BASIC INFORMATION

Area: 1.904.570 km2

Population: 275,773,800 (approximately)

Currency: Indonesian Rupiah (IDR)

Principal Business Entities: Corporation (PT), Partnership, Cooperative and branch of a foreign company.

 

CORPORATE TAXATION

Companies are taxed based on residency.

 

Resident taxpayer

A company established or domiciled in Indonesia is taxed on its worldwide income, subject to tax credits for foreign income which has been subject to tax.

 

Non-resident taxpayer

A company incorporated outside Indonesia is taxed only on Indonesia-sourced income, subject to tax relief under the double taxation agreements. Non-resident taxpayers with permanent establishments (PE) in Indonesia (e.g. branch offices) are taxed on:

• the PE’s income from its business, activities, and assets it owns and controls
• the head office’s income from the sale of goods or services in Indonesia of the same type as those sold by the PE in Indonesia
• all other income received or accrued by the head office such as dividends, interest, royalties, rent, and other income connected with the use of property, fees for services, etc. of the PE in Indonesia.

A PE is generally defined as an operation where a non-resident establishes a fixed place of business in Indonesia, including a management location, a branch office, an office building, etc. A PE can also be established when the nonresident entity’s employees provide services in Indonesia for more than 60 days in any 12-month period. If the home country has a Double Tax Agreement (DTA) with Indonesia, the definition can be slightly modified.

Taxpayers must prepay its income tax in monthly installments based on the previous year’s tax assessment under Article 25 of the tax regulation. These installments are then deducted from year-end tax liability to calculate the final amount of tax payable after all creditable withholding taxes.

Each taxpayer is required to file the tax return and pay taxes based on a self-assessment system. An annual tax return must be submitted to the Tax Office at the end of the 4th month after accounting year-end. Consolidated returns are not allowed.

 

Income tax calculation

Income tax payable is calculated by multiplying taxable income by the corporate tax rate.

 

Income subject to tax

Taxable income is defined as assessable income less tax deductible expenses, whether originating from within or outside Indonesia, that may be used for consumption or to increase the taxpayer’s wealth in whatever name and form.

 

Allowable Tax Deductions

Generally, taxpayers may deduct from gross income all expenses related to earning, securing, and collecting taxable income.

Major deductible expenses include:

• Costs related to business, such as:
• costs of materials
• employee wages and salaries
• honoraria, bonuses, gratuities, and monetary remuneration
• interest, rents and royalties
• travel expenses
• insurance premiums
• advertisement and selling expenses subject to government regulation
• administrative expenses
• taxes other than income tax
• Capital losses
• Contributions to an approved pension fund
• Loss from the sale or transfer of properties owned and used in business or used for earning, collecting, and securing income
• Training expenses for employees
• Losses from foreign exchange
• Research and development costs in Indonesia
• Write-off of uncollectible debts subject to certain tax conditions
• Certain donations such as for national disaster, education facilities, social infrastructure, and sports enhancement subject to government regulations
• Depreciation and amortization (including intangible costs) with useful life longer than one year. Taxpayers can adopt either the straight-line or the double-declining balance method for depreciation (except buildings) and amortization and apply it consistently. The Tax Office must approve any changes in method. Special rules are applied to certain industries such as forestry, plantation and breeding.

Corporate taxpayers can revalue their depreciable assets at market or fair value for tax purposes with approval from the Directorate of General Taxation (DGT) and compliance to specific conditions and requirements. Once approved by the DGT, the depreciation applied to depreciable assets must be based on the new tax book values and the new useful life. The excess of fair market value over the old tax book value of the revalued assets is subject to final income tax at 10%, and be paid in installments over 12 months, if taxpayer has financial difficulties. Also, there is a requirement that these revalued assets must be retained (i.e. not disposed of or transfer to) at certain period of time or else an additional final tax of 10% is imposed on the original revaluation gains subject to specific transfer exemptions.

 

Non-deductible items include:

• Private expenses for the personal benefit of shareholders
• Gifts and donations including “excessive” payments for goods or services where a special relationship is deemed to exist between the buyer and seller
• Incurred expenses in producing income that is exempt from tax or subject to final tax
• Tax penalties
• Employer contributions to the life, health, and accident insurance and contributions to unapproved pension funds, unless the contributions are treated as part of the taxable income of employees
• Expenses related to income taxed at a final rate, e.g. interest expense on loans related to time deposits
• Expenses related to income exempt from tax, e.g. interest on loans used to buy shares where dividends are not subject to income tax
• Salaries or compensation received by partnership or firm members whose participation is not divided into shares
• Reserves or allowances except bad debt allowances for banks or finance leasing companies, reserves in insurance companies, and reserves for reclamation costs in the mining industry

 

Tax rate

The corporate tax rate is a flat rate of 22% of taxable income. However, small taxpayers with gross revenue of not more than IDR 50 billion can receive a 50% discount of the standard tax rate on the portion of taxable income up to IDR 4.8 billion of revenue.  Certain enterprises with gross turnover of not more than IDR 4.8 billion are subject to Final Tax at 0.5% of turnover.

Public companies can get a 3% tax reduction for any given year if:

• At least 40% of their shares are publicly owned
• The public should consist of at least 300 individual shareholders, each holding less than 5% of shares
• The above conditions must be maintained for at least six months in a taxable year. This condition must be fulfilled for at least 183 days within one fiscal year. The fulfillment of the requirement has to be reported to the Directorate General of Tax

 

Deemed profit margin

Businesses that have deemed profit margin for tax purposes are presented below.

Business	Effective Rate
Domestic shipping operations	1.20%
Domestic airline operations	1.80%
Foreign shipping and airline operations	2.64%
Foreign oil and gas drilling	3.75%
Certain Ministry of Trade representative offices	.44%

 

Tax on oil, gas, and geothermal industries

For companies engaged in oil, gas, and geothermal projects, income tax depends on its production sharing contract (PSC), a cooperation contract between the holder of the contract and the government. The PSC overrides the Indonesian tax law. The tax law applies only on matters not mentioned in the PSC.

 

Tax on mining

The Mining Law states that general prevailing income tax laws/regulations will apply to mining projects, except specifically stated in the prevailing contract or if contract of work is expired, in the prevailing regulation (i.e. IUPK- Special Mining Operation License).

 

Tax on consolidation

Tax consolidation is not available in Indonesia.

 

Dividends and branch profit

Dividend received by a resident corporate taxpayer, including cooperatives and government-owned corporations, from an Indonesian company is subject to Corporate Income Tax (currently CIT rate is 22% from the fiscal profits).

Dividend received by a non-resident taxpayer is subject to a 20% final withholding tax subject to tax treaty agreements. Permanent establishments are subject to a 20% branch remittance tax on after-tax profits, subject to tax treaties. PEs are exempt from this tax if all profits are reinvested in Indonesia.

Capital gains: Capital gains form part of a resident company’s taxable profits. Gains from transfer of assets to companies, partnerships and other bodies in lieu of hares or equity participation is subject to tax.

Losses: May be carried forward for five years and may be set off against any income or capital gains. Losses may not be carried back.

 

CORPORATE TAXATION: COMPLIANCE

Tax year: General Accounting period is January – December.  However, the tax year can be different from January – December) based on approval from Director General of Tax (DGT).

Consolidated returns: No

Filing and payment: A self-assessment procedure applies. The submission deadline is within four months after the book year end and the payment deadline is before the tax return is submitted.

Penalties: Penalty for late payment in the form of interest is applied on a monthly basis, maximum 24 months (the rate is stipulated based in Ministry of Finance Decision).   Penalties for late filing or failure to file is IDR1million per tax return.

Rulings: Rulings may be obtained from the tax authorities on various tax matters.

 

TAXATION OF INDIVIDUALS

Individuals are taxed based on residency.

• Resident taxpayer
  An individual living in Indonesia, staying in Indonesia for more than 183 days within any 12-month period, or intending to reside in Indonesia is taxed on worldwide income. Foreign tax credit imposed on foreign income can be credited to Indonesia tax due subject to domestic rule.

• Non-resident taxpayer
  An individual staying in Indonesia for fewer than 183 days with no intention to reside in the country is taxed only on Indonesia-sourced income.

• Taxable income
  For resident taxpayers, income tax payable is calculated by multiplying the net taxable income, minus deductions and reliefs, by the graduated tax rates.
  Taxable income of resident individual taxpayers:
  1. Employment income (e.g. salary)
  2. Income from business or profession
  3. Passive income (e.g. interest and royalties)
  4. Capital gains
  5. Benfits-in-kind (BIK)

 

Tax Rate

Rate is applied on progressive basis as follows:

Taxable Income’s layer	Rate
Up to IDR 60 million	5%
Up to IDR 60 million up to IDR 250 million	15%
Up to IDR 250 million up to IDR 500 million	25%
Up to IDR 500 million up to IDR 5 billion	30%
Up to IDR 5 billion	35%

TAXATION OF INDIVIDUALS: COMPLIANCE

Tax year: Calendar year

Filing and payment: Self-assessment. Spouses file combined. Tax on employment income is withheld by the employer. Filing and payment: A self-assessment procedure applies. The submission deadline is within three months after the tax year end and the payment deadline is before the tax return is submitted.

Penalties: Penalty for late payment in the form of interest is applied on a monthly basis, maximum 24 months (the rate is stipulated based in Ministry of Finance Decision).   Penalties for late filing or failure to file is IDR500K per tax return

 

WITHHOLDING TAXES

Notes:

1. –   Dividend paid to the Indonesian Company is exempted from WHT provided that the dividend distributed is based on Shareholder’s meeting (RUPS) and/or an interim dividend.  Other than the above, Dividend is subject to 15% WHT.
   –   Dividend paid to an individual is exempted from WHT provided that the dividend is invested in Indonesia (type of investment is provided in the regulation).  If the dividend is not invested in Indonesia, the dividend is subject to final tax of 10%.
2. Interest income from time deposit and Bank of Indonesia Certificate (SBI) is subject to final tax rate 20%, while from Bond is subject to Final tax rate of 10%. Other than that, interest is subject to WHT rate of 15%.
3. –   Gains from transfer of land and buildings are subject to final income tax at rate 2,5% of transaction value or the government determined value, whichever is higher. Capital gain of shares listed in the Indonesian stock exchange is subject to final WHT of 0,1% of the gross sales consideration. An additional tax of 0.5% applies to the share value of founder shares at the time an initial public offering takes place.
   –   Transfer of shares in Indonesian’s entity by a foreign shareholder to another foreign shareholder is subject to 5% WHT or reduced rate based on relevant tax treaty.

ANTI-AVOIDANCE LEGISLATION

Transfer pricing: The tax rules require that related party transactions must be conducted in an arm’s length principle. Thus, the tax authorities require specific transfer documentation to prove this arm’s length basis. Under the new tax rule, taxpayers under certain criteria should prepare transfer price documentations such as master file, local file, and country by country report. Also, certain specific disclosures are required in the corporate income tax return.

Debt-to-Equity Ratio: The allowable Debt-to-Equity Ratio is 4:1.

Hybrid mismatches: No special rules.

Disclosure requirements: CbC reporting for qualifying enterprises. Advance tax rulings may be subject to the spontaneous exchange of information.

 

VALUE-ADDED TAX/GOODS AND SERVICES TAX

Type of tax: Value-added tax (VAT) applies to supplies of most goods and  services and to imports. There is a broad range of exempt supplies and zero-rated supplies.

Standard rate: 11%

Reduced rates: 0%, 1%, 2%

Registration:

In general, an entrepreneur that makes a delivery of taxable goods/services exceeding IDR4.8 billion must register its business in order to be confirmed as a Taxable (VATable) Entrepreneur.  However, small entrepreneurs (with turnover less than the threshold) who choose to be taxable entrepreneurs may also register with the tax office.

Filing and payment: Monthly return period. Late payment of VAT is subject to monthly interest penalty, maximum 24 months. Late filing of VAT return is IDR500k per return.

 

SOCIAL SECURITY CONTRIBUTIONS

The monthly contribution is 5.7% of total employee remuneration (with no ceiling) and is divided between the employer and employee. Professional pension plans are mandatory for employees.

 

SELF-EMPLOYED

Progressive rate applies for self-employed max. 35% from the taxable income exceeded 5 billion.

 

OTHER TAXES

Capital duty: No

Immovable property taxes: Land and/or Building Tax is applied.  The rate is based on located of the land and/or building.  In addition, acquisition of land and/or building is subject to final tax of 5%. Reduced rate of 50% (2.5%) is applied to inheritance (when transfer of title).

Stamp duty:stamp duty applies on  any legal document and payment evidences with IDR10K per document

Net wealth/worth tax: No.

Inheritance/gift taxes: Generally gift is not subject to tax (for recipient) and/or non-deductible expenses (for taxpayer giving the gift). However, inheritance in the form of land and/or building is subject to acquisition of land and/or building levy at the title’s transfer moment.

 

TAX TREATIES

Indonesia has concluded over 71 full double taxation treaties on income and capital gains.