  • Establishing the limited liability company by liaison with a notary with regard to the drafting and notarization of the Articles of Association and subsequent submission to the Minister of Law and Human Rights for approval and publishing in the State Gazette.
  • Obtaining the basic permits and licenses, including work permits for expatriates. 
  1. Formation of company:
  • The most common legal entity for the business community is a limited liability company – Perseroan Terbatas (PT), either foreign direct investment or domestic direct investment. For foreign direct investment, a PT is obligatory.
  • Representative Office. Such an office is not allowed to undertake any business transactions with companies or persons in Indonesia for export, import or domestic trading, except for marketing operations.
  1. Cost of formation 
The range of fees for processing the establishment of a PMA company lies between US$5,000 and US$ 9,000, depending on the complexity of the business sector. This excludes the VAT, Notary fee and other administration fees.  
  1. Capital 
According to Company Law No.40 year 2007, a company’s capital consists of authorized, issued and paid-up capital. Minimum authorized capital for the establishment of a company is fifty million Rupiah (Rp. 50,000,000). Furthermore, a minimum of 50% of the authorized capital must be issued and a minimum of 25% of the authorized capital must be paid up by the shareholders. However, please take note that this capital requirement only holds true for a local company; minimum authorized capital for a foreign investment is far higher. 
  1. Share divestment 
According to Laws and Regulations, a PMA company may be established as a direct investment or 100% foreign ownership depending on whether or not the business activity is listed in the Negative List.
  1. Transfer of shares 
In the Articles of Association there may be provisions that regulate limitations on the transfer of shares, namely a requirement to make an initial offer to a specific group of shareholders or to other shareholders and/or to obtain prior approval from an accompanying organ, plus the transfer of shares in a PMA company is also subject to BKPM approval. In the case where the Articles of Association require a shareholder to first offer its shares to a specific group of shareholders or to other shareholders not selected by the prospective seller, the company is obliged to guarantee that all shares offered are bought at a fair price and paid for in cash within 30 days calculated from when the offer is made.
  1. General Meeting of Shareholders (“GMS”) 
A GMS must take place at least once a year and shall be held at the company’s domicile or at the place where the company carries out its business activity, unless otherwise provided for in the Articles of Association. A GMS comprises the Annual GMS or other GMS. The Annual GMS must be held not later than six months following the end of the financial year. However, the other GMS may be held from time to time based on need.
  1. Board of Directors 
The Board of Directors is appointed by the GMS. A member of the Board of Directors is elected for a specific period with the possibility of being re-elected. The GMS determines all the duties and powers of each member of the Board of Directors, including the day-to-day management, as well as the amount and type of remuneration for each of its members.
  1. Board of Commissioners 
A Board of Commissioners has the duty of supervising the policies of the Board of Directors in operating the company, along with providing advice to the Board of Directors. A Board of Commissioners has a right to temporarily suspend directors who neglect their duties or whose actions are not in conformity with the Articles of Association, or laws and regulations. The GMS determines all the duties and powers of each member of the Board of Commissioners, as well as the amount and type of remuneration for each of its members.

Corporate taxes and social charges


A corporation, for tax purposes, is classified as ‘resident’ or ‘non-resident’. Residency is determined on the basis of place of incorporation. A corporation is therefore considered ‘resident’ if incorporated in Indonesia and non-resident if incorporated elsewhere. Resident corporations are taxed on their worldwide income. Tax credits are allowed for income that has been taxed outside the country. Non-residents are taxed only on income derived from Indonesian sources, subject to any relief available under double taxation agreements. However, a non-resident entity with a permanent establishment (PE) in Indonesia, such as a branch office, is taxed on:
  • PE’s income from its business or activities, and from the assets it owns and controls;
  • Income of the head office arising from business activities, or sales of goods or services in Indonesia of the same type as those sold by the permanent establishment in Indonesia; and
  • All other income, either received or accrued by the head office such as dividends, interest, royalties, rent and other income connected with the use of property, fees for services, etc, provided that the property or activities producing the income is effectively connected with the PE in Indonesia.
Income attributable to a PE of a company that is a resident of a treatycountry should bereferred to the relevant treaty. In Indonesia, a PE is generally defined as an operation in which a non-resident establishes a fixed place of business in Indonesia. This would include a management location, a branch office, an office building etc. A PE can also be established as a result of the non-resident entity’s employees providing services in Indonesia for more than 60 days in any 12-month period. For companies from those countries with which Indonesia has concluded a Double Tax Agreement (DTA), the relevant definition may be somewhat modified.

Taxable income

Taxable income is defined as any increase in economic prosperity received or accrued by a taxpayer, whether originating from within or outside Indonesia that may be used for consumption or to increase the recipient’s wealth in whatever name and form. It includes any remuneration in connection with work or services, business profits (with no distinction between operating and capital income), dividends, interest, rent, royalties and other income related to the use of property. Certain income is exempt from tax, such as dividends earned by a domestic corporation from another domestic corporation, provided that the dividend is from the retained earnings and the recipient holds at least a 25% shareholding.

Calculation of taxable income

Taxable income is calculated after the deduction of allowable deductible expenses (DE). For individuals there are income tax exclusions (PTKP), but these are set at relatively low income levels. Individuals are broadly liable to income tax on cash income. Benefits-in-kind (BIK) provided by employers are not deemed to be taxable income of the employee, but are a non-deductible expense (NDE) against corporate taxable income. For a representative office however, which is not considered as a corporate taxpayer, the BIK provided are deemed to be taxable income of the employee. Employers are required to withhold income tax from employees and deposit it each month with the State Treasury (Kas Negara). Employers prepare a consolidated annual tax return detailing each employee’s individual tax calculation. The employee should then file a separate personal return. Normally, tax returns should be filed by 31 March of the year following the calendar year; corporate tax returns however, can be filed up to four (4) months after the closing of the book year. Corporate taxable income is calculated after deduction of most normal business expenses. Rates of depreciation are regulated though taxpayers may elect either the straight-line or double-declining method. Provisions are not deductible, nor are employee benefits-in-kind as mentioned above. Companies may choose to be taxed on the basis of a financial year other than the calendar year. Books of account may be kept in the English language based on approval from the Director General of Taxation. Foreign currency, e.g. U.S. dollars may also be used as the reporting currency if appropriate approval is obtained. Annual filings should be lodged within 4 months of the end of the financial year. In certain cases, however, the company can apply for an extension.

Exemption from income for capital increase

Taxable income is determined by subtracting allowable deductions from revenue. Certain expenses, such as employee benefits-in-kind and donations, are generally not tax deductible. In addition, interest incurred to finance the acquisition of shares is not deductible unless dividends from the shares purchased are taxable. The following are major allowable deductible expenses:
  1. Business expenses
As a general rule, taxpayers may deduct from gross income all expenses related to earning, securing and collecting taxable income. Items that are not deductible include those incurred for the personal benefit of shareholders; benefits-in-kind (e.g. housing and vehicles) provided to employees, except for the provision of food and beverages for all employees and for certain benefits-in-kind provided to employees in certain remote areas; gifts; donations and support; “excessive” payments for goods or services where a special relationship is deemed to exist between the buyer and seller; and expenses incurred in the course of producing income that is exempt from tax or subject to final tax. Formation of a reserve or allowance is generally not tax deductible, with the exception of bad debt allowances for banks or finance leasing companies, reserves in insurance companies, and reserves for reclamation costs in the mining industry.
  1. Research and development
Expenses such as those for research and development carried out in Indonesia and eligible employee training qualify as regular allowable deductions. Indonesia has no special income tax deductions/relief for research and development and eligible employee training. The deductibility of research and development performed offshore remains unclear.
  1. Depreciation and amortization
Investors can adopt either the straight-line or the double-declining balance method for depreciation of tangible assets (except buildings). The taxpayer should apply the depreciation method chosen consistently. The Tax Office must approve any change in method. The same depreciation method and percentages are allowed for intangible assets with a benefit of more than one year. The following table lists the allowable useful life of the assets as categorized and annual depreciation rates:  
  Useful Life (Years) Straight Line (%) Declining Balance (%)
A. Tangible Asset Building -            permanent -            non-permanent Non-building Group 1 Group 2 Group 3 Group 4     20 10   4 8 16 20     5 10   2.5 12.5 6.25 5           50 25 12.5 10
B. Intangible Asset Group 1 Group 2 Group 3 Group 4   4 8 16 20   25 12.5 6.25 5   50 25 12.5 10

Tax base

The tax base on a corporate is any income from:
  • the business or activities, and from the assets owned or controlled,
  • any income of the head office from the business or activities, sales of goods, or services rendered in Indonesia, and
  • Any income received or accrued by the head office, as long as there is an effective relationship between the permanent establishment and the assets or activities that provide such income.
The costs related to the income may be deducted from the income of the corporate.

Tax rates

The corporate tax rate commencing fiscal year 2010 is 25%. Micro, small and medium business (MSMEs/UMKM) with a turnover of less than Rp 50 billion a year are entitled to a tax discount of 50% off the normal rate for turnover of up to Rp 4.8 billion. Companies that list at least 40% of their shares on the Indonesia Stock Exchange will have a tax cut of 5% from the top rate, providing them with an effective tax rate of 20% commencing fiscal year 2010. Other than corporate income tax, for a permanent establishment (PE), there is also a branch profit tax at 20%, or referring to the Double Tax Treaty rate, which is calculated from net Income after tax. At the end of the year, deductions shall be made from the tax liability for the relevant fiscal year’s tax credits, in the form of:
  • Withholding tax on income from any work.
  • Tax collection on income from any activity in the import sector or any other business.
  • Withholding tax in the form of dividend, interest, royalty, rent, prize, and award, and compensation for service.
  • Tax paid or due on income from abroad that may be credited.
  • Payment made by the taxpayer.

Inter-company pricing

Article 18 of the Income Tax Law and article 2 of the Value Added Tax Law provide rules relating to transfer pricing that can be summarized as follows:
  • The Director General of Taxation is authorized to re-stipulate amounts of income and deductions for taxpayers that have special relationships
  • The Director General of Taxation is authorized to make agreements with taxpayers and cooperate with tax authorities of other countries to determine transaction prices between parties having special relationships
While Indonesia adopts a self-assessment system, taxpayers are, however, required to include any transfer price information in their tax returns. Commencing 2007, a mandatory requirement for taxpayers to maintain and retain the formal documentation for transfer pricing was put in place by Government Regulation. From fiscal year 2009, a new form for corporate income tax return was introduced that requires taxpayers to provide more detailed information for transfer pricing. This enables the tax authorities to obtain the transfer price information from the tax return. Taxpayers are also required to prepare the transfer pricing documentation. Furthermore, as the tax audit provides the authorities with an important means of assessing compliance under the self-assessment system, there is always a strong likelihood that explanations and details of related party transactions will be demanded during tax audits. While there is currently no separate tax audit or audit teams in Indonesia to review only transfer pricing, in practice the tax authorities are increasingly focusing on transfer pricing issues in tax audits, with large tax corrections related to these issues being proposed in many cases. Transfer pricing is included as one of the review items in the general tax audit (covering overall corporate and value added tax etc). Examples of transfer pricing issues that have commonly arisen in past general tax audits include:
    1. Processing fee of toll manufacturer/selling price of contract manufacturer
    2. Third party domestic selling price vs. related party export price
    3. Various service fees (e.g. management fee, technical assistance fee to parent company)
    4. Royalty
    5. Free/low interest parent loan
The processing fee in (a) and various payments under (c) and (d) are also subject to value added tax, thus the tax authorities will scrutinize these types of transfer prices for both corporate tax and value added tax purposes. Besides the transfer price risk, activities of toll manufacturing subsidiaries have been deemed to create permanent establishments (PE) of parent companies in recent tax audit cases. Thus a PE risk also needs to be considered in adopting a toll manufacturing structure. To minimize the PE risk, it may be advisable to consider a contract manufacturing structure rather than a toll one, although the transfer price risk still exists with either structure.

Returns and payment

If the tax liability in a fiscal year appears to be less than the amount of tax credit, after audit, the tax overpayment will be refunded after being calculated with the other tax liabilities and their sanctions. If the tax liability in a fiscal year appears to be larger than the tax credit, the underpayment of tax liability must be paid before the annual tax return is filed, for which the deadline is four months after the closing of the book year.

Personal taxation

Scope of taxation

For taxation purposes, an individual is classified as ‘resident’ or ‘non-resident’. An individual is considered a resident taxpayer if staying in Indonesia for more than 183 days in any 12-month period, or if intending to reside in Indonesia. Naturally, if the individual comes from a treaty country, the determination of tax residency shall be based on the provisions of the relevant tax treaty. Both resident and non-resident taxpayers are subject to national income tax (Indonesia has neither federal nor state income tax). Residents are taxed on their worldwide income and are generally allowed a credit for taxes paid abroad, whereas non-residents are taxed only on their Indonesian-source income. Taxable Income Any increase in economic prosperity received or accrued by a resident taxpayer, whether originating from within or outside Indonesia, that may be used for consumption or to increase the recipient’s wealth in whatever name and form is taxable. This includes wages, salary, commission, bonuses, lottery prizes, interest, dividends, etc. Special tax treatment applies to the following income:
  • Benefits-in-kind are not taxable unless provided by a body that is not an Indonesian taxpayer (e.g. a representative office).
  • Interest income from Indonesian banks is generally subject to final withholding tax of 20%.
  • Certain other income is also subject to final tax. This includes rental of land or buildings (10% final tax on the gross proceeds), capital gains from the sale of shares listed on an Indonesian stock exchange (0.1% final tax on the gross proceeds, plus an additional 0.5 % for founder shares), and income from the sale of land or buildings (5% final tax on the gross proceeds), and dividendsare subject to a 10% final tax.
  • Lottery prizes are taxable in Indonesia at 25%.

Tax rates

Employees are subject to withholding tax from their remuneration. Those who are self-employed or who have other income, pay monthly estimated taxes as well. Previously, employees with only one source of employment income did not need to file a tax return. However, under the new laws effective 1 January 2001, an individual whose income exceeds the non-taxable threshold is required to file an annual personal tax return. Below are the applicable individual tax rates:
Income Range (Rupiah) Tax Rate (%) For Individual With Tax ID Number Tax Rate (%) For Individual Without Tax ID Number
Up to 50 million 50 million-250 million 250 million-500 million more than 500 million 5 15 25 30 6 18 30 36  

Deductions from income

Individuals are allowed to deduct from their employment income occupational costs of 5% of gross income (up to a maximum of Rp. 6,000,000 {about US$600}) a year and contributions to an approved pension fund. No other deductions from employment income are allowed. If an individual’s source of income is a personal business, the same general deduction rules apply as for a corporation, provided that the individual maintains adequate bookkeeping. An individual is also entitled to an exemption for dependents. The exemption varies based on the number of dependents, as shown in the following table:
Status Exemption (Rupiah)
Single Married Additional dependents (max. of 3) With self-employed or working spouse 24,300,000 Plus 2,025,000 Plus 2,025,000 each Plus 24,300,000

Tax benefit for foreigners

Payment to non-residents of the countries with which Indonesia has concluded a Double Tax Agreement (DTA) may be subject to a tax rate reduction or possible exemption. To take advantage of treaty relief, the non-resident has to obtain from its own competent authority a Certificate of Domicile/Certificate of Residence (COD/COR)and present it to the Indonesian taxpayer in order to enjoy a reduced withholding rate or exemption. In addition, foreign taxpayers are also obligated to complete the DGT forms in order to be able to enjoy the tax treaty benefit. Circular No. SE-13/PJ.43/2000, dated 30 May 2000, requires foreign nationals residing in Indonesia to register and file income tax returns with the BADORA tax office and tax offices having jurisdiction over their domicile, respectively. It should be noted that under the new tax law, expatriates would effectively be required to register for tax and file individual income tax returns. The tax office will enforce the tax registration and filing of tax returns by individuals.

Tax registration

Each taxpayer needs a tax identification number (NPWP), which is a number issued by the tax office to identify taxpayers and enable them to fulfil their tax obligations. The taxpayer is obligated to register at the tax office in the district in which they resides (article 2- paragraph (1) law No. 28 Year 2007) by submitting the following documents:
    • Registration and change of data form
    • Copy of passport
    • Copy of limited stay permit card (KITAS)
    • Copy of work permit (for a taxpayer who is an employee)
    • Copy of tax identification number of the employer (for a taxpayer who is an employee)
    • Power of attorney (if his/her registration process is carried out by another party)
    • Copy of business permit (for a taxpayer who is conducting business or is an independent professional)
An individual taxpayer who is an entrepreneur as defined in the Decision of Director General of Taxation No. KEP-171/PJ/2002, is an individual who has several places of business activity, excluding selling of vehicles, and restaurants. Such a person is obligated to register their place of business activities as follows:
  • A taxpayer who has several places of business activities in one operational area of the tax office must register each place of business with said tax office.
  • Taxpayers who have several places of business activities located in the districts of several tax offices must register each place of business with each related tax office.

Social security

BPJS is a compulsory provision in respect of employees of a company with a minimum of 10 employees, or for employees receiving a monthly salary of Rp. 1,000,000 net or more. This covers the following (compulsory) per cent deduction per month:
  • Work accident insurance: 0.24% to 1.74 % (five different tariffs depending on work safety conditions)
  • Death insurance: 0.30 %
  • Old age insurance: 3.70% paid by company and 2.00% paid by the employee (deducted from net salary).
  • A BPJS Health compulsory 4.5% insurance contribution is divided between a 4% contribution from the employer and a 0.5% contribution of the employee.
The above scheme is not compulsory for expatriates provided that they have equal or better coverage in Indonesia or their home country.

Double taxation agreements

Indonesia has Double Tax Treaties with a number of countries. All funds are included in the definitions of persons to which treaty protection applies. However, restrictions on funds assets mean that treaties only affect funds to the extent that the fund participants and shareholders may benefit. Indonesia currently has 65 tax treaties in operation.

Sales and use taxes

Value added tax

Value added tax applies to the import and delivery of most goods and services. Insurance and banking services are not subject to VAT. VAT is collected at a standard rate of 10%. This may increase to 15% or decreased to 5% based on the relevant Government regulation. VAT on the export of taxable goods is fixed at 0%. Export services are also subject to 0% VAT with certain limitations applied. Taxpayers are required to file returns with details of all output and input VAT in the month following its occurrence. The net output VAT should be settled before the VAT report is submitted to the tax office by the end of the month following. An excess of input VAT may be carried forward. Refunds may be applied for in the case of chronic overpayments. Suppliers who trade with so-called ‘VAT collectors’ will not collect VAT from their customers or clients. The VAT is then paid directly to the State Treasury. Such suppliers may be in a constant overpayment situation and have to seek regular refunds. VAT has become a major source of revenue for the government.

1) General transactions

On general transactions, the tax rate of 10% shall be imposed on supply of goodsor services under the following circumstances:
    1. The tangible or intangible goods supplied are taxable goods.
    2. Import of taxable goods.
    3. Delivery of taxable services.
    4. Utilization of intangible goods from outside the customs area within the customs area.
    5.  Supply is carried out within the customs area.
    6. Supply is conducted in the course of business or work of the firm concerned.

2) Zero-rated transactions

VAT on the export of taxable goods is fixed at 0%. Export services are also subject to 0% VAT with certain limitations applied.

3) Exempt transactions

Types of goods that are not subject to value added tax are based on the following categories:
    1. Products of mining and drilling, taken directly from the source.
    2. Daily necessities needed by the public.
    3. Food and beverages served in hotels, restaurants and other such places including food and beverages take-away and delivery by the catering provider
    4. Money, gold and valuable documents.
The determination of types of services that are not subject to value added tax are based on the following fields of activity:
  1. Health care
  2. Social welfare
  3. Postal delivery
  4. Financial services
  5. Insurance services
  6. Religion
  7. Education
  8. Culture and entertainment that has been subject to entertainment tax
  9. Broadcasting, not including advertising
  10. Shipping and inland public transportation
  11. Manpower
  12. Hotels
  13. Rendering of services by the government in efforts to undertake governance in general
  14. Parking
  15. Public coin-operated telephones
  16. Money delivery via giro
  17. Catering

Customs tax

Most duties are in the 5% to 40% range, the minimum rate being 0% and the maximum 150%. Indonesia has no rules for minorimports of goods and services, VAT and customs duty being imposed on all goods irrespective of their value. Likewise VAT will be imposed on the import of services irrespective of their value. No changes are foreseen in this area despite the fact that the availability of e-commerce transactions will lead to an increase in low value cross-border trade.

Transfer of title

Transfer of title tax is payable on the acquisition of rights to property (land and buildings), and the tax tariff is stipulated at 5%.

Property and land tax

Tax is imposed on individuals, companies or organizations that have certain rights to or obtain benefits from land, or possess, control or obtain benefits from ownership of land and buildings. The tax is based on the sale value of the land and buildings as determined by the Ministry of Finance. Land value is reassessed every three years in most areas and every year in rapidly developing areas. The current effective tax rate on land and buildings is 0.5% of the taxable sale value.

Sales tax on luxury goods

Sales taxes also include sales tax on luxury goods (PPnBM). This tax applies at the point of import or manufacture and is additional to VAT. It is a non-creditable, one-off tax and applies to a wide range of goods. Rates range from 10% to 75%. Government Regulation No. 145/2000 dated 22 December 2000as last amended by Government Regulation No. 12/2006 dated 15April 2006details various goods subject to sales tax at rates ranging from 10% to 75%. It is apparent that the sales tax base has been broadened. In addition, the rate applicable to many types of goods has been increased. For example:
  • Housing with floor space over 400m2 or electricity usage of more than 6,600 watts, apartments, condominiums and town houses are now subject to 20% (previously 10%).
  • Perfume is subject to 20% (previously 10%).
  • Helicopters and aircraft are now subject to 50% (previously 35%).
The maximum rate of sales tax has increased to 75%. Examples of goods subject to this maximum rate are:
  • Sedans/station wagons/vans with spark or compression ignition internal combustion reciprocating piston engines exceeding 3,000 cc with seating capacity of less than 10 persons
  • Certain types of liquor and wine
  • Luxury yachts
  • Jewelry and anything made from precious stones or pearls

Special industry rules

Certain industries, in particular production sharing contractors, mining companies under contracts of work and geothermal projects are subject to income tax in accordance with special ‘lex specialist’ rules. Rates of tax vary according to the generation of each respective contract.

Portfolio investment for foreigners

Expatriates living in Indonesia are fully taxable on their portfolio investments derived from whatever sources. This includes: Dividends                                A 10% final rate is applicable to foreigners if they are resident tax payers. Interest                                    15% Capital gains
Income Range (Rupiah) Tax Rate (%) Individual With Tax ID Number Tax Rate (%) Individual Without Tax ID Number
Up to 50 million 50 million-250 million 250 million-500 million more than 500 million 5 15 25 30 6 18 30 36  
  Rental Income (real estate)            10% Expatriates non-resident in Indonesia for tax purposes are subject to withholding tax on their portfolio investments, which include: Dividends                                         20% or treaty rate Interest                                            20% or treaty rate Capital gains                                    20% or treaty rate Rental income (real estate)            20% or tax treaty


There is no concept of indirect or beneficial ownership in Indonesia. Indonesia will only look at the direct ownership in determining tax. Foreign trusts would be treated as a separate legal entity for local tax purposes. Nevertheless, Indonesia does have a separate law dealing with foundations, or what are commonly called Yayasans. Recent changes in legislation require these to be for certain charitable, educational, religious or other not-for-profit purposes. In selected cases, some forms of income are non-taxable.

New Work Permit Regulations in Indonesia

To work legally in Indonesia, you must have a work permit (IMTA). Based on the work permit (IMTA), the Indonesian Immigration will issue your limited stay permit (VITAS) and the limited stay permit card (KITAS). In this article, I should explain what it will take to obtain a work permit (IMTA), what can be expected during the process of getting one, and other necessary details. The information I am going to share will be based on two legal instruments: the Work Permit Regulation (No. 16/2015) and its October 2015 update (No. 35/2015). We will keep visible here the details which the newer regulation has changed. Many agents are unaware of these changes, and may provide you with incorrect information. Should you need further assistance on securing your work permit in Indonesia, feel free to contact us!

How is a work permit (IMTA) different from a business visa?

A business visa is used for business trips, such as short courses, seminars, trainings, and meetings. A work permit is used for you to work full-time and receive salary in the country that issues the permit. If you are a Director/Commissioner in an Indonesian-registered company and plan to stay in Indonesia, you need to get a work permit (IMTA). This is even if you do not receive a salary from your position as a Director/Commissioner. If you are a Director/Commissioner (in an Indonesian-registered company) who live outside Indonesia, yet frequently visit Indonesia under a business visa, you will need to secure a work permit (IMTA) as well. This is often confusing for foreign investors — but it is better to follow the law and secure your work permit (IMTA) than to have the Immigration Office found you breaking the Immigration law. Indeed, the punishment for this can be harsh: up to 500 million IDR and 5 years of imprisonment.

What are the general requirements of obtaining a work permit (IMTA)?

From Article 36, Government Regulation No. 35, Year 2015:
  • An educational background related to the position you are going to assume in Indonesia;
  • A certificate of competence, or 5 years working experience related to the position (a letter of reference is sometimes required);
  • Proof of health/life insurance for your whole stay in Indonesia.
The general requirements do not specify any age limitation. Taking this into account, you can be eligible for a work permit (IMTA) at basically any age — even as young as 21 years old — provided that you already possess at least 5 years of work experience. Requirements for artists (impresarios), or for foreign workers assuming an urgent or temporary position, may differ. More specific rules may also apply depending on your respective industry. If you work in the Oil and Gas Industry, for example, you are required by  Regulation no. 31, year 2013 from the Indonesian Ministry of Energy and Mineral Resources to be of 30-55 years of age. This age restriction need not apply if you occupy the highest-level position in your company, such as Director or Chief of the Representative Office; or the position of a Commissioner. It also does not apply if you possess “avery specific expertise crucial to your company/institution”.

Can I obtain a work permit (IMTA) regardless of my position in the company?

As a foreign national, you cannot pursue a professional endeavor in the following sectors:
  • Human Resources department
  • Legal department
  • Health, safety, and environment affairs
  • Supply chain management
  • Quality control and inspection
(ESDM Regulation no. 31, Year 2013, Article 4) Generally speaking, if you work outside of the mentioned sectors, you are eligible to apply for a work permit (IMTA).

How long will my work permit (IMTA) last?

The answer to this question will depend on your type of industry. If you are a foreign expert from a service, trading, or consulting company, you will be granted a 6-month (as opposed to the previous 1 year) work permit recommendation. The same rule applies for foreign workers in sectors related to machinery installation and maintenance, whose education is at high school or vocational level. Commissioners, directors, and foreign staff at the managerial level and Chief of Representative Offfice will still be eligible for a 12-month work permit.

Can you give me the general picture on the process of securing a work permit (IMTA), KITAS and my Civil Registration in Indonesia?

Before you obtain your work permit (IMTA), you would walk through the process of getting these documents:
1. Foreign Manpower Employment Plan approval (RPTKA) A document approving your company’s proposal to use foreign manpower — issued by the Indonesian Ministry of Manpower
2. Pre-IMTA/Pre-working permit This process replaces the TA-01 procedure for working visa. During this process, you will be notified about how long you can stay in Indonesia for your work.
3. Payment of the monthly development funds to the Indonesian Ministry of Manpower (DKP-TKA) The amount your company should pay will be based on your length of stay (as you will be notified in the previous procedure). The charge for the DKP-TKA is at USD 100/month and needs to be relieved all in advance. E.g: USD 600 for a 6-month working period and USD 1,200 for a 12-month working period
4. Working permit (IMTA) You can now legally work in Indonesia
5. Limited stay permit (VITAS) Your IMTA will be the basis of the Indonesian Immigration to issue you the Limited stay permit/ VITAS. The validity of your VITAS will adjust to the maximum duration of stay granted for your position; and will be calculated from the day you enter Indonesia. VITAS approval is processed at the immigration in Indonesia and the VITAS itself will be issued abroad by an Indonesian embassy of your choice
6. Limited stay permit card (KITAS) As soon as you enter Indonesia with a VITAS, it has to be converted to a KITAS, valid for as long as your VITAS is. During this process you will also have to go to the Immigration office to record your biometric data
7.MERP / Multiple Entry and Re-Entry Permit With this document, you can exit and re-enter Indonesia with the same limited stay permit. It is valid as long as your KITAS is
8. Civil registration Family card, temporary residential card, various documents required for living in Indonesia
In Emerhub, the entire process typically takes 6 weeks and is handled entirely by our consultants.

Extending your work permit (IMTA), limited stay permit card (KITAS), and Civil Registration documents

The process of extending your work permit, KITAS, and Civil Registration documents is almost similar to that of getting the new ones. For extension, however, you will not need need to exit Indonesia and obtain another limited stay permit (VITAS). This exemption is only applicable for the holders of a 12-month work permit (IMTA) and limited stay permit card (KITAS). You cannot extend a 6-month IMTA and KITAS. If you are a holder of these documents, before their expiration you will need to do a re-newal process, and in advance of the renewal, you will need to exit Indonesia as a part of an Exit Permit Only procedure. Due to the fast-changing nature of Indonesian government regulations, we suggest you to start preparing for your extension at least 2 months before the expiration date of your IMTA, KITAS and Civil Registration documents.


Indonesia relations have taken on increasing importance. Indonesia is the world's third largest democracy, has the largest Muslim-majority population, is the tenth-largest economy in the world by purchasing power, and possesses the world's greatest marine biodiversity and its second greatest terrestrial biodiversity. Indonesia also borders the South China Sea, which has the world's busiest sea lanes- over $5 trillion in cargo and as much as 50 percent of the world's oil tankers pass through the South China Sea every year. The United States was one of the first countries to establish diplomatic relations with Indonesia in 1949, following its independence from the Netherlands. Indonesia's democratization and reform process since 1998 has increased its stability and security, and resulted in strengthened US.-Indonesia relations. The United States and Indonesia initiated in 2010 a Comprehensive Partnership to foster consistent high-level engagement on democracy and civil society, education, security,climate, maritime, energy, and trade issues, among others. Based on its success, in 2015 the two countries upgraded the relationship to the US-Indonesia Strategic Partnership, extending cooperation to issues of regional and global significance.


Indonesia, the largest economy in Southeast Asia, has enjoyed steady economic growth over the past decade, averaging between 5-6 percent, with moderate inflation, rising foreign direct investment, and relatively low interest rates. Indonesia's annual budget deficit is capped at 3 percent of GDP, and the Govemment of Indonesia lowered its debt-to-GDP ratio from a peakof 100 percent shortly after the Asian financial crisis in 1999 to less than 25 percent today. Indonesia's growing middle dass, strong domestic demand, large and youthful population, and need for new infrastructure makes it an important potential market for U.S. products and investment U.S. bilateral goods trade with Indonesia totaled almost $27 billion in 2015, while bilateral trade in services with Indonesia exceeded $3 billion. Principal US export to Indonesia indude transportation equipment, including aircraft, food and agricultural product, machinery and equipment, and chemicals. However, there are significant challenges to our bilateral economic relationship: the implementation of protectionist laws, limited infrastructure, and an unevenly applied legal structure.


Indonesia and the United States belong to a number of the same international organizations and forums, induding the United Nations, ASEAN Regional Forum, the East Asia Summit, Asia-Pacific Economic Cooperation forum, 6-20, International Monetary Fund, World Bank. and World Trade Organization. Indonesia also cooperates with the United States on issues of regional and global concern such as violent extremism, global peacekeeping operations, health pandemics,and climate change.


Indonesia faces domestic development challenges; uneven benefits from democratic and economic progress; fragile institutions that lads opacity to adequately address its social service needs; and risks from climate change and environmental degradation. It is also home to 41 million people living below the international poverty line of $1.25 a day. Cooperation extends across a range of key development areas:strengthening education and professional ties, improving governance, strengthening health systems, advancing security, partnering on international issues, and supporting environmental stewardship. Both countries are committed to strengthening university partnerships and increasing the number of American and Indonesian students who study in each other's country. Currently, approximately 8,000 Indonesians study in the United States, and 500 US. citizens study in Indonesia.

U.S. development assistance is delivered through the U.S. Agency for International Development (USAID), Millennium Challenge Corporation and Peace Corps. USAID has been in Indonesia for over 60 years, enabling Indonesians to realize their full potential by partnering with Indonesians to become self-reliant, advanced, well governed, and prosperous. The innovative programming covers a five-year horizon valued at approximately $700 million in the heath, environment, education, and governance sectors. In 2013, the $600 million Millennium Challenge CorporationCompact emered into force with investments in renewable energy, maternal and child health, and Indonesia's efforts to modernize its public procurement INDONESIA system.The Peace Corps works in u nderserved and rural schools and communities to help Indonesia reach its education development goals through grassroots people-to-people contact, cultural exchange, and technical skills transfer.

Indonesia has the third-largest area of tropical rainforest on the planet, with 1313 million hectares - equivalent to 68% of its landmass - covered by forests Indonesia is considered one of the worldstopgreenhouse gas emitters. The majority of Indonesia's greenhouse gas emissions stem from land use activities and peat fires. US assistance programming supports Indonesia's goals of reducing greenhouse gas emissions through improved land use practices and increasing the amount of renewable energy generated as a proportion of Indonesia's overall energy production.


The US. Ambassador to Indonesia is Joseph R. Donovan Jr.; other principal embassy officials are listed in the Department's Key Officers List. Indonesia maintains an embassy in the United States at 2020 Massachusetts Avenue NW, Washington, DC 20036 (tel. 202-775-5200).

Area and population

Indonesia is considered to be one of the richest countries on Earth in terms of its biological diversity and natural resources. Fragmented into more than 17,000 islands, the archipelago stretches more than 5,000 km from east to west and with its complex geographical make-up and unique bio-geographical position plays host to an enormous diversity of ecosystems, as well as having a fascinating history and heritage.

In terms of human diversity, Indonesia rank among the global leaderswith some 336 distinct cultures being recognized. It is the fourth most populous country in the worldafter China, India and the United States.Although home to the world’s single largest Moslem population, the five principles (Pancasila) on which Indonesia’sConstitution is based guarantee Christians, Hindus, Buddhists and other faiths the freedom to practice their beliefs.

Population:262 million (Feb. 2017 estimate)

Annual population growth rate: 1.17% (2015 to 2016)

Ethnic groups (2010 census): Javanese 40.2%, Sundanese 15.5%, Batak 3.6%, Madurese 3.0%, Betawi 2.9%, Manangkabau2.7%, Buginese 2.7%, others 29.4%.

Religions (2010 census):Moslem 87.2%, Protestant 6.9%, Catholic 2.9%, Hindu 1.7%, Buddhist and other 1.3%.

Area:circa 1.91 million sq. km. (737,000 sq. mi.), about three times the size of Texas; maritime area: 7,900,000 sq. km. (inclusive of government-claimed exclusive economic zone)

Cities: Jakarta, capital city (est. 13 million). Other cities: Surabaya 3.2 million, Bandung 3.0 million, Bekasi 2.5 million, Medan 2.5 million, Semarang 2.1 million, Tangerang 2.0 million; Depok 1.9 million; Palembang 1.6 million and Makassar 1.4 million, plus up to an additional 3.5 million live in the surrounding areas of each city. Jakarta is located 400 km south of the equator.

Terrain: More than 17,000 islands,nearly 9,000 of which have been named according to government estimates, with over 900being permanently inhabited. In general, the larger islands consist of coastal plains with mountainous interiors.

Climate: Equatorial, but cooler in the highlands. In the coastal plains, average high temperatures vary between 27oC and 33oC depending on season and location, with lows rarely dropping much below 23oC. These temperatures are somewhat lower inland and drop roughly 1oC per each 90 meter rise in elevation.Indonesia has two main seasons, a wet season running from November to April and a dry season from May to October, although the timing of these can be disrupted due to the El Nino effect.

Indonesia’s young, social, and increasingly wealthy population creates high growth potential for the country’s digital economy.

Players in the startup ecosystem are rolling up their sleeves to address hurdles that are keeping Indonesia’s digital economy from becoming a predicted US$130 billion behemoth.

Logistics and expensive oranges

Domestic delivery in Indonesia is more expensive than international shipping into the country.

According to a World Bank report last year, it is cheaper to ship a container of mandarin oranges from Shanghai to Jakarta than to send a similar freight from Jakarta to Padang in West Sumatra, which is only one-sixth the distance away.

Unsurprisingly, unreliable logistics has caused the nation’s ecommerce growth to fall behind expectations. However, with a US$400 million funding from the World Bank, Indonesia’s logistics networks is expected to improve.

Meanwhile, logistics startups continue to offer immediate solutions to consumers. Homegrown motorbike-hailing app Go-Jek has evolved into a logistics service that can traverse through congested roads in 25 cities in Indonesia. Policymakers have recognized the startup’s impact in helping businesses reach more customers and boost revenues.

Homegrown and international logistics startups such as Ninjavan, Lalamove, Anterin, Deliveree also continue to expand.

The recent entry of Chinese tech giants Alibaba and in Indonesia’s ecommerce market is expected to push established logistics companies to stay on their toes. Alibaba, through China Smart Logistics, has already partnered with Singpost and Indo Post to halve the delivery time for shipping goods from China to Indonesia.

Indonesians need to collaborate on electronic payments

85 percent of the population still use cash transactions. A majority of the population remains unbanked (PDF).

Telcos, banks, and fintech startups have created their own payment platforms to make financial services more accessible. Different lending startups are also furthering financial inclusivity in the country. Despite the booming startup ecosystem in Indonesia, there are nearly 49 million unbanked SMEs in the country that cannot provide collateral. P2P lending startups such as Amartha, Julo, and Investree aim to serve this sector. Unsurprisingly, local P2P lending startups have successfully raised funding in the recent years and are already catching the attention of international investors.

Ecommerce installment lending startups are also helping further financial inclusivity in Indonesia. Some notable ones with fresh funding are Cicil, a platform for college students to access installment loans for digital devices, Akulaku, an online shopping app, and Cermati, a web portal for financial products such as personal loans and credit cards.

Indonesians prefer cash transactions due to a lack of trust in online payments, according to a 2017 Macquerie report (PDF). Beyond fintech, some of the most popular social platforms in the country, such as Line, WhatsApp, BBM, and Facebook, are evolving into ecommerce solutions that bridge businesses or sellers to customers and build customer trust through real-time one-to-one conversations between users. It has paid off thus far – in 2014, nearly 27 percent of ecommerce transactions in the country were done through social media.

Indonesia has yet to see an online payment breakthrough as there are too many online payment options that can be confusing to consumers. Moreover, Indonesia’s recent crackdown on ewallets, poses a challenge to startups. While Indonesia’s infrastructure development has a long way to go, players in its digital ecosystem – startups, corporations, investors, government and other institutions included – all have the capacity to provide solutions to fill in the gap.


Indonesia is Southeast Asia's largest economy with a GDP of 932 billion in 2016 (USD), ranking 8th in the world based on purchasing power parity, and averaging over 5% growth over the last decade. Growth is projected by the IMF to reach 5.196 for 2017 due to strong private consumption. President Joko VVidodo (known as lolcown took office in October 2014 and has pledged to improve infrastructure, diversify the economy, and reduce barriers to doing business in Indonesia as a means of increasing economic growth.

Over the past decade Indonesia has enjoyed steady economic growth, though less than needed to pull the country into upper middle-income status. Sound macroeconomic policies, combined with growing domestic demand and high commodity prices, propelled economic expansion in recent years, but protectionist policies, corruption at all levels of government, poor infrastructure, weak rule of law, and labor rigidity continue to pose challenges.

Beginning in September 2015, the Government of Indonesia (G01) announced a series of economic reform packages in an effort to spur its GDP growth and encourage foreign investment. The announced reforms are a positive signal of the Jokowi administration's desire to improve the business climate; however, the implementation and impact of the policy reforms remains limited. Nonetheless, the Indonesian market has many positive attributes.

Indonesia has a GDP per capita of $3,604 ($11,700 at PPP) that exceeds many of its ASEAN neighbors such the Philippines and Vietnam, and with 258.8 million people (IMF), Indonesia's economy comprises nearly half of ASEAN economic output.

Indonesia is a thriving democracy with significant regional autonomy. It is located on one of the world's major trade routes and has extensive natural resource wealth distributed over an area the size of the United States and comprised of 17,508 islands (CIA World Factbook).

According to Euromonitor International, Indonesia has the world's fourth largest middle class with 17.3 million households as of 2014, and is forecasted to expand to around 20 million households by 2030.

Globally, Indonesians are the fourth largest users of Facebook (87 million, April 2017). According to Statista, in May of 2016, Indonesia was found to have the third highest number of active Twitter-users in the world, after the United States and India. Also according to Statista, in May of 2017, Indonesia had the fifth highest number of imemet users in the world at 132 million.

MARKET CHALLENGES The business environment in Indonesia is challenging, with Indonesia ranked 91 out of 190 countries in the Ease of Doing Business 2017 report by the World Bank U.S. firms encounter complex bureaucratic and regulatory requirements which make it time-consuming to enter the market.

Indonesian infrastructure and service networks have not been developed or maintained to keep pace with the booming consumer-led economy, causing increased transaction costs and inefficiencies that hamper exporters and investors. Deregulation has reduced some barriers, but non-tariff barriers remain widespread and INDONESIA the bureaucracy can still be cumbersome. Laws are often opaque or conflicting. Import licensing procedures and permit requirements,product labeling requirements, pre-shipment inspection requirements, local content and domestic manufacturing requirements, and quantitative import restrictions impede U.S. exports.

Although significant anti-corruption measures have been undertaken by the Indonesian govemmem, corruption remains a concern for many businesses looking to operate within Indonesia. Indonesia ranked 90th on Transparency International's Corruption Perceptions Index 2016. Companies are recommended to have a solid due diligence process in place and should consult with the U.S. Commercial Service prior to signing with agents and distributors. Although improving, significant rule-of-law issues persist Formal dispute settlement mechanisms are not considered effective, and business and regulatory disputes—which would generally be considered administrative or civil matters in the United States—may be considered criminal cases in Indonesia. The court system is widely viewed as corrupt. In addition, international arbitration is widely discouraged by the government of Indonesia.

Competition from 3rd county firms such as Singapore, China, Japan, Australia, Korea, Russia, France, and other regional players is intense, and U.S. firms often have to significantly adapt their business model and pricing scheme to compete effectively. Official trade statistics understate market opportunities and American presence given the large numbers of U.S. shipments that are recorded as U.S. exports to Singapore, but which ultimately enter Indonesia, and U.S. sales in Indonesia that U.S. multinationals source via third country.


Consumer-related market opportunities continue to lead growth in the world fourth-largest country, and expansion in the retail, health, education, telecom and financial services sector have boomed in the last few years. The Indonesian consumer is ranked as one of the most confident in the world, and 5096 of Indonesia's 255 million citizens are under the age of 30.

Indonesia aviation market is growing at 2096 peryearand favorsUS.products.Airaaft replacement parts and services is a valuable and significant market. There is also demand for air traffic control and airport logistics services and ground support equipment A competitive and expanding banking market offers significant opportunities for IT and banking equipment, software and technology providers.

Indonesia's under-developed public infrastructure remains a major national challenge and could present significant opportunities in aviation, rail, ports and land transport, as well as in municipal infrastructure projects such as water supply and wastewater systems.

As the Indonesian military expands it budget, there are opportunities for U.S. defense manufacturers to sell a range of military aircraft, vehicles, communications systems, spare parts, and maintenance services. Monitoring and protection of sea-borne traffic for both national security and fisheries enforcement present new opportunities.

Important opportunities outside ofJakarta remain in energy and electricity transmission services. The Government of Indonesia has announced its intention to increase electricity generation by 35,000 MW by 2019. It is not going to meet that goal but growth in power generation projects, conventional and renewable, and including Independent Power Producers, is expected to continue for the next decade.

Telecommunications equipment and services and satellites remain excellent areas for American products and services, which have a comparative advantage technologically.

Education and professional training, medical equipment and high-quality American agricultural commodities all retain their market edge even with premium prices.

Emerging opportunities include palm oil, biofuel processing, clean energy and technology to improve local production opacity, and potentially cold storage and fish processing equipment and services.


U.S. companies must visit the Indonesian market in order to properly choose an appropriate agent or distributor in Indonesia. Appointment of a representative requires ore, since it is difficult to terminate a bad relationship. Qualified representatives will not take U.S. principals seriously unless they make a commitment to visiting the market on a regular basis. Patience, persistence and presence are three key factors for success in Indonesia.

Important factors affecting purchasing decisions in Indonesia are pricing, financing, technical skills, and after-sales service. Firms should be prepared to invest in training for their local staff, from entry-level personnel to experienced managers.

Indonesian non-financial firms often depend on trade financing with nearly 5096 of their financing obtained from abroad via loans, bonds, and other credit U.S. Ex-Im Bank,OPIC, and SBA are all suitable providers of trade and investment financing for local projects.

Although it is possible for US. companies to sell directly to the government and gate-owned companies, local agents or distributors are often critical (and at times, required by law) for successful project development and delivery of products or services. Many government tenders are awarded based on the proven track record of providers or long-established relationships between the government agency and an agent or distributor.