Personal Income Tax in Indonesia

When income is sourced in Indonesia, it is mandatory for businesses, investors and all other types of taxpayers and tax-paying entities to pay for taxes such as corporate tax, personal income tax, Value-Added Tax, withholding tax, and more.

When it comes to personal income tax in Indonesia, certain criteria qualify you as a tax-paying resident.

Overview of Personal Income Tax in Indonesia

Personal Income Tax is a tax collected from individuals imposed on income such as salaries, dividends, pensions and even interest. Indonesia’s government earns a significant revenue from personal income tax among all the taxes implemented.

It is the responsibility of every taxpayer’s employer to calculate any taxes that are required to be withheld from salaries paying these taxes to the tax authorities monthly and providing the employees the annual tax figures.

Personal Income Tax Rates in Indonesia depend on the residency of an individual. A non-resident individual, defined as an individual who has stayed in Indonesia for less than 183 days in any 12 months, will be taxed based on a 20% standard rate.

As for tax residents, they are taxed based on a progressive rate between 5% and 30% depending on the income they earn.

Individuals Required to Pay Personal Income Tax

A personal income taxpayer may either be a resident or non-resident of Indonesia. 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 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 individuals are exempt from paying Indonesia’s income taxes.

These include:

• 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 organisation representatives; The identities of these representatives are mentioned by the Minister of Finance on certain occasions

Personal Income Tax Rates in Indonesia

The 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 every month from wages and other forms of compensation paid to staff.

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 two years) 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%

The following are the annual non-taxable revenues (Penghasilan Tidak Kena Pajak/PTKP) for residents under the Principal Personal Relief:

• The individual taxpayer – 54 million rupiah
• Spouse – 4.5 million rupiah
• Expenses on occupation (maximum of 50 million rupiah every month) – 6 million rupiah
• Dependants and children (up to three) – 4.5 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

Tax Identification Number (NPWP)

The Indonesian tax office (Direktorat Jenderal Pajak) makes it so that all Indonesian tax residents, including expatriates, have their tax numbers known as Nomor Pendaftaran Wajib Pajak or NPWP.

The tax office needs all expatriates residing in Indonesia to register with the tax office. With the tax registration, they can:

• Receive their tax number
• Pay monthly income taxes
• File annual tax returns
• Pay tax on their revenue earned outside Indonesia apart from tax paid on extra foreign revenue in other jurisdictions

Forms of Income Subject to Personal Income Tax in Indonesia

Personal income tax in Indonesia is imposing on income earned anywhere in the world. Taxable forms of income include the following:

• Employment income
• Onshore and offshore dividends, interest income, royalties, and insurance gains
• Onshore and offshore rental income
• Onshore and offshore capital gains

Material benefits are generally excluded, as is inheritance income. The tax credit is granted for income tax paid abroad; however, this tax credit may be subject to restrictions and criteria stated in double tax agreements between Indonesia and the other countries involved.

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 will be 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 payments 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 about income tax will impose on all resident taxpayers for certain incomes at 15% of the total amount. The following incomes are under the Article 23 Income Tax:

• Interest in Indonesia and 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