taxation New Investment or Expansion
Taxation
Find out how to invest in Indonesia and learn more about applicable government regulations and policies
01.
CORPORATE INCOME TAX
1.1
Tax Rate and Period
The corporate income tax (CIT) rate in Indonesia is 22% and onwards. Public companies that have a minimum listing requirement of 40% and other specific conditions are eligible to a 3% cut off from the standard CIT rate. The most common tax year in Indonesia is the same as the calendar year, which is January 1 to December 31. However, the tax year will follow the company’s financial year as stated on the article of association.
1.2
Tax Administration
Companies in Indonesia have to pay CIT by the end of the fourth month after the year-end and must file the CIT returns by the end of the fourth month after the end of the reported tax year.
The tax payment can be made through a tax-payment bank to the State Treasury bank. A copy of the tax payment receipt should be attached with the annual tax returns. Extensions may apply for a maximum of two months if you submit a written notice to the DGT before the tax return deadline.
One of the noteworthy elements in tax administration is note taking and bookkeeping or creating financial statements. Thus, the company ought to calculate tax obligations and fill out annual notices adequately in order to minimize disputes in the future.
The company is obliged to keep its financial statements for at least the next 10 years. It is to anticipate a future discrepancy in calculations between companies and tax authorities. Financial statements must be made using the Latin font, Bahasa Indonesia, and use Rupiah units of currency. For certain companies such as Foreign Investment Companies (PMA), PE, Taxpayers listed on the Foreign Stock Exchange, Overseas Subsidiaries and certain Collective Investment Contracts (KIK), are welcome to use foreign languages and currencies other than rupiah, if approved by the DGT.
1.3
Withholding Taxes
In addition to implementing a self-assessment tax collection mechanism, Indonesia also implements a withholding tax collection scheme, which is applied to several types of Income Tax (Pajak Penghasilan/PPh) namely:
| Tax Types | Elaboration |
|---|---|
| PPh 21 | Deducted from income received by a person or individual in the form of salary, wages, honorarium, benefits, and other payments of any name or form |
| PPh 22 | Taxes levied by: • The government Treasurer related to the payment for the delivery of goods derived from the National Budget (APBN) fund; • Certain corporate related to income from activities in the field of imports or business activities in other fields; and • WP (Taxpayers) of specific corporate related to payments from buyers for the sale of goods that are classified as very luxurious. |
| PPh 23 | Deducted from domestic WP and PE income elicited from: • Capital utilization (dividends, interest, and royalties) • Service delivery (rent, service payment) • Implementation of activities such as prizes, awards, and bonuses (other than those deducted from Article 21 PPh) |
| PPh 26 | Deducted finally from overseas WP income on income that is not elicited from PE in Indonesia |
| PPh Article 4 (2)-final income tax (PPh Final) | Deducted from closing of earnings namely: • Interest on deposits and savings/current account services, discounts on Bank Indonesia Certificates • Transaction of sale of shares on the stock exchange • Interest and discount bonds sold on the capital market • Land or buildings rents • Transfer of land or building rights • Business income of construction services and so on |
| PPh Article 15 | Collected toward the companies engaged in specific industries, such as: • International cruise or flight • Overseas insurance companies • Oil, gas and geothermal drilling companies • Foreign trading companies • Companies creating investments in the form of build-to-hand (build, operate, and transfer) |
1.4
Transfer Pricing
Each company is eligible to organize transfer pricing practices as long as it corresponds to the business principles of fairness and prevalence or arm’s length principle. Thus, any transaction between affiliated parties is comparable to a transaction made with an unaffiliated party.
To ensure transfer pricing activities are exerted as a way to avoid corporate conducting tax avoidance, the Indonesian government has adopted the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plans.
It is conducted by requiring companies that arrange transactions with affiliated parties, both at home and abroad, to develop transfer pricing documentation or Transfer Pricing Document (TP Doc), which comprises three subjects namely, master file, local file and country by country report (CBCR).
02
INDIVIDUAL INCOME TAX
Any income or additional economic capabilities received by individual taxpayers (WPOP), whether from Indonesia or other countries, are entitled as tax objects. Individual taxpayers who are employees are subject to Income Tax (PPh) Article 21 which tax deduction is conducted by the company they work for. As for individual taxpayers who establish independent business activities or are not bound by employment relationships as employees, it is mandatory to calculate, pay and report their own PPh, in accordance with the principle of self-assessment.
2.1
Tax Rate
The following details the PPh rate level of individuals is based on Law No. 7 Year 2021, namely:
| Taxable Income | Tariff |
|---|---|
| IDR 0 > IDR 60 million | 5% |
| IDR 60 million > IDR 250 million | 15% |
| IDR 250 million > IDR 500 million | 25% |
| IDR 500 million > IDR 5 billion | 30% |
| More than IDR 5 billion | 35% |
Non-Taxable Income (PTKP)
The amount of non-taxable income for each individual is diverse depending on the number of dependents the individual taxpayer has, and on whether the husband and wife’s NPWP (Taxpayer Identification Number) are combined or not.
The following table lists the amount of non-taxable income:
| Males/Females Not Married | Married Male | Spousal Combined NPWP |
|---|---|---|
| TK/0 IDR 54,000,000 | K/0 IDR 58,500,000 | K/I/0 IDR 112,500,000 |
| TK/1 IDR 58,500,000 | K/1 IDR 63,000,000 | K/I/1 IDR 117,000,000 |
| TK/2 IDR 63,000,000 | K/2 IDR 67,500,000 | K/I/2 IDR 121,500,000 |
| TK/3 IDR 67,500,000 | K/3 IDR 72,000,000 | K/I/3 IDR 126,000,000 |
Through Law No. 7 Year 2021 (Law 7/2021), the Government of Indonesia stipulates a threshold on the non-taxable gross turnover in the amount of IDR 500 million. Thus, individual entrepreneurs who calculates their income tax with a final rate of 0.5% and has a gross turnover of up to IDR 500 million/year will not be subject to income tax.
2.2
Tax Administration
Individual taxpayers are required to submit an annual income tax notice, no later than 3 months after the tax year ends, or on March 31 in the following tax year.
Individual taxpayer tax returns (SPT) could be submitted manually or electronically through an e-filing application. If the submission of the Annual Tax Return of personal persons is overdue, there will be a fine of IDR 100,000.
3
VALUE-ADDED TAX AND LUXURY-GOODS SALES TAX
3.1
Value-Added Tax
In terms of VAT (PPN) charges, the principle of withholding tax applied. It is where the producer or seller will collect taxes paid by consumers during the transaction, to then be deposited. Currently, the imposition of VAT in Indonesia adheres to a single tariff system of 10% of the selling value of goods. With the enactment of Law 7/2021, the VAT rate will increase to 11% (eleven percent) on 1 April 2022; and will be increased to 12% (twelve percent) as per 1 January 2025.
Basically, VAT is entitled on all taxable goods (Barang Kena Pajak/BKP) and taxable services (Jasa Kena Pajak/JKP). However, the government provides exceptions for the VAT charges against the submission of certain BKP and JKP such as:
Food and beverage of which are served in the hotel, restaurant, food shop, shop, or the similar is desired, including dine in and take out food, including food and beverage of which are presented by catering company; and
• Money, gold bullion, and securities. In addition, the government also excludes the VAT charges on the submission of certain JKP, including: • Religious services • Arts and entertainment services • Hospitality services • Services provided by the government • Parking services • Culinary or catering services
Digital VAT
Since July 1 2020, the Government of Indonesia has regulated the VAT charges on the use of intangible goods or services originating from other countries through electronic systems or trading activities (PMSE).
The PMSE VAT collection is carried out by an application provider company appointed by the government. This policy was issued in response to the increasing use of intangible goods or services in digital form, such as streaming services and other digital product transactions. VAT Income Tax Credit
When levying VAT, sellers of BKP and JKP are obliged to issue proof of collection or tax invoice that can be used as income tax by the buyer. The input tax can be credited as an output tax at each of the same tax periods.
VAT Income Tax Credit
When levying VAT, sellers of BKP and JKP are obliged to issue proof of collection or tax invoice that can be used as income tax by the buyer. The input tax can be credited as an output tax at each of the same tax periods.
3.2
Luxury-goods Sales Tax
Sales Tax on Luxury Goods (PPnBM) is a tax imposed on goods classified as luxury to producers to produce or import goods in their business activities or work. PPnBM is only charged once, at the time of delivery of goods by the manufacturer or at the import of such Luxury Taxable Goods.
PPnBM rates vary between 10% to 200%, depending on the type of luxury goods. If a businessman exports Taxable Goods classified as luxury goods, it is subject to 0% VAT. Luxury goods criteria comprise:
- Goods that are not essential commodities
- Goods consumed by a particular group
- Goods consumed by high-income people
- Goods consumed only to indicate status or social class
The PPnBM charge should be reported at each tax period combined with VAT reporting using the VAT Period Tax Return form 1111. The reporting deadline is at the end of each subsequent month after the date the invoice was created
04
OTHER TAXES
4.1
Land and Building Tax
Land and Building Tax (PBB) is a levy on land and building that provide economic and social benefits to an individual or corporation. PBB is generally classified into urban and rural sectors (PBB P2) and PBB for mining, forestry and plantation (P3B) sectors.
The PBB P2 collection activity has become the responsibility of the local government of either the Regency or Municipality. The PBB P3 collection is organized by the authority of the central government, through the DGT.
The owed-PBB calculation refers to the taxable selling value (NJKP), which is between 20% to 100% of the selling value of the tax object (NJOP), multiplied by the applied rate of 0.5%. The amount of NJOP is determined by the Minister of Finance every three years.
Taxpayers are required to register the land and/or buildings ownership to Tax Office (KPP), Tax Services, Dissemination and Consultation Office (KP2KP) based on the location of the taxable PBB object.
4.2
Stamp Duty
Starting in 2021, based on Law No. 10 Year 2020, stamp duty will be subject to a single tariff of IDR 10,000. The new law introduces a new form of electronic stamp duty for electronic documents. The new electronic stamp will contain unique codes and specific descriptions. The use of electronic stamp duty will be regulated in a new MoF Regulation. Several new documents now require stamp duty under the New Stamp Duty Law, among others:
- Securities transaction documents, including securities trading confirmations. However, the DGT has clarified that an implementing regulation will be issued on securities trading confirmations;
- Auction documents;
Any document mentioning a value exceeding IDR 5 million, which may take the form of a receipt of payment or acknowledgement of a debt payment or settlement, whether entirely or partially; and • Other documents to be stipulated in a government regulation.
05
STATUTE OF LIMITATION
The DGT can issue an underpaid tax assessment letter within five years upon the tax due date or the end of a tax period, part of a tax year, or a tax year. In order to provide legal certainty, the Job Creation Law stipulates the Statute of Limitation (SoL) for the issuance of a Tax Collection Letter (Surat Tagihan Pajak/STP), except for:
a. An STP on late payment of tax decisions may be issued at the latest by the SoL to collect the relevant decisions (i.e. SKPKB, or Additional Tax Underpaid Assessment Letter (Surat Ketetapan Pajak Kurang Bayar Tambahan/SKPKBT), or Decision on Amendment, Tax Objection, Tax Appeal, or Judicial Review) which trigger the tax underpayment;
b. An STP on the 50% penalty for a taxpayer losing their case at the tax objection level may be issued at the latest five years from the issuance of the Objection Decision if the taxpayer did not file for Tax Appeal; and
c. An STP on the 100% penalty for a taxpayer losing their case at the tax appeal level may be issued at the latest five years from pronouncement of the Tax Appeal Decision by the judges.
The issuance of STP is one of the efforts to ensure taxpayer compliance, which begins with an examination process and results in the form of Notice of Tax Assessment (SKP). Issuing SKP will usually result in taxes owed to be underpaid, overpaid or naught.
