Taxation in Indonesia

Corporate income tax

Under Indonesian tax law, a company is treated as a resident of Indonesia for tax purposes by virtue of having its establishment or domicile (place of management) in Indonesia. A foreign company carrying out business activities through a permanent establishment (PE) in Indonesia will generally have to assume the same tax obligations as a resident taxpayer.

Indonesian PEs of foreign companies have to settle their tax liabilities either by direct payments, third party withholdings, or a combination of both. Foreign companies without a PE in Indonesia have to settle their tax liabilities for their Indonesian-sourced income through withholding of the tax by the Indonesian party paying the income.

Income tax is collected on certain types of transactions such as:

  • Importation of goods
  • Sale of goods to the government
  • Sale or purchase of certain products
  • Sale or purchase of very luxurious goods
  • Payment of certain services. 
placeholder

Tax rate and period

A general flat rate of 25 per cent applies as Corporate Income Tax. January to December is the normal tax period however a different tax period may be used with prior approval from the Director General of Tax (DGT). This tax rate also applies for PE profits. After-tax profits (regardless if remitted to the home country) are subject to 20 per cent withholding tax (WTH) rate. Australian businesses meeting certain criteria may have access to a reduced WTH rate of 15 per cent through the Indonesia-Australia tax treaty. 

Value Added Tax (VAT) and Luxury Goods Sales Tax (LST)

Value Added Tax (VAT) is generally applicable at a rate of 10 per cent on the deliveries of goods and services within the Indonesian Customs Area. This may be increased or decreased to 15 per cent or five per cent according to government regulations.

Other categories of goods and services are treated as follows:

  • Goods exported from Indonesia are subject to zerorelated VAT, but imported goods are subject to the full 10 per cent rate, with some exceptions
  • Some exported services qualify for zero-rated VAT, including toll manufacturing, repair and maintenance and construction services
  • Inbound use or consumption of foreign services or intangible goods, with few exceptions, is also subject to VAT at 10 per cent.

Some goods are also subject to LST upon import or delivery by the manufacturer in addition to VAT. The current LST rates range from 10 to 75 per cent, although the law allows the rate to be increased up to 200 per cent. 

Tax incentives

Indonesia offers various tax concession schemes and incentives for businesses including tax holidays, inbound investment incentives, reinvestment of branch profits, tax cut for public companies and tax neutral mergers. An example of one is the 50 per cent discount on the corporate tax rates for small businesses with an annual turnover less than IDR 50 billion (approximately $5 million). Certain requirements need to be fulfilled by businesses to be considered eligible for such incentives. Please consult your tax adviser for further information. 

placeholder

Tax administration

Tax liabilities for a particular period or year must be paid to the State Treasury through a designated tax-payment bank (bank persepsi) and then accounted for at the Indonesian Tax Office through the filing of the relevant tax returns. The tax payments and tax returns filing for a particular tax must be undertaken monthly or annually, or both (depending upon the tax obligation in question) and can also be conducted electronically.

Corporate tax returns must be filed by the end of the fourth month after the end of the financial year with tax payments having to be completed prior to filing. The deadline for filing corporate tax may be extend by up to two months through written notification and a tentative tax calculation submitted prior to the deadline to the DGT.

Corporate tax can also be arranged to be paid in a prepayment system based on the previous tax year’s liability. This involves monthly instalments of payments to be made by the 10th or 15th of each month and tax returns filed by the 20th of the following month. VAT in comparison is a monthly obligation with a tax return filing deadline of the end of the following month and tax payments required prior to this deadline.

Late payments of the above taxes incur interest penalties at two per cent per month (with even part of a month such as a single day, considered to be a full month), at a maximum of 48 per cent. Late filing or failure to file a tax return incurs an administrative penalty ranging between IDR 500,000 ($50) to IDR 1 million (about $100). 

Tax calculation

Taxable business profits are calculated on the basis of normal accounting principles as modified by certain tax adjustments. Generally, a deduction is allowed for all expenditure incurred to obtain, collect, and maintain taxable business profits. A timing difference may arise if an expenditure recorded as an expense for accounting cannot be immediately claimed as a deduction for tax. 

Tax losses

Losses may be carried forward for a maximum of five years. Carrying back of losses is not allowed and tax consolidation and group relief is not available. 

Withholding tax

Indonesian income tax is collected mainly through a system of WHT. Individuals and corporations, whether resident or non-resident, are subject to WHT levied on various items of income. Please consult your tax adviser for the latest rates and those applicable to your specific business. 

Transfer pricing

Transactions between related parties must be consistent with the arm’s length principle. If the arm’s length principle is not followed, the DGT is authorised to recalculate the taxable income or deductible costs arising from such transactions applying the arm’s length principle. 

Personal income tax

Income tax is levied on both residents and non-residents in Indonesia. A tax resident is regarded as a person: usually residing in Indonesia; is present in Indonesia for more than 183 days in any 12-month period; or is present in Indonesia during a fiscal year and intends to reside in Indonesia. These rules though may be overridden by provisions of tax treaties. An Indonesian resident taxpayer is subject to tax on income from all sources worldwide at the following rates:

Individual tax payments are due by the end of the third month after the year end before filing the tax return. For annual income tax return, taxpayers may extend the filing deadline by up to two months. As in corporate income tax, late payment of individual income taxes incur interest penalties between two to 48 per cent, while late filing of tax return incurs an administrative penalty of IDR 1 million ($100).

In addition, dividends received by resident individual taxpayers are subject to a maximum 10 per cent final income tax. Non-resident individuals are subject to WHT at 20 per cent on their Indonesia-sourced income. Concessions are available; consult your tax adviser. 

Want to learn more? Explore our other Indonesia information categories or download the Indonesia Country Starter Pack.