Indonesia’s 4:1 Debt‑to‑Equity Rule for Corporate Tax

The Indonesian Ministry of Finance issued Ministerial Regulation No. 169/PMK.010/2015, effective 9 September 2015. The rule sets a debt‑to‑equity ratio (DER) ceiling of four to one for corporate income‑tax calculations.

Under the 4:1 DER limit, interest expenses are deductible only up to debt equal to four times equity, curbing tax avoidance through excessive borrowing (thin capitalization). The provision aligns with Article 6 of Law No. 36/2008, which allows deduction of costs incurred to obtain, bill and maintain income.

The limit restricts multinational groups from using large intra‑group loans to lower taxable profit, while small and medium enterprises with low leverage may find financing more constrained. Authorities may revise the threshold under the Tax Harmonization Law, considering international models such as BEPS Action 4 that tie interest deductions to a percentage of EBITDA.