During the production stage, the company is required to provide the following Exploitation reports to the Department of Mines and Energy:

  • Fortnightly statistical report;
  • Monthly statistical report
  • Quarterly report concerning progress of operations;
  • An annual report; and
  • Other reports to various departments.

The company may export its production, but is encouraged to meet domestic demand first. Sales to associates are required to be at arms’ length prices. Sales contracts exceeding three years are subject to Government approval.


The CoW company may choose to operate the mine itself or it may subcontract operation of the mine.


The company pays income tax at the following rates:

  • 10% on taxable income up to IDR 25,000,000
  • 15% on taxable income exceeding IDR 25,000,000 and up to IDR 50,000,000
  • 30% or the prevailing rate, whichever is lower, on taxable income exceeding IDR 50,000,000.

Should the brackets change, the rates above will be applied to the new tax brackets.


Taxable profit is calculated in accordance with the provisions included in the CoW. Where the CoW is silent on a particular matter, the general Income Tax Law applies. Tax is imposed on net taxable income which, subject to the provisions of the CoW, is defined as income determined in accordance with “sound, consistent and generally accepted accounting principles in the mining industry”.


Note that the tax treatments described in this booklet relate specifically to the 7th generation CoW. Appendix 1 sets out the differences between the various generations of CoWs.


Operating expenses are defined in the CoW to be “the amount paid or accrued for all expenditures attributable to the Enterprise in such year to the extent that the useful life is less than one year.” Operating expenses include supplies, contracted services, insurance, losses, royalties on intellectual property, processing expenses, repairs and maintenance and so forth and are deductible in the year incurred.


Fixed assets may be depreciated under either the diminishing value or straight-line method. The rates of depreciation are generally favourable, with most equipment being depreciated over an 8-year effective life (25% diminishing value; 12.5% straight-line). A full year’s depreciation is allowed in the first year of use. Infrastructure assets such as buildings, roads, bridges, educational and medical facilities are also depreciable.


Intangible assets such as patents, rights, concessions, licences and rental contracts can be amortized under either the diminishing value or straight-line methods based on their useful life.

In addition, all pre-production costs, including expenses to obtain mining or survey rights or information, general survey, exploration, feasibility, development, employee training and assistance for education, which have been capitalized, can also be amortized from the commencement of production.


Fixed assets, not intended for transfer or sale, may be revalued to market value, provided all current tax obligations have been settled. The difference between market value and tax book value of the assets is first offset against prior and current years’ tax losses. Any excess is subject to a 10% final tax.

The revalued assets are depreciated in the normal manner based on the revalued amount. If a revalued asset is sold less than five years after the revaluation, an additional final income tax is imposed.

Bonus shares issued from the revaluation surplus are not considered a dividend for tax purposes.


Current on-site exploration expenses are deductible in the year incurred where the expenses relate to the Contract Area or the Mining Area.


Off-site exploration expenses are subject to the general tax laws relating to amortization.


For accounting purposes, the company is required to maintain a reclamation reserve to provide for management of the environment and reclamation work required to be carried out during the contract period and at the end of the life of the mine. If the reserve is audited by the Government and is funded by a deposit by the company in a State Bank, the amount deposited in any year is deductible when deposited. The actual cost of management of the environment and reclamation work is drawn first from the reserve. If the actual cost exceeds the reserve, the balance is deductible.

If the reserve is an accounting reserve only, no deduction is available until the expenditure is incurred. From a practical viewpoint, adoption of this approach may cause the company to incur losses at a stage when the company is earning little or no income.


•Employee benefits

The CoW provides concessional tax treatment of benefits provided to employees in the Contract Area. The cost of most benefits provided to employees located in the project area is deductible to the company in the year incurred, and is not taxed in the hands of the employees. The CoW is very specific as to which benefits are deductible.

•Parent Company/Affiliate charges

Selling, general and administrative expenses are deductible when incurred including reasonably and directly attributable costs paid to affiliates. The amount of the deduction is limited to the amount that would have been paid to a non-related party for the same service.

Payments for services may be subject to withholding tax. Where payments for services are made to an Indonesian company, the payments will be subject to domestic withholding tax. This may be a prepayment of the payee company’s income tax or a final tax, depending on the terms of the CoW and the nature of the service provided.

Where a payment for services is made to an offshore company, whether or not it is subject to withholding tax will depend on the nature of the service and the tax jurisdiction of the service provider.

The CoW company may be required to self-asses VAT on payments made to offshore companies.

•Employee facilities

The cost of education and training facilities, facilities for religious activities and an employee canteen are deductible when incurred.


The CoW company is obliged to collect VAT on all VATable payments for services.

•Withholding tax
The CoW company is obliged to withhold tax from most payments for services. The amount of withholding tax will depend on the type of service and whether the service provider is resident or non-resident. In many cases, even though the tax is creditable by the service provider, this will increase the cost of doing business in Indonesia.

The specified rate of withholding tax and determination of whether the withholding tax is a prepayment of the payee’s income tax or a final tax may be different under the general income tax law and the payer’s CoW. It is recommended that any differences are identified and reconciled prior to entering into agreements with service providers.

•Related parties
Where related parties provide services to the CoW, the transactions will be subject to Indonesia’s transfer pricing provisions. This is relevant for transactions with resident and non-resident affiliates and for transactions between branches and head offices.

•Service companies
Because a company can be party to only one CoW, it is common for mining groups to have more than one company in Indonesia. Group overheads can be borne by yet another company formed to service the group CoW companies. This can provide operational efficiencies. However, tax inefficiencies may be created by the use of a service company. Technical and management services will be subject to withholding tax, which will either be a prepayment of the service company’s corporate tax or a final tax depending on whether the services are considered to be consulting services. The rate of withholding will also depend upon whether the services are considered to be consulting services.

In either case, where the group is in the pre-production stage, it is likely that no regular income tax would have been payable by the group if the service company was not used. There are no group tax relief provisions in Indonesia, so even where the group is taxable, it is important that withholding tax is prepaid by a company which will earn taxable income.

The charges and recoupment of direct expenditure will also be subject to 10% VAT.


Withholding tax on dividends paid to founder shareholders is set at 7.5%. This rate is less than most treaty rates. Withholding tax on dividends paid to non-resident non-founder shareholders is set at 20%, though this rate is reduced by most of Indonesia’s double tax agreements.

No dividend withholding tax is payable on dividends paid to Indonesian companies, except for resident founder shareholders, which are subject to 7.5% withholding tax.


CoW companies are designated as VAT Collectors by the State Treasury. This means that they pay VAT directly to the Treasury, rather than to their suppliers. The application of the VAT law to exports by mining companies is complex and companies are advised to obtain specialist tax advice in relation to


Under the CoW, tax losses can be carried forward for up to eight years and are recouped on a first-in, first-out basis. Tax losses can not be carried back.


Royalties are payable quarterly to the Government based on the actual volume of production according to details set out in the CoW. The royalty is tax deductible.

Dead rent and land and building tax
The company is required to pay dead rent and land and building tax as set out in the CoW. Dead rent is an annual charge based on the number of hectares in the Mining Area. Both taxes are deductible for income tax.

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