0

TAX ALERT FOR INTERNATIONAL NGOs IN INDONESIA

Indonesian Foundation Law, International NGO Indonesia

International NGOs (INGOs) operating in Indonesia face newly enforced tax obligations. These requirements, covering annual audits, fiscal clearance certificates, and coordinated enforcement by supervisory ministries, mark a new era of compliance.

Introduction

Indonesia has sharpened its regulatory and tax compliance framework for International Non-Governmental Organizations (INGOs). The Directorate General of Taxes (DJP), working in tandem with the Ministry of Foreign Affairs and other supervisory ministries (K/L pengampu), now places tax accountability at the heart of licensing and oversight.

In this alert, we highlight five critical obligations outlined in information we obtained on 25 September 2025, which INGOs must urgently integrate into their compliance systems. From our view, these obligations are not optional as failure to comply risks suspension, denial of license renewal, or even termination of operations in Indonesia.

This article complements the broader due diligence framework discussed in MSS Counsel’s “International NGOs in Indonesia: Legal and Tax Compliance Due Diligence”, underscoring the urgent need for INGOs to adopt a proactive compliance roadmap. The discussion is accessible in:

https://msscounsel.com/2025/07/18/international-ngos-in-indonesia-legal-and-tax-compliance-due-diligence-in-accordance-with-the-national-regulatory-framework/.

1. Annual Audited Financial Statements by a Registered Indonesian Public Accountant

Every INGO must prepare and submit annual financial statements audited by an independent public accountant registered in Indonesia.

  • Why it matters: Audited statements provide assurance to both regulators and donors that the INGO’s use of funds is transparent, accurate, and aligned with ISAK 35 (the Indonesian accounting standard for nonprofit entities).
  • Risk of non-compliance: Submitting unaudited or foreign-only audits will no longer suffice. DJP and supervisory ministries require Indonesian-registered auditors to sign off. Failure to comply may cast doubt on financial integrity and trigger regulatory red flags.
  • Recommended action: INGOs should establish an annual audit calendar, appoint an accredited local audit firm, and prepare documentation well in advance.

2. Fiscal Clearance (SKF) Required at Termination or Renewal of Memorandum of Understanding (MSP)

At the conclusion or renewal of the Operational License through the MSP, foreign NGOs must settle all tax obligations and furnish a Surat Keterangan Fiskal (SKF) issued by DJP.

  • Why it matters: The SKF is now a gatekeeper document. Without it, renewal of MSP is impossible, and program operations may legally cease.
  • Risk of non-compliance: An INGO that cannot produce SKF at renewal will face operational paralysis, loss of donor trust, and reputational risk.
  • Recommended action: Establish quarterly tax reviews to ensure withholding (PPh 21, PPh 23, PPh 26, PPh Final) and annual filings are up to date, avoiding last-minute disputes with DJP.

3. Sanctions for Non-Fulfillment of Tax or Financial Obligations

If an INGO fails to meet tax or financial obligations, the supervisory ministry (K/L pengampu) is empowered to:

  • Issue a written warning;
  • Suspend program operations temporarily; or
  • Deny extension of MSP altogether.
  • Why it matters: The sanction authority rests not only with DJP but also with supervisory ministries. This dual enforcement structure significantly increases the risk profile for non-compliance.
  • Risk of non-compliance: Suspension halts program implementation, affecting beneficiaries and undermining donor contracts. Denial of MSP extension could permanently end operations in Indonesia.
  • Recommended action: Maintain active communication with the K/L pengampu, report compliance regularly, and resolve any tax or reporting gaps before they escalate to sanctionable events.

4. Coordination with DJP on Monitoring Tax Compliance

Supervisory ministries (K/L pengampu) are required to coordinate directly with DJP to monitor INGO tax compliance, including assisting with verification of data, documents, and financial information.

  • Why it matters: INGOs are no longer accountable to one ministry alone. Instead, their tax compliance is subject to multi-agency scrutiny, making lapses more visible and harder to conceal.
  • Risk of non-compliance: Inconsistent reporting between donor submissions, audited statements, and tax filings may be flagged during inter-agency coordination, triggering further review or audit.
  • Recommended action: Ensure consistency across all financial reports submitted to DJP, the K/L pengampu, and donors. Align internal systems so that the same financial truth is represented to all stakeholders.

5. Ensuring Reports Meet Standards of Accountability and Tax Compliance

Supervisory ministries must also ensure that INGOs’ activity and financial reports adhere to accountability and tax compliance standards, involving relevant units within the Ministry of Finance as necessary.

  • Why it matters: This standardization effort seeks to eliminate discrepancies and raise the reporting bar for all INGOs. Reports are not only programmatic but must also align with fiscal transparency requirements.
  • Risk of non-compliance: Submitting activity reports without adequate financial disclosure or failing to meet prescribed formats may delay approvals, risk funding disbursement, or trigger audit requests.
  • Recommended action: INGOs should align reporting formats with ISAK 35 and DJP’s requirements, and integrate both programmatic and financial metrics in submissions. Independent reviews before submission are strongly advised.

Conclusion

These five obligations — audited local financial statements, fiscal clearance (SKF), sanction authority, DJP coordination, and standardized accountability reporting — signal a new era of fiscal discipline for INGOs in Indonesia.

Compliance is no longer a matter of goodwill but a legal precondition for operational continuity. INGOs must urgently review their tax posture, reporting frameworks, and coordination mechanisms.

Our Approach

MSS, in partnership with Terala Consulting (a certified Accounting Services Office), provides specialized services to help INGOs meet these requirements. Our scope of work spans three critical phases:

1. Financial and Tax Compliance Review

  • Objective: Ensure 2025 financial and tax records are accurate, reconciled, and compliant with Indonesian standards in preparation for audit and liquidation.
  • Activities:
    • High-level review of bookkeeping entries and trial balances.
    • Review of monthly tax filings (PPh 21, 23, 4(2), VAT).
    • Analysis of accounting treatment of grants, restricted funds, assets, and expenses.
    • Recommendations for adjustments to achieve audit readiness.
    • Draft financial statements under the appropriate SAK standard.
  • Deliverables: Compliance Review Report, recommended adjustments, draft financial statements, and audit readiness checklist.

2. Liquidation Financial Statements & Annual Corporate Tax Return

  • Objective: Support INGOs in preparing liquidation-format financial statements and submitting the final Annual Corporate Tax Return (SPT Badan).
  • Activities:
    • Prepare liquidation statements reflecting final asset write-offs, closing balances, and reconciliation of unused grants.
    • Apply updated accounting standards (SAK IKOP/EP per IAI 2023).
    • Validate final journal entries and reconcile balances.
    • Prepare and e-file the 2025 SPT Badan.
  • Deliverables: Final liquidation financials, reconciliation workbook, management letter, and electronic filing proof.

3. NPWP Revocation Monitoring & Support for INGO that wish to Deregister/Exit from Indonesia

  • Objective: Ensure the INGO’s NPWP is formally revoked by DJP, completing tax deregistration.
  • Activities:
    • Prepare and verify a comprehensive NPWP revocation package (final SPTs, e-Bupot, e-Faktur, reconciled closing balance sheet).
    • Draft and submit the official NPWP revocation request to DJP.
    • Act as liaison with DJP, responding to inquiries, preparing additional documents, and attending meetings if required.
    • Provide monthly progress reports until the revocation letter is issued (typically 6–12 months).
  • Deliverables: NPWP revocation checklist, submission package, monthly status updates, and final revocation confirmation.

Why This Matters for INGOs

The new DJP requirements — audited financial statements, SKF at license renewal, coordination with supervisory ministries, and strict sanction mechanisms, mean that INGOs must be audit-ready before the annual review and certainly before any extension of the MSP or deregistration of its MSP.

By working with MSS and Terala, INGOs gain:

  • Strategic legal advisory (MSS Counsel).
  • Certified accounting and tax services (Terala Consulting).
  • A compliance roadmap that covers both operational obligations and exit planning.

This dual legal–accounting support is particularly valuable where INGOs plan deregistration and NPWP revocation, ensuring they leave Indonesia without unresolved tax liabilities or regulatory exposure.

For further consultation, you can reach out to:
MSS & Associates – Business Law Consultants
Indonesia Stock Exchange Tower 2, 17th Floor
Jl. Jend. Sudirman Kav. 52-53, Jakarta 12170 – Indonesia
Phone: MSS +62 21 5291 7402, Terala +62 818 906 134
office@msscounsel.com
gilang@msscounsel.com | Tienmulyanthi@teralaconsulting.com
www.msscounsel.com | www.teralaconsulting.com

1

How foreign foundation operates in Indonesia, legally?

Indonesian Foundation Law 1

Bagaimana yayasan asing dapat beroperasi di Indonesia sesuai dengan peraturan perundang-undangan?

By Gilang Nugroho – Managing Partner

*Silakan mengakses terjemahan Bahasa Indonesia dengan menggulir ke bawah

The Government of Indonesia allows foreign based foundation to operate in Indonesia to work on various fields in social and non-profit area.  Our research to the Ministry of Foreign Affairs of the Republic of Indonesia report that there are 64 registered foreign based foundations that are operating in Indonesia in 2018 alone, and 12 are still on the process of their registration.  You may access our report on the list of foreign based foundations on a separate publication.

Under Indonesian law, foreign based foundations may enter Indonesia by registration or by forming an Indonesian foundation under the procedures as determined by the regulations, which has its own advantages or disadvantages to consider.

In light of the foregoing, Indonesian legal system recognizes several types of foundation with main distinction based on the nationality and the type of its founder, and some of Indonesian legal advisor might provide their advice differently due to overlapping regulations and procedures in the competent authority.  

Based on our experience in assisting our client, we would like to point out that the Government of Indonesia has promulgated several regulations on the foundation since 2001 to 2019, some of which are mainly defined under a specific foundation law and some fragments can be found in societal organization law.  We had helped our client to first clarify on the classification of foundation that is recognized under Indonesian law as follows:

  1. Indonesian foundations founded by Indonesian individual or legal entity and established as Indonesian legal entity;
  2. Foreign foundations operating in Indonesia without becoming an Indonesian legal entity;
  3. Indonesian foundations founded by foreign nationals and established as Indonesian legal entity;
  4. Indonesian foundations founded by foreign nationals together with Indonesian nationals and established as Indonesian legal entity; and
  5. Indonesian foundations founded by a foreign legal entity and established as Indonesian legal entity.

Each of this type of foundation has its own characteristic and legal procedures to comply whether in its establishment or its operation in Indonesia.

It is worth noting that only the foreign foundations operating in Indonesia without becoming an Indonesian legal entity may enter Indonesia through Indonesian Government registration process without forming an Indonesian foundation legal entity. 

Should you wish to have further information, please do not hesitate to contact our counsel directly by email.  Please refer to our legal notice on accessing and using this publication in our website http://msscounsel.com/legal-notice/.

Terjemahan Indonesia:

Pada dasarnya, Pemerintah Indonesia mengizinkan suatu yayasan asing untuk beroperasi di Indonesia pada berbagai macam bidang sosial dan nirlaba.  Riset kami pada Kementerian Luar Negari Republik Indonesia melaporkan bahwa pada tahun 2018 ini sudah terdapat 64 yayasan terdaftar yang beroperasi di Indonesia, dan 12 yayasan asing yang masih mengurus pendaftaran diri mereka.  Anda dapat membaca laporan kami untuk mengetahui daftar yayasan asing yang telah terdaftar dan yang sedang dalam proses pendaftaran pada edaran publikasi kami yang relevan.

Berdasarkan peraturan perundang-undangan Republik Indonesia, yayasan asing dapat masuk ke Indonesia melalui pendaftaran atau dengan mendirikan suatu yayasan berbadan hukum Indonesia dengan memperhatikan prosedur yang ditentukan oleh peraturan perundang-undangan.  Anda perlu mempertimbangkan bahwa setiap cara memasuki Indonesia tersebut memiliki kelebihan dan kekurangannya masing-masing.

Sebagaimana kami uraikan di atas, sistem hukum di Indonesia mengakui beberapa jenis yayasan dimana pembeda dari masing-masing jenisnya adalah terletak pada kewarganegaraan pendirinya dan tipe pendirinya, dan penasehat hukum anda mungkin saja memberikan advis yang berbeda-beda dikarenakan adanya tumpang tindih regulasi dan prosedur pada otoritas yang berwenang. 

Berdasarkan pengalaman kami dalam mendampingi klien kami, kami ingin anda memperhatikan bahwa Pemerintah Indonesia telah mengundangkan beberapa regulasi mengenai yayasan sejak 2001 hingga 2019, dimana pengaturan mengenai yayasan dapat ditemukan pada peraturan perundang-undangan khusus mengenai yayasan dan juga terdapat pecahan-pecahan aturan yang terdapat pada perundang-undangan mengenai organisasi masyarakat.  Kami telah membantu klien kami untuk pertama-tama mengklarifikasi bagaimana undang-undang Indonesia mengklasifikasikan  tipe yayasan sebagai berikut:

  1. Yayasan Indonesia yang didirikan oleh perorangan warga negara Indonesia atau badan hukum Indonesia;
  2. Yayasan asing yang beroperasi di Indonesia tanpa menjadi badan hukum Indonesia;
  3. Yayasan Indonesia yang didirikan oleh warga negara asing dan berdiri sebagai badan hukum Indonesia;
  4. Yayasan Indonesia yang didirikan oleh warga negara asing bersama-sama dengan warga negara Indonesia dan berdiri sebagai badan hukum Indonesia; dan
  5. Yayasan Indonesia yang didirikan oleh badan hukum asing dan berdiri sebagai badan hukum Indonesia.

Masing-masing tipe yayasan ini memiliki karakteristik dan prosedur hukum tersendiri baik pada saat pendiriannya maupun kegiatan operasionalnya di Indonesia.

Penting untuk diketahui oleh anda bahwa hanya Yayasan asing yang beroperasi di Indonesia tanpa menjadi badan hukum Indonesia yang dapat memasuki Indonesia hanya melalui proses registrasi saja pada Pemerintah Indonesia tanpa membentuk suatu badan hukum yayasan Indonesia.

Jika anda ingin memperoleh informasi lebih lanjut mohon agar tidak ragu untuk menghubungi konsultan hukum kami secara langsung melalui surat elektronik.  Mohon dalam mengakses atau menggunakan tulisan publikasi ini anda merujuk pada pemberitahuan resmi pada situs web kami http://msscounsel.com/legal-notice/.