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Indonesia Tax Exemptions

Jun 205 mins

Tax exemptions are allowed by the government to taxpayers for them to exclude or deduct a specific amount of tax that are to be due. Tax exemptions are frequently granted by governments to its citizens for a variety of reasons.

Boosting the economic performance of a certain area or region, as well as lowering or eliminating the tax burden of specific organizations in the country, 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 that Exists in Indonesia?

On August 13, 2019, the Indonesian government, through the Minister of Finance, announced a regulation that included the exemption of import duty on products to be brought into 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. After two years from 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 in order to encourage them to continue engaging in corporate social responsibility in a more effective and efficient manner.
  • The government of Indonesia also provides tax exemptions in order 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

    • Such enterprises must be a part of one of many defined industrial sectors that are thought to play a substantial influence in improving Indonesia’s economic performance.

The fundamental purpose of such incentives is to entice more foreign investors to permanently locate their firms in the country. Furthermore, because the government has provided tax exemptions, local firms and industries will be able to better manage their cash flows and expand their operations.

Corporate Tax checker

How Do I Claim Tax Exemptions in Indonesia?

Corporate tax rates of 22% apply to corporations and other businesses operating in Indonesia, and this rate will be adjusted to 20% come 2022. However, there are several exceptions to this rule.

  • Companies operating in Indonesia & listed on 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 the fiscal year of 2020/21 and 17% for the fiscal year 2022 onwards, until further changes from the government.

  • SMEs with 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. Certain companies with a gross turnover of not more than IDR 4.8 billion are subject to a final income tax at 0.5% of turnover.

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. 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.

Ready to incorporate your company in Indonesia or require taxation services? Reach out to us for a free consultation today.

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FAQs

Is Indonesia a tax-free country?2021-11-08T13:17:45+08:00

Indonesian resident taxpayers are subject to tax on worldwide income. Non-residents are subject to tax on Indonesian-source income only. Diplomats and representatives of certain international organizations are excluded from Indonesian tax if the countries they represent provide reciprocal exemptions.

Are any of Indonesia’s current tax exemptions expected to be removed?2021-11-08T13:17:15+08:00

Recently, there have not been any major discussions on the possible removal of any tax exemptions in Indonesia. Therefore, none of them are expected to be removed.

Can a person be eligible for more than one exemption at the same time?2021-11-08T13:16:50+08:00

There are no laws which prevent any individual in Indonesia who is eligible for multiple exemptions from claiming all of them. This means that a person can be eligible for more than one exemption at the same time.

Can a company be eligible for more than one exemption at the same time?2021-11-08T13:16:16+08:00

Just as is the case with people, there are no laws which prevent any company in Indonesia who is eligible for multiple exemptions from claiming all of them; thus, a company can be eligible for more than one exemption at the same time.

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