Tax exemptions grant taxpayers the right to exclude or deduct a certain amount of tax which would normally have to be paid. Tax exemptions are usually granted by the government of a particular country. Governments may grant tax exemptions to either individuals or organizations in a country. Governments usually give tax exemptions to their citizens for any of several reasons. Such reasons may include boosting the economic performance of a specific area or region as well as reducing or removing the tax burden of particular organizations in the country. Tax exemptions also enable bodies which promote public welfare to do so in a more effective manner. The government of Indonesia offers several different tax exemptions to citizens and organizations which are located there.
Tax Exemptions Which Exist in Indonesia
The government of Indonesia through the Minister of Finance issued a regulation on August 13, 2019, which mainly entailed the exemption of import duty on goods which are to be imported into the country. The exemption of the Value Added Tax (VAT) allowed goods to be imported into the country in a much more affordable manner. However, the imported goods that may receive this tax relief can be moved, re-exported, or even destroyed if not all the requirements are fulfilled. Any imported goods which have obtained facilities can be transferred after two years from the most recent time of issuance of a transfer permit by the customs office and declaration made by the customs import. Such goods may only be re-exported after a customs export declaration has been submitted to the customs office. There is also a possibility that such imported goods might be destroyed. This turn of events would take place after two years elapse after the most recent time that the customs office made a declaration and issued a permit. The only products which are allowed to be destroyed are those which are deemed to be of no value to the economy of Indonesia.
If any imported goods in Indonesia which have obtained the tax exemptions are re-exported, transferred, or destroyed without having fulfilled any of the requirements, there will be import duty, value-added tax, and administrative penalties which will have to be paid.
The government of Indonesia has also established laws that regulate the rates of tax incentives provided for particular businesses. Such businesses receiving these tax exemptions in Indonesia are usually those which offer corporate social responsibility activities to the citizens of Indonesia. Such activities include those performed by individual businesses or corporations which support various important causes, sometimes through foundations.
Why the Indonesian Government Offers Tax Exemptions
The offering of tax exemptions by the government of Indonesia is likely to lead to the economic growth of the country. One way in which the economy of any country can be boosted is through the provision of tax incentives to the citizens and other individuals involved in economic growth. Another important reason why the government of Indonesia offers tax exemptions is to encourage businesses and corporations offering corporate social responsibility activities to continue doing so. Through tax exemptions, these corporations will have more money at their disposal which they would have otherwise paid as taxes. These corporations can then invest this money in additional corporate social responsibility activities in that country. The government has therefore opted to give such corporations tax incentives to encourage them to continue engaging in corporate social responsibility in a better and improved way. The government of Indonesia also provides tax exemptions in order to promote investment activities in Indonesia. Increased investment activities in any country usually result in an improvement in the economic condition of that country. The government of Indonesia has also updated the tax incentives to be given to newly-established businesses. Such businesses are to be part of any of several specified various industrial sectors which are deemed play significant roles in the improvement of the economic performance of Indonesia. The primary goal of such incentives is to attract more investors from other countries to permanently establish their businesses in the country. Furthermore, local businesses and industries will be able to manage their cash flows in a better way and expand their operations as a result of the provision of tax exemptions from the government. Therefore, the tax exemptions provided by the government of Indonesia encourage the investment of capital in specific industries in various sectors of the economy. In this way, the government encourages both local and foreign investors alike to invest in Indonesia through the provision of tax incentives which will increase the economic growth of the country.
How to Claim Tax Exemptions in Indonesia
A company operating in Indonesia can be entitled to tax incentives if it has its original location of residence in that country. Foreign companies that have been established permanently in Indonesia and carry out their operations and business activities in Indonesia are also to be taxed according to Indonesian tax laws. However, such does not apply to a foreign company which has not established a permanent residence in Indonesia. Such companies are to settle their tax liabilities by withholding the tax.
On a related note, perhaps you might be interested in starting a company of your own in Indonesia. Should such be the case, we at Paul Hype Page & Co are willing to assist you. We will work with you throughout the entire incorporation process in Indonesia. Our tax team will supply you with the best possible services for the benefit of your new company.
Generally, income tax rates of 25% apply to corporations and other businesses operating in Indonesia. However, there are several exceptions to this rule. They include companies which operate in Indonesia, have their names listed on the Indonesia Stock Exchange (IDX), and offer a minimum of 40% of their total share capital to the general members of the public. Such companies usually receive tax reduction of five percentage points. Therefore, a 20% tax rate applies to such public companies.
Small and medium enterprises (SMEs) with a yearly turnover of less than 50 billion rupiah will obtain a 50% tax reduction. In 2013, a regulation was issued by the Ministry of Finance of Indonesia. The regulation imposed a 1% income tax tariff on institutional taxpayers and individuals who had a yearly gross turnover of less than approximately 4.8 billion rupiah.
For one to claim tax exemptions related to individuals in Indonesia, one has to be considered as a resident in Indonesia who pays taxes as required. For this individual to be considered as a resident, certain criteria must first be fulfilled. The individual should be living in Indonesia, present in Indonesia for at least 183 days of a given year, present in Indonesia during the fiscal period, and have the intention of remaining in Indonesia on either an extended or permanent basis.
If you need our assistance with the management of any of your tax-related matters, we at Paul Hype Page & Co will provide our services to you. Our tax team is full of information and experience with all matters related to taxation in Indonesia. By entrusting us with your tax issues, you can be assured that your tax matters will be in good hands.
People Who Are Barred from Receiving Tax Exemptions in Indonesia
Those who intend to receive tax exemptions in Indonesia are to meet specific requirements before they may claim such exemptions. An individual can be prevented from receiving tax exemptions in Indonesia if the individual does not meet certain requirements. The individual must have a tax identification number, paid all of the clearance levy charges required, paid for any tax liabilities which may still be outstanding, and presented the latest income details for the most recent financial year before being legally permitted to claim any tax exemptions in Indonesia.
Tax exemptions are, therefore, necessary to both the government of a particular country and the individuals and companies engaged in the economic development of the country. The government of Indonesia has made use of tax exemptions in several ways. The types of tax exemptions that have been put in place by the government of Indonesia include the waiver of VAT on imported goods as well as the provision of tax incentives to particular businesses and corporations operating in Indonesia. One of the primary reasons why the government of Indonesia provides tax exemptions is to promote the economic development of the country. The economy of the country is improves when both local and foreign investors decide to venture into different business activities in Indonesia as a result of the tax exemptions. Similarly, local businesses and industries in Indonesia will also be able to expand their operations due to an increase in the amount of cash flow which results from the tax incentives which are available. A company may claim tax exemptions in Indonesia when its original residence and area of operation is in Indonesia and it is carrying out its operations according to the laws of Indonesia.
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.
- Indonesia Tax Planning
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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.