Controlled Foreign Company (CFC)

Controlled Foreign Company (CFC) is a controlled company owned by the resident taxpayer in the low  or no tax  rate country (tax haven country). This company was formed with the intention to defer revenue recognition in the context of tax avoidance.
Tax avoidance is done by transferring revenue from abroad to the company that deliberately established in tax haven country. To avoid taxes, profits from the CFC company is not distributed to shareholders in the resident taxpayer‘s country. In other words, taxpayers in this country do not ask for their rights to profits from the CFC.
To anticipate this type of tax avoidance, the Indonesian Income Tax Law already contains provisions in Article 18 paragraph (2). This provision, as, other provisions in Article 18, is the anti-tax avoidance provisions. More sounds of Article 18 paragraph (2) of the Income Tax Act are as follows:
Minister of Finance is authorized to determine when dividends earned by the Taxpayer for the investment in entities abroad except a business entity that sells its shares on the stock exchange, with the following provisions:

1. The amount of taxpayer investment is at least 50% (fifty percent) of the amount paid shares; or
2. Jointly with other domestic resident taxpayers have capital investment at least 50% (fifty percent) of the amount paid shares.

Well, based upon the above provisions, if any taxpayer in the country who have a CFC, then the Minister of Finance may determine when dividends earned by taxpayer in the country so there is no way to defer recognition of income in order to avoid tax in Indonesia.
As a rule implementation of Article 18 Paragraph (2) of the Indonesian Income Tax Law, the Minister of Finance has issued Regulation of the Minister of Finance Number 256/PMK.03/2008.
This Regulation of the Minister of Finance revoked previous provisions of Decree of the Minister of Finance No. 650/KMK.04/1994 on Stipulation When Receipt of Capital Investment Dividend  In Business Entities Abroad Which Its Share Is Not Traded on Stock Exchange.

Criteria for Foreign Business Entities 

There is no specific Article governing the criteria or definition of the foreign business entity or CFC in the Ministry of Finance Regulation No. 256/PMK.03/2008. However, Article 1 provides guidance on this subject where there is the phrase "equity participation in overseas business entity other than a business entity that sells its shares on the stock exchange"
Thus, the criterion of CFC is only a business entity abroad other than a business entity that sells its shares on the stock exchange. This means that the distinguishing between abroad business entities  which is CFC and not only lies in whether these enterprises sell their shares on a stock exchange or not. With this provision it could have actually Taxpayer who does not intend to avoid taxes by having the company abroad and do not distribute dividends to other purposes, could be affected by this provision is treated as a dividend from the investment.
This is different from the previous stipulated in Decree of the Minister of Finance No. 650/KMK.04/1994. This provision stipulated that the Agency is a business overseas business entities domiciled in a country or place like it in the annex to this regulation. Note that additional criteria for CFCs in this provision is a business entity domiciled or located in countries that have been determined.

Criteria of Domestic Resident Taxpayer 
Taxpayer criteria that received dividens from overseas business entities are taxpayers in the country that :

1. Has the share investments at least 50% (fifty percent) of the amount paid shares in enterprises abroad; or
2. Jointly with other domestic resident taxpayers have the share investment st least 50% (fifty percent) of the amount paid shares in enterprises abroad.

Provisions regarding the above is stipulated in Article 2 of Regulation of the Minister of Finance Number 256/PMK.03/2008.