Tax Exemptions in Indonesia: Types & How to Claim?

Tax exemptions in Indonesia are allowed by the government to taxpayers to exclude or deduct a specific amount of tax that is to be due.

Hence, boosting regional economic performance and reducing tax burdens for specific organizations are examples of such justifications. Tax exemptions also make it easier for organisations that promote public welfare to do so more effectively.

What are the Tax Exemptions in Indonesia?

On August 13, 2019, Indonesia’s Finance Minister announced a regulation exempting import duties on products entering the nation. The elimination of the Value Added Tax (VAT) made goods much more affordable to bring into the country.

If not all of the requirements are met, the imported products that may be eligible for tax relief can be transferred, re-exported, or even destroyed. Two years after the most recent period of issue of a transfer authorisation by the customs office and declaration made by the customs import, any imported items that have received facilities can be transferred.

Only when a customs export declaration has been submitted to the customs office may such products be re-exported. There is also a possibility that such imported goods might be destroyed.

Why Do Indonesian Government Offer Tax Exemptions

There are a few reasons why the Indonesian government offer tax exemptions. Some of these include:

• Anticipations to boost the country’s economic growth
  • The provision of tax incentives to people and other individuals involved in economic growth is one manner in which a country’s economy might be boosted.
• Encouraging firms and corporations to continue to engage in corporate social responsibility activities
  • Corporations will have more money at their disposal as a result of tax exemptions than they would have otherwise paid in taxes. They can then use the funds to further their corporate social responsibility efforts in that country.
  • As a result, the government has decided to provide tax advantages to such businesses to encourage them to continue engaging in corporate social responsibility more effectively and efficiently.
• The government of Indonesia also provides tax exemptions to promote investment activities in Indonesia.
  • Increased investment activities, like company incorporation, in any country usually result in an improvement in the economic condition of that country.
• Updating the tax incentives to be given to newly established businesses
  • These enterprises must belong to specific industrial sectors that significantly impact Indonesia’s economic performance.

The fundamental purpose of such incentives is to entice more foreign investors to permanently locate their firms in the country. With government tax exemptions, local firms can better manage cash flows and expand operations.

How Do I Claim Tax Exemptions in Indonesia?

Moreover, corporate tax rates of 22% apply to corporations and other businesses operating in Indonesia. However, there are several exceptions to this rule.

1. Companies operating in Indonesia & listed on the Indonesia Stock Exchange (IDX) with a minimum of 40% of total share capital offered to the public
   For such companies, they will receive a tax reduction of 3% off the standard rate. This means 19% for 2020/21 and 17% from 2022 onwards, until further government changes.
2. SMEs with a yearly turnover of less than IDR 50 billion
   These companies will obtain a 50% tax reduction, which is imposed proportionally on the taxable income on the gross turnover of up to IDR 4.8 billion. Companies with turnover under IDR 4.8 billion face a final income tax of 0.5% of turnover.

To claim individual tax exemptions in Indonesia, one must be a resident and pay taxes as required. The individual must live in Indonesia for 183 days, be present during the fiscal period, and intend to stay.