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:
|Up to Rp 50,000,000||5%|
|Over Rp 50,000,000 but not exceeding Rp 250,000,000||15%|
|Over Rp 250,000,000 but not exceeding Rp 500,000,000||25%|
|Over Rp 500,000,000||30%|
In Indonesia, severance payments are also subject to taxation. The tax rates which are to be applied to severance payments are as follows:
|Up to Rp 50,000,000||0%|
|Over Rp 50,000,000 but not exceeding Rp 250,000,000||5%|
|Over Rp 250,000,000 but not exceeding Rp 500,000,000||15%|
|Over Rp 500,000,000||25%|
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:
|Up to Rp 50,000,000||0%|
|Over Rp 50,000,000||5%|
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.
Tax Registration and Tax Filing
- All individual tax residents (including expatriates) are obliged to register with the Tax Office and obtain a tax ID number. An exemption from registration is available for those earning below the non-taxable income threshold, those who ae not regarded as individual tax residents, and married people who are to fulfill their individual tax obligation jointly with their spouse.
- Individual taxpayers are required to file annual individual income tax returns (Form SPT 1770 or 1770 S or 1770 SS). In certain cases, tax payments in the form of monthly instalments are also required.
- Individual taxpayers are encouraged to file their individual tax returns electronically through the e-Filing system. They need to separately obtain an e-Filing Number (e-FIN) from the Tax Office in order to access the system.
For the processing of tax payments, a billing code must first be generated. The specific billing code is valid for 30 days and will need to be supplied to a bank so that the bank can process the tax payment. Only after the bank has processed the tax payment can the payment be deemed to be valid.
There are certain personal tax deductions which apply to some of Indonesia’s resident individual taxpayers. These deductions are applied based on the personal circumstances of the taxpayer in question. The following personal deductions are allowed to be used by resident individual taxpayers during the calculation of their taxable income:
|Basis of Deduction||Deductible Amount (per year)|
(additional Rp 54,000,000 for a wife whose income is combined with her husband’s)
|Dependents||Rp 4,500,000 each (up to a maximum of 3 individuals related by blood or marriage)|
|Occupational Support||5% of gross income up to a maximum of Rp 6,000,000|
(available to pensioners)
|5% of gross income up to a maximum of Rp 2,400,000|
|Contribution to approved pension fund, e.g. BPJS Ketenagakerjaan||Amount of self-contribution|
|Compulsory tithe (“zakat”) or religious contributions||Actual amount, provided that valid supporting evidence is available and all requirements are met.|
The Minister of Finance is authorized to re-determine the amounts of any personal deductions. All current personal deductions were introduced in June 2016 and apply retrospectively from January 2016.
Social Security Schemes
There are two primary national social security schemes which can be utilized by anyone living in Indonesia. These national social security schemes are the Manpower Scheme (BPJS Ketenagakerjaan) and Healthcare Scheme (BPJS Kesehatan). Participation in these schemes is mandatory for Indonesian citizens as well as foreigners who have been working, have worked, or will work in Indonesia for at least six months. Expatriates need to be able to prove their participation in the social security schemes when they renew their work permits.
The premium contributions for each scheme have different values depending on which scheme and which aspect of the scheme are involved. The rates to be used are as follows:
|Social Security Scheme||Areas Covered||As a percentage of regular salaries/wages|
|Borne by employers||Borne by employees|
|BPJS Ketenagakerjaan (Manpower Scheme)||Working accident protection||0.24 – 1.74%||–|
|Old age saving||3.7%||2%|
|BPJS Kesehatan (Healthcare Scheme)(3)||4%||1%|
|1% for(4) additional family member|
There are several further points related to these schemes which must be mentioned. The regular salary and wages cap for calculating the pension insurance contribution is 8,094,000 rupiah per month. This figure represents an increase from the previous regular salary and wages cap, which was 7,703,500 rupiah per month. The amount may change in the future. Contribution to the pension plan is not mandatory for expatriates. The regular salary and wages cap for calculating the healthcare contributions is 8,000,000 rupiah per month. The amount may change in the future. The mandatory premium covers husband, wife, and three dependents. Additional family members can be covered with additional premiums.
Corporate Tax Rates in Indonesia FAQs
Indonesia’s social security schemes are intended to protect the welfare of employees. They provide employees with benefits in cases of old age or retirement, injuries suffered at work, or even death. Through these schemes, the Indonesian government upholds employees’ labor rights.
In Indonesia, all taxpayers are identified through a tax ID number. This number is issued by authorities at a Tax Office. A tax ID number in Indonesia is also known as a Nomor Pokok Wajib Pajak (NPWP).
A country’s tax laws ought to reflect the economic realities present in the country. At certain points, the tax laws of Indonesia were out of step with the country’s economic conditions. Therefore, they had to be amended to correct this problem.