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5.2. Treatment of Foreign Profits / Losses

Foreign profits are included in the overall taxable income for the purpose of Indonesian corporate income tax. However, tax losses incurred outside Indonesia cannot be compensated in calculating the taxable income in Indonesia.

Items of income expressed in foreign currencies are converted into Indonesian Rupiah (“IDR”) according to the Ministry of Finance’s currency exchange rate at the date when the item of income is considered to be incurred for tax.  Any foreign exchange gain recorded by the entity is subject to tax at normal corporate income tax rates, whilst foreign exchange losses incurred outside Indonesia cannot be recovered in Indonesia. To mitigate the foreign exchange gain / losses, qualified companies may use USD as their official currency for corporate income tax purposes. However, the use of USD as the functional currency for tax purposes is subject to prior approval from the Ministry of Finance.