When an 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, there are certain criteria that qualifies you as a tax paying resident.
Advice: It is important to know if you are considered a tax resident in Indonesia as residents and non-resident are taxed differently
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 amongst all the taxes implemented.
It is the responsibility of every taxpayer’s employer to calculate any taxes that is required to be withheld from salaries and paying these taxes to the tax authorities monthly and providing the employees the annual tax figures.
Personal Income Tax Rates in Indonesia depend on a residency of an individual. A non-resident individual, defined as an individual who has stayed in Indonesia for lesser than 183 days in any 12-month period, 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 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 individuals are exempt from paying Indonesia’s personal income taxes.
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; identities of these representatives are mentioned by the Minister of Finance on certain occasions
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 on a monthly basis 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 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%
The following are the annual non-taxable revenues (Penghasilan Tidak Kena Pajak / PTKP) for residents under the Principal Personal Relief:
Individual taxpayer – 54 million rupiah
Spouse – 4.5 million rupiah
Expenses on occupation (maximum of 50 million rupiah on monthly basis) – 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
NOTE: No exemptions are available for renting a private home or vehicle. A company’s insurance premiums are regarded as extra revenue.
Tax Identification Number (NPWP)
The Indonesian tax office (Direktorat Jenderal Pajak) makes it so that all Indonesian tax residents, including expatriates, have their own 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 own 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 imposed on income earned anywhere in the world. Taxable forms of income include the following:
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. 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 country involved.
RECOMMENDATION: If you are generating revenue from foreign investments, it is recommended that you consult an accountant and financial consultant to determine how your investment policies will be affected by the legislation.
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
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.
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
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