Indonesia Tax Rates and Law
There are many tax laws that exist in Indonesia. All companies, investors, and individuals in the country need to comply with these tax laws. These tax laws include corporate income tax, individual income tax, withholding tax, international tax agreements, value added tax (VAT), luxury goods sales tax, customs and excise, tax concessions, and land and building tax. Each of these taxes has an important reason for existing, and all contribute to the Indonesian government’s revenue so that the government can carry out its functions in the proper manner.
The primary tax legislation which exists in Indonesia today is Article 23A of the 1945 version of the Indonesian Constitution (UUD 1945). This Article defines taxation in Indonesia as an enforceable payment imposed on all Indonesian citizens as well as foreigners who have lived in Indonesia for a minimum of 183 total days over a one-year period or have been in the country for at least one day and have intentions to remain there on a long-term basis. However, those who have been in Indonesia for less than 120 total days over a one-year period and do not intend to remain in Indonesia for the long term are not required to pay any tax to the Indonesian tax authorities.
Article 23A is supported by other important pieces of legislation which are related to taxation. Among these are Law No. 8 of 1983 which governs imposition of VAT, Law No. 14 of 2002 which is related to tax court laws, Law No. 19 of 1997 which explains the rules regarding warrants for tax collection, Law No. 13 of 1985 which provides details on how stamp duty is to be imposed, and Law No. 12 of 1985 which is the primary legislation related to land and building tax. These laws along with many others work together to regulate Indonesia’s tax system in such a way that the optimal outcomes for the government, taxpayers, businesses, and the country’s economy can be reached in the simplest and most effective manner possible.
Individual Income Tax
The primary law that governs the administration of individual income tax in Indonesia is Law No. 7 of 1983 regarding income tax as most recently amended by Law No. 36 of 2008. It provides details on tax rates, tax registration, tax filing, payment of taxes, personal deductions, and taxes related to social security schemes. It also mentions the collection of income tax, the process by which the collection is to be done, and the amount of income tax to be collected from each taxpayer.
The individual income tax rates in Indonesia are as follows:
The tax rates which have been listed are final and only applicable to lump sum payments and payments made within a two-year period. Payments made in the third year and thereafter are subject to normal tax rates and can be claimed as tax credit.
Payments of pension funds or old age saving funds are also taxed. The tax rates which are imposed on these payments are as follows:
Just as is the case with the tax rates imposed on severance payments, the tax rates listed are final and only applicable to lump sum payments and payments made within a two-year period. Payments made in the third year and thereafter are subject to normal tax rates and can be claimed as tax credit.
Non-resident individuals are generally subject to a 20% withholding tax on income received from Indonesia (Article 26 on withholding tax). However, this rate may vary depending on the circumstances of the taxpayer in question as well as any applicable tax treaty provisions. Specific rates apply for income which is subject to a final tax.