Indonesia is home to many foreigners who own and operate their own businesses there. Other foreigners who plan to do the same will need to know about the tax obligations in Indonesia which are required of them after they have begun running an Indonesia-based company of their own.
It is extremely important for any business owner to be completely compliant with all of the tax regulations which exist in the country which the business owner is operating the business in question. Business owners, as taxpaying individuals, are required to pay personal income tax; however, as the owners of a business, they must also take corporate income tax into consideration so that their business activities are also tax-compliant. Foreign business owners must be aware of their tax obligations as well. There are several ways in which the tax obligations of foreign business owners in Indonesia differ from those of Indonesian business owners.
Should you require any assistance with the management of your tax obligations, we at Paul Hype Page & Co are able to be of service in this matter. Our tax team will take you through all the taxes which you are to pay. We will also aid you with the process of the filing and paying of these taxes.
Tax Requirements for Indonesian Business Owners in Indonesia
One of the requirements related to taxes which must be followed by the business owners of Indonesia is that of ownership of a tax identification number (NPWP) and confirmation of their status as a taxable entrepreneur or the business’s status as taxable (PKP). An NPWP is required by every taxable individual and business in Indonesia as a form of official identification for tax purposes. It is provided to every eligible taxpaying entity in Indonesia and is issued by a Tax Office. The Tax Office which issues one’s NPWP is either the Tax Office where the residence or location of business activities of the taxpaying entity in question is located or a specifically appointed Tax Office which may have been stipulated in the Director General of Taxes Decree. The NPWP issued to any taxpaying entity in Indonesia will never change.
It is also important for business owners in Indonesia to obtain confirmation that their business has official taxable status (PKP). A business must receive official PKP status from the government if it supplies goods or services which are subject to value added tax (VAT) and has a total value of at least 4.8 billion rupiah. Confirmation of PKP status will prevent the business in question from committing certain tax offenses because those who abuse the rules regarding PKP status might do so to avoid have to pay the taxes required of them.
Payment of Taxes by Foreign Business Owners in Indonesia
The factor which determines the tax authorities to which foreign business owners in Indonesia are to pay taxes is that of the tax residency of the business owners in question. For any individual, including a foreign business owner, who is currently in Indonesia, the criteria which determine tax resident status are as follows: if the individual resides in Indonesia, is present within Indonesian borders for over 183 days of a given 12-month period, or is present in Indonesia at any point during a fiscal year and intends to permanently settle in Indonesia. Only one of these criteria must be fulfilled by an individual in order for that individual to be considered a tax resident of Indonesia. All tax residents of Indonesia are to pay taxes to Indonesian tax authorities. Conversely, all foreigners who do not fulfill any of these criteria but fulfill the tax residency criteria of their home country will not be deemed to be tax residents of Indonesia; such foreigners are instead to pay taxes to the tax authorities of their home country. In certain instances, double taxation agreements (DTAs) between Indonesia and another country may affect the tax resident status of certain people in Indonesia.
If you are interested in pursuing foreign tax planning but are uncertain about how to do so, we at Paul Hype Page & Co will be able to provide solutions. We have much knowledge and experience with regard to international taxation and will put this knowledge and experience to use by enabling you to handle all of your international tax matters in the proper manner.