In Indonesia, there is a broad range of taxes that businesses, investors, and all other taxpayers and taxpaying entities must pay. These include corporate tax, personal income tax, withholding tax, tax treaties, value added tax (VAT), luxury goods sales tax, customs and excise tax, and property and construction tax.
Personal income tax in Indonesia is a tax collected from individuals and imposed on various sources of income such as salaries, pensions, interest, and dividends. Personal income tax revenues are a significant source of income for the Indonesian government. Every taxpayer’s employer is responsible for calculating any taxes that must be withheld from salaries, paying these taxes to tax authorities on a monthly basis, and providing the employee with annual tax figures.
The prior personal income tax system in Indonesia only permitted individuals with just a single source of income to have their income tax processed by their employer. Employers were to pay tax on all their staff under one tax registration number (NPWP), assuming that only this single source of revenue was available to staff. Currently, it is the legal responsibility of the individual taxpayer to ensure registration with the tax office, compliance with the laws, and payment of taxes due.
Indonesia uses a global income tax system for the imposition of personal income tax. This means that individuals who are tax residents in Indonesia are to pay tax to the Indonesian government not only on the revenue they have earned from their work in Indonesia, but also on the revenue they have earned from their work abroad.
Individuals who work in Indonesia but are not residents are only liable to pay personal income tax to the Indonesian government for the income they have earned in Indonesia. Depending on the terms of the applicable tax treaty between Indonesia and the country in which the taxpayer resides, some will not pay any tax in Indonesia at all. It is therefore essential for expatriate employees to know their tax liabilities in Indonesia and to be able to determine which tax system will apply to them along with any exemptions for which they are eligible.
For calculation of personal income tax in Indonesia, employees’ wages are categorized as gross and tax is calculated, withheld from staff, and paid to the tax office through a banking system. Wages of employees are categorized as net and calculated to determine a gross amount, after which the tax is calculated to set the remaining amount at the net amount expressed in the letter of employment. The tax on the net amount is then calculated and handled as a fringe advantage. Employees are personally responsible for compensation from the employer and are to ask employers to show them the receipt of the monthly tax payment.
Individuals Required to Pay Personal Income Tax
A personal income taxpayer may either be a resident or non-resident of Indonesia. An individual is regarded as a personal income tax resident in Indonesia if the individual has been in Indonesia for at least 183 days of a 12-month period, has been in Indonesia at any point during the fiscal year and intends to live there for an extended period of time, or provided any evidence of a desire to live in Indonesia on a long-term basis.
Therefore, the main criterion to determine tax resident status in Indonesia is not nationality, but rather duration of stay or expected stay. An expatriate who is a tax resident will be treated as one until the day of departure.
Non-residents are subject to a 20% withholding tax on revenue earned in Indonesia.
Individuals Exempted from Personal Income Tax
Some foreigners are not regarded as Indonesian tax residents due to their special legal status even though they live in Indonesia for more than 183 days per year or live and plan to remain in Indonesia. Such people are exempt from paying Indonesia’s personal income taxes. They include the following people:
- Diplomatic and consular staff from overseas if they do not conduct business activities abroad and their home country extends reciprocal treatment to diplomatic and consular staff in Indonesia
- Military personnel and foreign armed services civilian staff
- International organization representatives; identities of these representatives are mentioned by the Minister of Finance on certain occasions
Some may struggle with concepts related to personal income tax in Indonesia. If such is the case for you, we at Paul Hype Page & Co will be of service to you. Our knowledgeable tax experts are always willing to help you understand all of your tax obligations. We will also assist in the filing and payment of your taxes if you need our services in those areas.
Personal Income Tax Rates
Normal Tax Rates: Taxable annual revenue on individual tax residents is charged at the following progressive rates:
- 50 million rupiah or less – 5%
- 50 million to 250 million rupiah – 15%
- 250 million to 500 million rupiah – 25%
- More than 500 million rupiah – 30%
A significant proportion of individual income tax is gathered through employers’ withholding. Employers withhold income tax on a monthly basis from wages and other forms of compensation paid to staff. If the worker is a resident taxpayer, the preceding tax rates. If the individual is a taxpayer who is not a resident, the withholding tax is 20% of the gross amount; however, the amount may vary if there is a tax agreement.
Tax Rates of Concession: Final gross revenue taxes for severance payments (if paid within a two-year period) are imposed at the following rates:
- 50 million rupiah or less – 0%
- 50 million to 100 million rupiah – 5%
- 100 million to 500 million rupiah – 15%
- More than 500 million rupiah – 25%
Principal Personal Relief: The following are the annual non-taxable revenues (Penghasilan Tidak Kena Pajak / PTKP) for residents:
- Individual taxpayer – 54 million rupiah
- Spouse – 4.5 million rupiah
- Dependants and children (up to three) – 4.5 million rupiah
- Expenses on occupation (maximum of 50 million rupiah on monthly basis) – 6 million rupiah
- BPJS Ketenagakerjaan employee contribution for savings in old age security (2% of gross income) – full amount
- Cost of pension maintenance (maximum of 200,000 rupiah per month) – 2.4 million rupiah
No exemptions are available for renting a private home or vehicle. A company’s insurance premiums are regarded as extra revenue.