What’s in this article
Taxation in every country is different. There are various types of taxes in Indonesia that an individual and/or a company should be aware of. These include corporate income tax, personal income tax, value added tax (VAT), luxury-goods sales tax, and many more.
In this article, you will know more about the tax system in Indonesia to ensure tax compliance and find out more about the types of taxes.
Financial and Tax Compliance in Indonesia
Despite promising forecasts regarding Indonesia’s economy, financial and tax compliances in Indonesia remain an issue to be addressed. Data shows that the country collects approx. 12% of GDP in tax revenue and millions of people estimated to be failing to meet their tax obligations.
In order to address this challenge and boost tax compliance, some initiatives have been put in place, which include:
Compared to other nations, the tax structure for both corporate companies and individuals in Indonesia is relatively low. However, financial and tax compliance in Indonesia still must meet the government’s expectations.
Corruption and voluntary compliance in the Indonesia economy is common. The government has been doing their part to eradicate tax evasion in order to ensure that their compliance system aligns with other global economies.
What is Corporate Income Tax in Indonesia?
The Corporate Income Tax is a government tax which every company based in Indonesia – regardless of its being local or foreign (PT PMA) – is legally bound to pay.
Any foreign-owned company that does not have a permanent establishment in Indonesia but generates income through business activities in the country, will have to settle its tax liabilities through what is known as withholding tax by the Indonesian party providing for the income.
The standard corporate income tax rate in Indonesia is 22%. However, there are some tax exemptions for the following companies:
The Finance Ministry regulation has established that individuals and institutional taxpayers with an annual gross turnover below IDR 4.8 billion (about USD $360,000) are to pay a 0.5% income tax rate provided that the following criteria are met:
Non-residents are subject to a 20% withholding tax on Indonesia-sourced income. Almost all income earned by individuals in Indonesia is subject to income tax.
Personal Income Tax
For individuals, the personal income tax rates payable for annual income are:
Value Added Tax (VAT)
The Value Added Tax (VAT) involves the transfer of taxable goods or the provision of taxable services in Indonesia. Events/services bound to pay VAT are:
The VAT rate in Indonesia is 11%. However, the exact amount may be increased or decreased (with figures ranging between 5% and 15%) according to government regulations. VAT on the export of taxable tangible and intangible goods, as well as the export of services, is fixed at 0% with certain limitations.
Luxury-Goods Sales Tax (LGST)
Introduced in the Suharto era with the aim to create a more just society, the LGST tax establishes that the delivery or import of certain manufactured taxable goods – luxury cars, apartments, and houses to name a few – is liable to pay an additional tax.
Currently, LGST rates are set between 10% and 125% (where the law allows for a maximum LGST rate of 200%).
Although the Indonesian law allows import duties to range between 0 and 150% of the imported item value at customs, the highest rate is currently set at 40%. This is mainly a result of Indonesia signing a number of free-trade agreements, effectively scrapping or significantly lowering import duty rates.
FAQs
Under a work permit, a work permit holder is eligible to apply for a dependant pass for the family of the holder, including children and spouse to come to Indonesia.
Indonesia has lots to offer, from agriculture, to manufacturing and business. Depending on the industry you are looking at, there are different areas in Indonesia that excels in these areas.
For example, Surabaya, East Java is popular for foreign investments as it has one of the highest property growth in Indonesia, also ranking top five cities in Asia to invest in.
Indonesia has the biggest economy in South East Asia, this means that there is potential in the economic growth. Thus, Indonesia has a wide range of goods and services along with better standards of living.
In the city of Jakarta and Bali, there is a large expat community as it is popular amongst tourists and travellers alike.
In Indonesia, employees usually pay income taxes through their employer, which deducts it from their salary on a monthly basis. For tax payers resident in Indonesia, the above-mentioned tax rates apply. For non-resident taxpayers, the withholding tax is 20% percent of the gross amount (unless there is a tax treaty in place, in which case the amount may vary).