What do I need to know about Indonesia taxes?
There are a variety of taxes in Indonesia that both Indonesian based companies and individuals earning money in Indonesia must comply with.
This includes corporate income tax, individual income tax, withholding taxes, value-added tax (VAT), luxury-goods sales tax, and property tax.
In this blog, we will break down each type of tax and how to register them.
Monthly Income Tax vs Annual Income Tax
Personal and Corporate Income Tax in Indonesia
Tax is a common issue in business all over the world. In Indonesia, both personal and corporate tax is a huge contributor to the country’s income.
What is Corporate Income Tax?
Corporate tax or also known as company tax, refers to a tax imposed on entities that are taxed at the entity level in a particular jurisdiction. Such taxes may include income or other taxes. The tax systems of most countries impose an income tax at the entity level on certain types of entities such as companies or corporations.
Corporate Income Tax is a compulsory tax requirement for all companies in Indonesia.
A foreign owned company that is based in (permanently) Indonesia – and carries out business activities through this local entity – falls under this Indonesian tax regime.
With regard to business set-up or company registration in a country, investors may be imposed with company/corporate taxes because most countries tax all corporations doing business in the country on income or, in some cases, on several company activities in that country.
Indonesia is no exception, as it imposes both corporate taxes on companies doing business in Indonesia as well as personal income tax for the employees.
Corporate Income Tax Rates
In general, companies are charged a corporate income tax rate of 25% in Indonesia.
For the fiscal (tax year) year 2020/2021, the CIT rate is 22%, and for the fiscal year 2022 onwards, the CIT rate will be 20%. However, there are a few tax exemptions in Indonesia:
- Companies listed on the Indonesia Stock Exchange (IDX) that offer at least 40% percent of their total share capital to the public obtain a 5% percent tax cut (a tax rate of 20% percent applies for these public companies).
- Small and medium enterprises with an annual turnover below IDR 50 billion (approx. USD $3.8 million) obtain a 50 percent tax discount (imposed proportionally on taxable income of the part of gross turnover up to IDR 4.8 billion). In 2013, Indonesia’s Finance Ministry issued a regulation that set a one percent income tax tariff on individual and institutional taxpayers with an annual gross turnover below IDR 4.8 billion (approx. USD $363,636).
Legal Requirements of Corporate Income Tax
While there are a lot of smaller details that make up a complete tax report, these are the main requirements:
- Company’s tax identification number (NPWP) and it’s SKT (Surat Keterangan Terdaftar).
- Previous tax reports with all documentation (if any)
- Complete set of Financial Reports for the year that will be reported
- Balance Sheet;
- Income Statement
- General Ledger
- List of Assets and depreciation
- List of prepayments, lease, and its amortization
Personal Income Tax (Pajak Penghasilan) in Indonesia
What is Personal Income Tax?
Personal income tax applies to those who have been living in Indonesia for at least 183 days within 12 months OR have been in Indonesia during a fiscal year and plan to live or stay in Indonesia for longer.
In Indonesia, personal resident taxpayers must file individual income tax returns through a self-assessment system and are subject to tax rates of 5% to 30%.
If you are a non-resident taxpayer in Indonesia, you will only pay tax for the income you earned in Indonesia. Non-resident taxpayers are subject to pay a single tax rate of 20% on income earned.
You will need to pay personal income tax for the following:
- Employment income
- Onshore and offshore dividends, interest income and royalties
- Onshore and offshore rental income, and capital gains.
Personal Income Tax Rates in Indonesia
Resident-taxpayer’s tax rates
Deductions of Personal Income Tax
Non-business expenses are not claimable as tax-deductible expenses.
Certain donations, such as (see below) are also deductible if paid to certain bodies acknowledged by the government.
- National disaster
- Research and development
- Education facility
- Sport development
- Social infrastructure
- Religious donations (e.g. zakat for Muslim taxpayers and tithe for Christian taxpayers)