Tax is a central issue in investment matters no matter where you are. Because tax is a major contributor to a country’s income, the amount of tax imposed is often a determining factor for investors who are considering entering a market country.
Corporate tax or company tax refers to a tax imposed on entities that are taxed at the entity level in a particular jurisdiction. Such taxes may include income or other taxes. The tax systems of most countries impose an income tax at the entity level on certain types of entities such as companies or corporations. Many systems additionally tax owners or members of those entities on dividends or other distributions by the entity to the members. With regard to business set-up or company registration in a country, investors may be imposed with company/corporate taxes because most countries tax all corporations doing business in the country on income or, in some cases, on several company activities in that country.
Indonesia is no exception, as it imposes both corporate taxes on companies doing business in Indonesia as well as personal income tax for the employees. Here we explain the main taxes:
A. Corporate Income Tax
Generally, a flat rate of 25% applies. Public companies that satisfy a minimum listing requirement of 40% (in Indonesia Stock Exchange/IDX) and other conditions are entitled to a tax cut of 5% off the standard rate. Small enterprises with annual turnover of not more than IDR 50 billion are entitled to a 50% discount off the standard tax rate, which is based on the proportion of taxable income resulting in IDR 4.8 billion of gross annual turnover.
When gross turnover is below IDR 4.8 billion, the reduction applies to all taxable income and thus will be applied as a final income tax with a rate 1% of turnover. The final tax article is PPh Pasal 4(2), a type of tax imposed on residents with several kind of revenues, such as deposit interest, lottery, stock exchange transactions, etc.
For a company with revenues between IDR 4.8 billion – IDR 50 billion will be taxed through article PPh 29 with a rate 12,5% of profits, while for companies with revenue over IDR 50 billion the rate imposed will be 25% of profit. The tax rate for corporate income exceeding IDR 100 billion is 30%, which is the maximum corporation tax rate.
Special tax rates apply to specific types of corporations:
• Petroleum companies are subject to tax at a flat rate of 30% – 45%.
• General mining companies are taxed at rates ranging from 30% to 45%, depending upon the generation of their contracts with the Indonesian Government. Most recent mining contracts, however, provide for taxation on the basis of current tax rates with no tax rate escalation provisions.
• Geothermal companies are subject to income tax at a rate of 34%.
• Construction companies are subject to a final tax at a rate of 2% of gross turnover.
• Construction design, supervision or consultancy companies in this category, other than legal and tax consultancy, are subject to tax at a rate of 4% of gross turnover.
• Foreign drilling companies are subject to a rate of 5.6% of their gross turnover.
• Non-resident international shipping companies and airlines are subject to tax at a rate of 2.64% of gross turnover.
If you establish a Representative Office in Indonesia it is not allowed to generate any revenue, hence any revenue received by the Representative Office should be transferred directly to your corporate headquarters overseas.
This method may include Repatriation for Limited Liability Company (PT and PT PMA) in transferring dividends to the shareholder overseas ,which will be subject to tax article PPh 26* with a general rate of 20% of dividend or according to the Tax Treaty between the countries involved, if applicable.
*PPh 26 is a local tax in Indonesia which is imposed on revenue gained in Indonesia by a foreign tax resident (either as an individual or as an organization).
B. Personal Income Tax
Indonesia also imposes income tax on all employees who work in the private sector and state-owned companies, as well as government employees.
Most income they’ve earned is subject to income tax at the following normal tax rates:
|On the first Rp. 50,000,000
|On the next Rp. 200,000,000
|On the next Rp. 250,000,000
|On the next amount over Rp. 500,000,000
All tax residents should register for National Tax Payer Identity Card (NPWP). Those who don’t have an NPWP are subject to additional 20% charge on their annual tax report.
As one of leading market entry and business consulting firms in Indonesia, Cekindo has extensive experience in assisting foreign companies and entities in with tax reporting, including payroll outsourcing for your employees.
You may consult with us whenever you face issues with taxation in Indonesia. Our wide range of services includes tax consulting and tax reporting to help make your business in Indonesia hassle-free.
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