It may be old, but the adage has always remained true and relevant: one of the constant things in the world is taxes. It doesn’t matter which country you go. In some way or form, you will pay it.
Indonesia is no different. Whether you’re an employee, consumer, or a business owner; whether you live in Jakarta or Bali, you are bound by the laws of taxation. What’s important is to remember these important points: what you will pay, how much to pay, also how and when to file the report.
Cekindo is here to make sure you just don’t learn these things but also pay them in compliance with the rules and regulations of the country. Know the basics of accounting and tax reporting in Indonesia.
Individual versus Corporate Income Tax
The individual income tax is a levy on the different sources of income. These include capital gains from the transfer or sale of property, rents and other forms of passive income, self-employment income, and, of course, employment income.
Different types of people need to pay individual income tax:
These are the Indonesian nationals since birth. This person will continue to pay taxes even when he or she is working abroad until he or she decides to leave the country permanently.
A foreign resident, for the sole basis of determining taxation, is an alien who has stayed in the country for no less than 183 days over 12 months. This person is present during the fiscal year and decides (or thinks about) living in the country for good.
These are foreign individuals who do not meet the criteria to be considered as tax residents but are earning money in Indonesia.
It’s essential to know which of these you or your employees belong to since it affects your tax rate and the basis of such. For example, Indonesia, like some countries, adopts the worldwide income principle. It means if you’re a tax resident in the country, you need to pay taxes to the Indonesian government even for income earned overseas. The only time you can avoid this if your country where you’re working and Indonesia has a double taxation agreement.
Meanwhile, if you’re a foreign non-resident, your income tax is based on your earnings in the country only.
With these in mind, here’s your tax rate:
If you’re an individual tax resident (local or foreign)
|Income (in IDR)
|up to 50 million
|between 50 – 250 million
|between 250 – 500 million
|over 500 million
As you can see above, Indonesia uses a progressive tax rate.
If you’re a tax non-resident: 20% based on gross income
Other income-related tax rates to keep in mind:
- 5% of the final tax based on the capital gains proceeds or taxable sale value, whichever is higher
- 20% final tax on interest income earned from local and Indonesian-based banks regardless of the currency
- 0.1% final tax on the proceeds of a share sale for companies traded in the Indonesia Stock Exchange
- 10% final tax on rental of the building or land
- 2% on services rendered (not applicable to foreign non-tax residents)
With regards to tax reporting in Indonesia, the responsibility for individual income tax lies on the resident or the employee. The country implements the self-assessment system. In this process, the taxpayer files its annual return detailing all its income, as well as assets and liabilities. But the law also compels the employers to withhold a portion of the salary for taxes (withholding tax).
The corporate income tax, on the other hand, is straightforward. It applies a 25% flat rate on its income unless it meets certain conditions, in which case the effective rate is lower:
|public company with > 40% of its shares traded on the IDX
|company with a gross turnover < 50 billion IDR
|company with a gross turnover < 4.8 billion IDR
Here’s the question: who pays the corporate tax? The answer depends on whether the company is a tax resident or has a permanent establishment (PE) in the country. A business is said to be a tax resident if he has a domicile (or business address) in Indonesia. It is also a resident if it has a PE in the country. In both cases, the company should be engaged in regular trading or business activities in Indonesia during the fiscal period.
If the foreign company doesn’t have a PE but performs business activities, the tax-paying Indonesian party should withhold the corresponding tax of the foreign company to settle its liabilities.
Under Article 21 on withholding taxes, employers need to withhold taxes on incomes, including a severance payment, of employees on a monthly basis. The withheld taxes may become prepaid taxes, which means the employee may be entitled to a refund at the end of the fiscal year or a credit to their final tax liability. It may also represent the person’s final tax.
Corporations may also have withholding taxes especially for certain types of dividends including those not paid from the retained earnings.
Article 22 governs withholding taxes for imported goods and transactions to the authorized government body. While article 23 covers withholding taxes deducted while using a non-fixed asset rental or services rendered by corporate vendors, which is 2% of the gross fees.
Non-tax residents who received other forms of income including pension, interest, and dividends pay 20% tax on these payments, withheld by a resident taxpayer, whether an individual, organisation, or company.
Value-Added Tax (VAT)
VAT in Indonesia is the tax imposed on many goods and services that go in and out of Indonesia. In general, it has a flat rate of 10%. It also applies to services performed by foreigners overseas that benefit Indonesia.
The flat rate, however, can go up or down depending on the goods and services offered. Most of the exports, for example, are zero-rated. Many services also do not have to pay VAT. These include but not limited to non-commercial broadcasting, insurance, financial, hotel, education, stamp-requiring mail services, and medical health. Intra-government business transactions are also exempted from the VAT.
Luxury Goods Sales Tax
Goods sales tax is a type of tax levied on the supply chain, which means the tax is applied upon the importation or delivery of the considered luxury goods. As long as the product is taxable, it may be covered by LGST. The rate can go as high as 200%, which is the limit, or as low as 10%.
Because LGST raises the price of the commodity significantly, retailers encourage shoppers with a tax rebate, which can be 10%. But to take advantage of this, buyers must be tourists who have not been staying in the country for over 2 months. They can also claim it only at VAT refund centres and only on the day of departure. They also need to bring the original invoice with the reflected tax. The refund doesn’t apply to foreign residents.
Customs and Excise Tax
As one of the global traders in the world, Indonesia has relaxed some of its policies on customs duties. In many cases, it’s been lower than before. But it’s possible for the rate to be as much as 150% or on the average, which is 40%. Some goods may also be zero-rated. Importation of luxury goods gets some of the highest taxes.
When to Pay the Tax Obligations
Tax compliance doesn’t only mean paying the correct taxes. It also compels you to pay them on time. Here are some of the dates to remember.
Tax Accounting and Reporting in Indonesia with Cekindo
Let’s face it, taxes are complicated especially in countries where laws can be just as confusing. On top of the information above, you need to know:
- Tax deductions and credits
- Tax treaties or agreements that may lower your tax rates
- Tax for those with dependents, Social Security, pension, and health coverage
- Tax for every point of operation
- Goods and services not covered by tax
- Rules and regulations that cover all forms of taxation
- Taxation for offshore companies and startups
The last thing you want to happen is not to be compliant, whether it’s a deliberate choice or not. Violations can carry not only hefty fines but also other serious penalties including imprisonment.
Make accounting and tax reporting hassle-free with Cekindo. Call us today at +6221 30 061 585. You can also send us your information request here or email@example.com. Our business consultants will get in touch with you within 24 hours.
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