Indonesia has blossomed into Southeast Asia’s largest economy and is an emerging market that investors and companies are looking to venture into. Although the pandemic has struck a huge blow in the country’s growth, there are still opportunities for businesses and entrepreneurs to start a business.
Before incorporating a company in Indonesia, it is important to understand the tax compliances and system so to align with your business and financial goals.
Tax Compliance as a Resident or Non-Resident Company
As a result, resident and non-resident companies have different tax compliances and regulations. Although, a company is classified as a resident or non-resident company is dependent on where the business is established.
Resident company – incorporated and conducting business activities in Indonesia
Non-resident company – incorporated overseas, however, generating revenue from Indonesia
Basically, as a resident company, you will be charged as a resident taxpayer. These include benefits such as:
- Income tax relief for setting up businesses in key sectors or certain locations
- 5% reduction should your company be listed and fulfil certain criteria
- Flexibility of tax payments – direct payment to Director General of Tax (DGT), 3rd party withholding, or a mix of both.
For non-resident companies, it can only be done through withholding tax from income avenues within the country.
Types of Taxes and Tax Rates in Indonesia
There are various types of corporate taxes that one should take note of, including the tax rates and deadline to file these taxes.
| Types of Taxes | Description | Tax Rates | Deadline |
|---|---|---|---|
Annual Corporate Tax |
Annual income tax return needs to be filed by all companies | 22% (20% from 2022 onwards) | Payment deadline: 4th month after the financial year-end before filing a tax return Return filing deadline: 4th month after the financial year-end |
Employee Withholding Tax |
Requirements for employers to withhold tax from salaries payable to pay the tax to the State Treasury on their employees’ behalf | From 5% to 30%, depending on their salaries Up to IDR 50K: 5% Above IDR 50K, up to 250K: 15% Above IDR 250K, up to 500K: 25% Above IDR 500K: 30% |
Payment deadline: 10th of the following month Return filing deadline: 20th of the following month |
Third-Party Withholding Tax |
Requirement to withhold final tax from the gross payments to resident taxpayers and Permanent Establishments | Rental of land/ buildings: 10% Income from transfer of land/ buildings: 2.5% Construction fees: 2-6% Interest on saving deposits: 20% Interests to bonds other than payable to banks: 15% |
Payment deadline: 10th of the following month Return filing deadline: 20th of the following month |
Other Taxes (Resident Taxpayers) |
Any other forms of income paid or payable to residents are subject to tax at their gross amounts | Dividends, interests, royalties, etc.: 15% Management and consultation services, etc.: 2% |
Payment deadline: 10th of the following month Return filing deadline: 20th of the following month |
Other Taxes (Non-resident Taxpayers) |
Any other forms of income paid or payable to non-residents | Dividends, interests, royalties, service fees, pensions, rental, etc.: 20% | Payment deadline: 10th of the following month Return filing deadline: 20th of the following month |
Value Added Tax (VAT) |
Only applicable when the turnover exceeds IDR 4.8 billion per annum for the transfer of taxable goods or services listed in the Indonesian Customs Area | VAT: 10% VAT on export of goods and services: 0% |
Payment deadline: Last date of the following month Return filing deadline: Last date of the following month |
While the flat rate for corporate income tax stands at 22% (20% from 2022 onwards), there are discounts available selected group of companies in Indonesia:
- Public Companies – tax discount of 3%
- Min. Listing requirement of 40%
- Fulfilment of other conditions such as shares must be owned by a minimum of 300 parties
- Small Companies – tax discount of 50%
- Only for small companies
- Annual turnover below IDR 50 billion & below
- Imposed proportionately on taxable income on the gross turnover up to IDR 4.8 billion
- Companies with gross turnover of IDR 4.8 billion & below are subject to final income tax of 0.5% of turnover
Requirements for Tax Reporting
However, tax reporting is a tedious, yet important task for all companies in Indonesia. The main requirements when it comes to corporate tax reporting include:
- Company’s tax identification number & SKT (Surat Keterangan Terdaftar)
- All financial reports duly completed
- Previous tax reports with documentation (if any)
- Income statement
- Balance sheet
- General ledger
- List of assets and depreciation
- List of prepayments, lease, and its amortisation
Corporate Tax Incentives in Indonesia
Hence, if you are a public or small company in Indonesia, there are some corporate tax incentives that you can tap on.
- Public Companies
For public companies that have a minimum listing requirement of 40% and fulfil other conditions, but they are granted a tax discount of 3% off the standard rate. This means 19% for the fiscal year of 2020/21 and 17% for the fiscal year 2022 onwards. - Small Companies
For small companies that have an annual turnover of not more than IDR 50 billion, a 50% tax discount off the standard rate. This is proportionate to the taxable income on the gross turnover up to IDR 4.8 billion.
Certain companies with a gross turnover of not more than IDR 4.8 billion are subject to a final income tax at 0.5% of turnover.
FAQs
You must have a tax identification number, paid all of the clearance levy charges required, paid for any tax liabilities which may still be outstanding, and presented the latest income details for the most recent financial year before being legally permitted to claim any tax exemptions in Indonesia. If not, you are not eligible for tax incentives.
One of the many reasons for lowering the corporate tax rate in Indonesia is to attract more foreign direct investments in the country.
Tax Identification Number (TIN) is known in Indonesia as Nomor Pokok Wajib Pajak (NPWP). It is a set of numbers given to taxpayers (both individual and entity) for personal identification in carrying out their taxation rights and obligations (i.e. Income Tax, and VAT). NPWP is given to eligible taxpayers who have fulfilled the subjective and objective requirements as stipulated in taxation laws and regulations.
If you are living in Indonesia for a cumulative total of 183 days within a tax year, you are required to filing and pay for taxes.
