Indonesia Tax Holiday 2026 Under OECD Global Minimum Tax: Refundable Tax Credit

Consider a company that has held a 100 percent Corporate Income Tax exemption in Indonesia for the past eight years under the pioneer industry tax holiday. The exemption was factored into their return on investment projections, signed off by the board, and used to justify the original capital commitment. Then their finance team runs a GloBE calculation for fiscal year 2025 and finds that the effective tax rate in Indonesia, at zero, falls 15 percentage points below the global minimum. The top-up tax liability that follows is not small. And because their parent entity is based in a jurisdiction that already operates the Income Inclusion Rule, it is collected there, not in Indonesia. The tax holiday did not eliminate the liability. It simply moved it to a jurisdiction the company cannot control.

This is not a projected risk for 2030. It is the operational reality for in-scope MNE groups from fiscal year 2025 onwards under Minister of Finance Regulation (Peraturan Menteri Keuangan or PMK) No. 136 of 2024, which came into force on 31 December 2024.

Since the Ministry of Finance (Kementerian Keuangan) enacted PMK No. 136 of 2024, Indonesia formally joined the global framework for a 15 percent minimum effective tax rate for large multinational enterprises (MNEs). A tax holiday that brings a company’s effective tax rate below that threshold no longer eliminates tax liability. It simply shifts where that liability is paid.

This article explains what that shift means for companies currently holding or planning to apply for a tax holiday in Indonesia, why the government is transitioning toward a Refundable Tax Credit mechanism, and what the practical compliance implications are for 2026 and beyond.

What the OECD Global Minimum Tax Actually Does to a Tax Holiday 

The OECD’s Pillar Two framework, implemented in Indonesia through PMK No. 136/2024, establishes a Global Anti-Base Erosion (GloBE) minimum effective tax rate of 15 percent. It applies to MNE groups with consolidated annual revenues of at least EUR 750 million in at least two of the four preceding fiscal years. For foreign-owned companies already operating in Indonesia, the same EUR 750 million threshold also triggers Indonesia’s transfer pricing documentation obligations, making GloBE compliance part of a broader set of cross-border tax requirements that now apply simultaneously.

The mechanism works through three charging rules. The first is the Income Inclusion Rule (IIR), which requires an Indonesian parent entity to pay a top-up tax if its subsidiary in another jurisdiction pays tax at below 15 percent. The second is the Domestic Minimum Top-Up Tax (DMTT), which requires all constituent entities operating in Indonesia to pay a top-up tax if their effective tax rate in Indonesia falls below 15 percent. The third is the Undertaxed Payment Rule (UTPR), which took effect from 1 January 2026, applying to cases where top-up tax cannot be collected under IIR or DMTT.

The consequence for tax holidays is direct. If a company receives a 100 percent Corporate Income Tax exemption under Indonesia’s pioneer industry incentive, its effective tax rate in Indonesia drops to zero. Under GloBE rules, the difference between zero and 15 percent becomes a Top-Up Tax obligation. For a company whose home jurisdiction or another group entity’s jurisdiction operates IIR, that top-up tax is collected there, not in Indonesia. Indonesia collects nothing, and the incentive it offered to attract the investment produces no fiscal return.

As of 18 August 2025, the OECD officially designated PMK No. 136/2024 as a qualified domestic minimum top-up tax. This means Indonesia is now authorized to collect the top-up tax domestically before other jurisdictions can claim it. The practical effect is that Indonesia can retain revenue it would otherwise lose to foreign tax authorities, but only if its incentive framework is restructured to be compatible with GloBE rules.

Why Tax Holidays Are Being Replaced by Refundable Tax Credits 

The core problem with a tax holiday under GloBE is that it reduces covered taxes, which directly lowers the measured effective tax rate and triggers the top-up tax mechanism. A company that receives a tax exemption essentially converts a domestic fiscal benefit into a liability payable elsewhere.

A Refundable Tax Credit (Kredit Pajak yang Dapat Dikembalikan) operates differently. Under the GloBE framework, a qualified refundable tax credit is treated as an increase to income rather than a reduction of covered taxes. This means it does not reduce the effective tax rate in the same way a tax exemption does. A company receiving a cash refund or equivalent from the government retains a fiscal benefit without triggering the top-up tax threshold.

The Directorate General of Taxes (Direktorat Jenderal Pajak or DJP) has publicly confirmed this direction. As stated by Mekar Satria Utama, Director of International Taxation at DJP, Indonesia can no longer continue offering tax exemptions in the conventional form to MNEs subject to the global minimum tax. The transition to a refundable tax credit structure is not a withdrawal of investment incentives. It is a restructuring of how those incentives are delivered so that they remain economically meaningful under the new international tax architecture.

The OECD’s own framework supports this approach. Starting from fiscal years beginning on or after 1 January 2026, qualified tax incentives under the newly introduced substance-based safe harbor may be treated in a manner that preserves their investment value without triggering adverse GloBE calculations.

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The Current Regulatory Position in Indonesia 

PMK No. 136/2024 and the implementing regulation DJP Regulation No. PER-6/PJ/2026, issued in May 2026, together establish the procedural framework for GloBE compliance in Indonesia.

DJP Regulation PER-6/PJ/2026 provides the standardized forms, notification procedures, and submission timelines that were absent during the first year of PMK 136/2024’s operation. Under this regulation, MNEs must submit a notification to DJP no later than 15 months after the end of the relevant GloBE fiscal year, extended to 18 months for the first fiscal year. This addresses a regulatory gap that created uncertainty throughout 2025, when the substantive rules were in force but administrative procedures were not yet formalized.

For companies currently holding a tax holiday approval, PMK No. 136/2024 introduces an important provision. A multinational company group in Indonesia, whether currently receiving a tax holiday or planning to apply for one, is subject to additional tax obligations under the GloBE framework. The amount of the Corporate Income Tax reduction itself is unchanged. What changes is what happens to the effective tax rate calculation as a result of that reduction, and whether a top-up tax liability arises at the Indonesian or group level.

For companies that are not part of an MNE group meeting the EUR 750 million revenue threshold, the GloBE rules do not apply directly. Indonesia’s tax holiday framework remains substantially intact for these investors under PMK No. 69 of 2024, which amends PMK No. 130/2020 on pioneer industry incentives and provides a Corporate Income Tax reduction of 50 percent for investments of at least IDR 100 billion, and 100 percent for investments of IDR 500 billion and above, for a period of five to twenty years depending on investment scale for a period of five to twenty years depending on investment scale.

For companies trying to determine which category applies to them, the starting question is straightforward: does the consolidated annual revenue of the ultimate parent entity’s MNE group reach EUR 750 million in at least two of the four most recent fiscal years? If yes, GloBE obligations apply and a top-up tax assessment is necessary. If no, the tax holiday framework under PMK No. 69 of 2024 applies without GloBE complications, and the application process through OSS-RBA remains the primary path. The distinction matters because the compliance steps, documentation requirements, and planning considerations are entirely different for each group. 

What This Means for Companies Planning to Invest in Pioneer Sectors 

The practical implications differ depending on a company’s profile.

For MNE groups above the EUR 750 million threshold, a tax holiday in Indonesia no longer provides the same economic benefit it did before PMK 136/2024. The tax exemption reduces Indonesian tax to zero, but the top-up tax then recaptures that benefit either in Indonesia under DMTT or in the parent jurisdiction under IIR. The net effect is that the company pays 15 percent regardless. Before making an investment decision that factors in a tax holiday, a thorough GloBE impact analysis is necessary to determine where the top-up tax liability actually falls and whether the incentive still produces a net financial benefit. Part of that analysis involves reviewing the group’s holding structure and treaty positions, since Indonesia’s tax treaty network interacts with GloBE calculations in ways that can shift where the effective tax burden ultimately sits. XPND has covered this dimension in a separate article on Agreement P3B and dividend withholding tax in Indonesia.

For smaller foreign investors and domestic entities not subject to GloBE, the tax holiday remains a meaningful incentive. The pioneer industry framework is intact, the application process through OSS-RBA (Online Single Submission Risk Based Approach) is unchanged, and the 18 sector categories eligible for a 100 percent exemption continue to apply. For companies at this stage, the more practical starting point is the step-by-step application guide on how to obtain a tax holiday in Indonesia 2026, which covers eligibility, investment thresholds, and the OSS-RBA submission process in full.

For all companies, the transition toward a Refundable Tax Credit model signals that future incentive applications may shift from the current exemption structure to a credit-based framework. Companies planning multi-year investment cycles should factor this transition into their tax planning assumptions now rather than after the new framework is formalized.

The Compliance Obligations That Apply Now

Even for companies that are not yet directly affected by GloBE, two compliance obligations are worth noting.

First, any MNE group meeting the revenue threshold must assess whether their Indonesian entities constitute constituent entities under PMK 136/2024 and whether any DMTT, IIR, or UTPR obligations arise from their current Indonesian operations. This assessment requires a GloBE effective tax rate calculation, which is distinct from the standard Corporate Income Tax calculation and involves adjustments to financial accounting figures. Companies should also note that GloBE calculations rely heavily on the accuracy of financial statements. Indonesia’s audit requirements for foreign companies provide the foundation for audit-ready financial records that GloBE reporting depends on.

Second, under DJP Regulation PER-6/PJ/2026, MNEs must submit the GloBE Information Return (GIR) and a top-up tax notification using standardized forms. The 18-month window for the first fiscal year means that the first notification deadline for fiscal year 2025 falls in mid-2026. Companies that have not yet begun this process are already operating within that window.

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How XPND Supports Tax Holiday and Global Minimum Tax Compliance

The intersection of Indonesia’s tax holiday framework and OECD Pillar 2 compliance is one of the more technically complex areas of Indonesian tax planning in 2026. It requires simultaneous understanding of domestic pioneer industry regulations, GloBE effective tax rate calculations, and the evolving transition toward a Refundable Tax Credit model.

At XPND, our Strategic Advisory and Tax Compliance teams work together on exactly this type of cross-disciplinary analysis. For companies currently holding a tax holiday, we conduct a GloBE impact assessment to determine whether a top-up tax liability exists and where it falls within the group structure. For companies planning to invest in pioneer sectors, we help structure the investment to maximize the economic benefit of available incentives under the current and transitional regulatory framework.

For companies that need to fulfill their GloBE notification and filing obligations under DJP Regulation PER-6/PJ/2026, our Tax Compliance team manages the preparation and submission of the GIR and top-up tax returns in accordance with DJP’s standardized format.

Companies that want to understand how the Global Minimum Tax affects their specific investment structure in Indonesia can reach out to the XPND team at info@xpnd.co.id.