Personal income tax is an important part of any country’s tax system. Such is also the case in Indonesia. Personal income tax in Indonesia is imposed based on various factors of which all of Indonesia’s taxpayers need to be aware in order to better understand their tax obligations.
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.
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.
In the past, this regulation was not implemented because of dependence on people who had no source of revenue outside their jobs or whose earnings were below the minimum level required for taxation. The tax office needs all expatriates residing in Indonesia to register with the tax office, receive their own tax number, pay monthly income taxes, file annual tax returns, and 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 taxation in Indonesia is imposed 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. Tax credit is granted for income tax paid abroad; however, this tax credit may be subject to restrictions and criteria stated in double tax treaties between Indonesia and the other country involved. Taxpayers may also obtain tax credit from local bank accounts and time deposits.
Due to the fact that the Indonesian government taxes revenue from foreign investments, those who would be affected by this matter should consult an accountant and a financial consultant to determine how any present and future investment policies will be affected by legislation.
How Indonesian Taxpayers Can Reduce Their Personal Income Tax Burden
Indonesia reduced the rate of income tax for small and medium-sized enterprises (SMEs) in July 2018. The Ministry of Finance also released a regulation that set deadlines for applying the decreased rate of income tax in Indonesia. The public regulation Peraturan Pemerintah (PP-23) lowered Indonesia’s revenue tax rate in July 2018.
According to the PP-23, taxpayers and businesses with gross revenue of less than 4.8 billion rupiah per year will benefit from Indonesia’s lowered income tax rate. The decreased income tax rate can be used by individual taxpayers for seven years, while companies which are eligible will benefit from this tax rate reduction for three years.
One should understand that if one’s company annual income during this period exceeds 4.8 billion rupiah, one needs to pay income tax at general tax rates and may not use the decreased tax rate.
Although Indonesia’s tax rates are not particularly high, many nevertheless seek assistance with regard to the reduction of the amount of tax money they are to pay. We at Paul Hype Page & Co are among those who provide such assistance. Our experienced and competent tax specialists will do all they can to ensure that you pay as little tax as possible while still remaining within the legal boundaries of Indonesia.
How to Apply for the Decreased Income Tax Rate
In its recently published regulation Peraturan Menteri Keuangan 99/2018 (PMK-99), the Ministry of Finance (MoF) stated the deadlines for applying for the decreased income tax rate.
To apply, one must send a letter of notification to the same tax office where the company tax registration was completed. The tax office will then notify the Directorate General of Tax (DGT).
To apply for the income tax rate of 0.5%, one must first receive a letter of declaration. This can be done by sending an application to the tax office where the tax ID was received. The letter must be signed by the company director and the latest annual tax report must be submitted unless the firm involved is a newly registered firm.
After receiving the full request, the tax office will issue a declaration letter or a letter of refusal within three working days. If the claim is rejected by the tax office, one’s can re-apply for a fresh letter of declaration. A declaration letter’s validity period begins from the date of issue to the final income tax period limit or until the person involved decides to use the regular tax rates.
Paul Hype Page & Co. will give you more information and assistance on policy updates, compliance regulations and changes to tax conditions. Corporate tax in Indonesia.
Our team of seasoned professional can also help you set up a company in Indonesia very quickly and easily following all legal entities, and offer you sound advice on how to make it successful too.
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Here, you will find detailed information about Indonesia’s Corporate Tax System. Paul Hype Page & Co helps companies with strategic tax planning, tax advisory, and accountancy services.
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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.
Personal Income Tax in Indonesia FAQs
Indonesia’s highest personal income tax rate is 30%. This figure has remained constant since 2009. In 2009, it was lowered from its previous rate of 35%.
Much of the Indonesian government’s revenue comes from tax money which it receives. According to the latest statistics, the Indonesian government received over 1.566 quadrillion rupiah in tax money in 2017. This figure is equivalent to over US$111 billion.
The Directorate General of Taxes is the Indonesian government agency which is directly concerned with tax-related matters in the country. It operates under the auspices of the Ministry of Finance. It creates and implements the taxation policies to be used across Indonesia.