Tax registration is a crucial part of the tax system of any country. Such is also the case in Indonesia. Therefore, it is important for the country’s taxpayers to know exactly how they are to register for tax and file it in accordance with the taxation laws that exist in Indonesia.
Taxation is an important element of any country’s economy. The amount of tax imposed is a major contributor to a nation’s income. The amount imposed also has a significant impact on an investor.
In Indonesia, various tax systems exist for individuals, companies, and investors. These include individual income tax, corporate income tax, withholding tax, value-added tax (VAT), international tax agreements, sales tax on luxury goods, tax on custom and excise, tax on international agreements, tax on land and buildings, and tax concessions. These forms of tax are obligatory and must be complied with accordingly.
In Indonesia, the tax rate is 25% for companies. This rate applies to domestic income as well as income obtained from international sources. For any company that resides in Indonesia, taxes are levied at a rate of 20% from payments made to companies outside Indonesia.
Taxation is a fundamental law in Indonesia. This fact is specified in the 1945 Indonesian Constitution, which states that it is a compulsory levy on citizens as well as residents and foreigners who have resided in Indonesia for a cumulative total of 183 days within a tax year.
Tax Registration and Annual Tax Filing in Indonesia
Taxation in Indonesia is based on resident status. A company in Indonesia is regarded as a resident when it has been incorporated in Indonesia. A resident company which earns non-at least 15,850,000 rupiah register at the local branch office of their Directorate General of Taxes in order to open an annual tax return file.
Registered taxpayers should always remember to see tax payment as a responsibility and a civic duty as an Indonesian. During registration with the Directorate General of Tax, individuals are given an identity number known as Nomor Pokok Wajib Pajak (NPWP). In Indonesia, a family is a single unit for the purpose of taxation. Hence, the entire family is given only one NPWP under the family head’s name.
For registration, the following documents should be provided:
An already filled registration form
Photocopy of NPWP (tax identity number of the employer)
Photocopies of the passport of the applicant (on all the pages)
Photocopy of work permit of the applicant
Tax Registration Authorities in Indonesia
The Directorate General of Taxes, also known as Direktorat Jenderal Pajak (DJP), is a government agency under the Indonesian Ministry of Finance. It is saddled with the responsibilities of policies regarding taxation as well as the standardizing of technical matters regarding taxation. This body is a combination of several other agencies that are sub-units. They are as follows:
Tax Office (also known as Jawatan Pajak): Saddled with the responsibility of tax collection in terms of legislation and regulation
Tax Accountant Office (also known as Jawatan Akuntan Pajak): Saddled with the responsibility of helping tax offices execute tax audit functions on taxpayers
Bureau of Auction (also known as Jawatan Lelang): Saddled with the responsibility of providing auctions for contraband goods to settle state task receivables
Agricultural Tax Office (also known as Jawatan Pajak Hasil Bumi): This body helps to carry out tax collection for land products and agricultural products. The agency operates under the Directorate of Regional Development Contribution
In tax audit activity, Direktorat Jenderal Pajak uses a risk-based method to select returns for audit and can also randomly select candidates for audit. Tax refunds will automatically trigger an opening of a tax audit. Companies listed most frequently are the subjects of yearly tax audits. The taxpayer is then expected to submit all documents regarding the request within a month from the date of the request; otherwise, the documents not provided will not be taken into consideration during tax objections.
This process begins with an on–site visitation. After this, the information required is to be submitted in documents. The tax auditor will also pose some questions to the taxpayer and additional documents will be included based on the response provided. The additional documents should include correlation between tax returns and the financial statement. Also, invoices and other important documents may be manually requested. Audits on tax returns do not last more than a year.
Direktorat Jenderal Pajak also allows the taxpayer to file objections and make appeals; a taxpayer can file objections if irregularities are discovered or if the taxpayer has a dispute regarding the tax assessments. The appeal can be submitted to the Tax Court regarding the results of the disputed tax audit. The tax objection should be filed by the taxpayer within three months from the date that the Tax Office sends the letter of assessment. An average of 12 months is usually required for these processes to be fully executed, but an appeal can take more time. If the Directorate General of Taxes fails to make a decision on the objection made by the taxpayer within 12 months, it is assumed that the taxpayer’s objection is granted and accepted.
The appeal process can come after a decision has been issued by the Directorate General of Taxes over the objection submitted earlier by the taxpayer. A taxpayer can appeal to the Tax Court against the decision of the DGT on the tax objections (if negative). This appeal must be submitted not more than three months after receiving the decision of the DGT. Before submitting the letter, the taxpayer must have paid at least 50% of the tax which the taxpayer was expected to pay earlier. The Tax Court decides on the appeal within 12 months of the lodging of the appeal. If the appeal is rejected, the taxpayer then pays an additional penalty to the Directorate..
Finally, the decision of the Tax Court may then be challenged by the taxpayer or the Directorate General of Taxes at the Supreme Court by filing a request for a judicial review. The request from either party must be filed to the Supreme Court not more than three months after the verdict of the Tax Court was passed. The Supreme Court is then expected to conduct proper investigations and scrutiny before the final verdict is passed. The final verdict holds.
Compliance with certain tax obligations is necessary. Hence, taxpayers are assigned with a representative from the tax office at which they register. This account representative will be charged with monitoring the compliance of the taxpayer to tax duties. These monitoring activities are done manually. The authenticity of the response is confirmed in the tax office’s internal database.
If you need any assistance with tax compliance matters, we at Paul Hype Page & Co can step in and contribute. We will work with you to ensure that all your tax filings comply with current tax laws in Indonesia. This way, your tax filings will be approved by all the relevant government authorities.
Income Tax Returns
For an income tax return, a form known as Form 1770 must be completed after tax registration. The individual must complete the form and return it the tax office at which the individual had previously registered. The deadline for filing an annual tax return is within three months of the end of the tax year. The entirety of the individual’s received income and family income, whether derived from Indonesia or elsewhere, should be highlighted in the tax returns. These include the following:
Income from investment
Liabilities and assets
Income from foreign investments
A third party (usually an employer) collects a considerable large portion of personal income tax through withholding tax. A deduction is made from income tax contributions of each month from salary payments. Also, payers withhold tax before distribution of pensions to schemes, services fees, awards fees, and severance payments. While individuals are responsible for tax payment and are monitored to do so, employers or payers should also be checked to ascertain that they are making the right deductions.
Compliance with Article 23 Income Tax
Article 23, which is related to income tax, is imposed on all resident taxpayers for certain incomes at 15% of the total amount. The following incomes are subjected to the Article 23 Income Tax:
Interest in Indonesia and from overseas
Dividends in Indonesia and from overseas
Awards and prizes
Fees for services, such as asset rentals other than buildings or land
Consulting services (at a rate of 2%)
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Sanctions and Penalties for Defaulting on Tax Duties
1. Late reporting – Penalties are in the form of surcharges
500,000 rupiah is charged for the monthly Value Added Tax return
100,000 rupiah is charged for any other monthly tax return
100,000 rupiah is charged for the yearly individual tax return
1,000,000 rupiah is charged for the yearly corporate tax return
2. General late payment – Surcharge of 2% every month
3. Tax assessment revealing underpayment – Surcharge of 2% every month for 24 months or surcharge of 50% or 100% of the underpayment made
4. Intentional alteration of returns – Surcharge of 2% every month or surcharge of 50% or 150% of the underpayment made
5. Issuance of incomplete Value Added Tax invoice / Non-issuance / Late issuance / Non-conforming issuance of Value Added Tax invoice – Surcharge of 2%
6. Non-submission of tax returns / submission of wrong information of tax return – 200% payment of the tax underpaid or three months to a year of imprisonment
7. Deliberate refusal to register Tax ID Number (NPWP) / Improper NPWP use as a taxable investor / Refusal of tax audit / Non-remittal of taxes collected withheld, Refusal to practice book-keeping or refusal to support bookkeeping – 200% to 400% payment of the tax underpaid or six months’ to six years’ imprisonment; if the offense is repeated, the sentence is doubled
8. Illicit use of NPWP without rights / Incomplete tax return – 200% to 400% of the refund requested or six months’ to two years’ imprisonment
9. Intentional issuance or use of tax document of other transactions / Issuance of tax invoice as an unconfirmed taxable entrepreneur – 200% to 600% payment of the actual tax amount or two to six years’ imprisonment
10. Improper bookkeeping, fraud, and embezzlement – 200% to 600% surcharge of the actual payments or imprisonment of up to six years.
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DPJ (Directorate General of Taxes) governs Indonesia’s tax system, helps develop a stronger economy, better environment and a more vibrant economy. All companies, regardless of industry, have a legal duty to pay taxes.
Indonesia attracts investments from around the world by reducing its corporate income tax rate and introducing different tax incentives. Indonesia has one of the lowest corporate tax rates in the world.
As your company’s Tax agent, Paul Hype Page & Co Chartered Accountant will be fully responsible for the practice of ensuring that these conditions are met. It is important that we be highly qualified and well versed in local regulations and corporate laws, as we are responsible for the upkeep of important company files, tax reports and tax records.