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Indonesia Tax Registration

9 min read|Last Updated: August 29, 2022|
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Given that taxation accounts for a major portion of a nation’s income, it is crucial for countries to implement a tax system and set regulations to ensure that all taxpayers adhere to them. The amount imposed also has a significant impact on an investor.

After incorporating a company in Indonesia, you should take note of the tax registration process to ensure that you are compliant with the governmental regulations to avoid facing penalities.

Taxation in Indonesia

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 taxes are obligatory and must be complied with accordingly.

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 & Annual Tax Filing in Indonesia

The taxation system in Indonesia is based on your resident status. To put it simply, a company in Indonesia is regarded as a resident when it has been incorporated in Indonesia. For resident companies which earn at least 15,850,000 rupiah a year has to register at the local branch office of their Directorate General of Taxes to open an annual tax return file.

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:

  • Completed 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 standardising of technical matters regarding taxation.

This body is a combination of several other agencies that are sub-units. They include:

  • 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.

Tax Audits in Indonesia

To audit the tax activities in Indonesia, the 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.

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.

Tax Disputes in Indonesia

The 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.

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.

Tax Compliance in Indonesia

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 and are done manuualy. The authenticity of the response is confirmed in the tax office’s internal database.

For foreigners who are incorporating a company in Indonesia, it is advised that you engage an experienced tax expert to ensure your tax filings comply with the latest tax laws.

Income Tax Returns in Indonesia

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
  • Employment compensations
  • Capital gains
  • Liabilities and assets
  • Income from foreign investments
  • Other income

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.

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
  • Royalties
  • Fees for services, such as asset rentals other than buildings or land
  • Consulting services

What are the Penalties for Defaulting on Tax Duties

If you fail to comply to the regulations or deemed to have defaulted on your tax duties, there are various penalties that you could face.

TAX OFFENCES PENALTIES
Late reporting
  • 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
General late payment Surcharge of 2% every month
Tax assessment revealing underpayment Surcharge of 2% every month for 24 months or surcharge of 50% or 100% of the underpayment made
Intentional alteration of returns Surcharge of 2% every month or surchage of 50% or 150% of the underpayment made
Issuance of incomplete Value Added Tax invoice/ non-issuance/ late issuance/ non-conforming issuance Surcharge of 2%
Non-submission of tax returns/ submission of wrong information of tax returns 200% payment of the tax underpaid or three months to a year of imprisonment
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
Illicit use of NPWP without rights / Incomplete tax return 200% to 400% of the refund requested or six months’ to two years’ imprisonment
Intentional issuance or use of tax document of other transactions / Issuance of tax invoice as an unconfirmed taxable entrepreneur Intentional issuance or use of tax document of other transactions / Issuance of tax invoice as an unconfirmed taxable entrepreneur
Improper bookkeeping, fraud, and embezzlement 200% to 600% surcharge of the actual payments or imprisonment of up to six years

Ready to incorporate your company in Indonesia or require taxation services? Reach out to us for a free consultation today.

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FAQs

Are they any tax exemptions for Indonesian companies?2021-11-05T14:16:45+08:00

Yes, there are many tax incentives for both individuals and companies in Indonesia. You can find more about them here.

What is Value Added Tax?2021-11-05T14:16:10+08:00

Value added tax (VAT) is the consumption tax imposed on each production stage of both goods and services until the final product sales. Business owners in Indonesia must be fully aware of the VAT system as it affects their business activities all over the country.

What is a Tax ID Number?2021-11-05T14:15:45+08:00

Tax Identification Number (TIN) is known in Indonesia as Nomor Pokok Wajib Pajak (NPWP). It is a set of number given to taxpayer (both individual and entity) for personal identification in carrying out their taxation rights and obligations (i.e. Income Tax, and VAT). NPWP is given to eligible taxpayer who has fulfill the subjective and objective requirement as stipulated in taxation laws and regulation.

What is the corporate tax rate in Indonesia?2021-11-05T14:14:58+08:00

The corporate tax rate in Indonesia stands at 22%, and will be adjusted to 20% from 2022 onwards. 

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