Understanding Accounting Indonesia: The Taxation System
It is compulsory that any PT PMA has to pay taxes and report the company’s financial status as standard accounting in Indonesia. Many Indonesian taxes that should be paid by PT PMA are similar to what stakeholders should pay in different countries.
Among them are monthly and annually withholding taxes, monthly and annual income taxes, Value Added Tax (VAT), Luxury Goods Sales Tax (LGST)—if any, along with the company investment plan. Those taxes should be paid in the local tax office, where the company office is located.
When a PT PMA has a domicile in the Indonesian territory, it will be treated as an Indonesian tax resident, so that the company has the obligation as a resident taxpayer. The taxation regulation in Indonesia incorporates both a self-assessment system and a withholding tax system.
To know more about the Tax Law and regulations, the Indonesian government has issued:
- The General Provisions and Taxation Procedures Law No. 28 of 2007;
- The Income Tax Law No 36 of 2008;
- The Value Added VAT (termed ‘Goods and Services and Sales Tax on Luxury Goods’) Law No 42 of 2009.
In order to fulfill the obligation to pay the tax, PT PMA can choose one among these two options:
- Hiring an accountant to do all the reporting and payment of the tax.
- Finding a tax consultant to help the company dealing with the tax.
All the reports and tax documents should be sent to the local tax office, where your main head office is located (your registered address).
Taxation Schedule in Indonesia
Some taxes should be paid on a monthly basis and some others are required to be filed annually. To give you broader pictures of Indonesian taxation schedules, we give you a brief overview illustrated below.
The company’s taxes that should be reported monthly include Corporate Income Tax, Employee Withholding Tax, Other Withholding Taxes, as well as VAT and LGST.
These taxes are usually paid before the 10th day of the following month for the withholding taxes and before the 15th of the following month for the Corporate Income Tax.
The first three taxes must be filed or reported before the 20th of the following month, whereas especially for VAT and LGST, they have to be reported at the end of the following month.
On the other hand, taxes that should be paid annually include Corporate Income Tax, Individual Income Tax, and Land and Building Tax (for both the office and the factory or warehouse—if any). The deadline for the first two is before filing the tax return, and the deadline for the last one is 6 months after receiving a tax notification letter from the tax office.
All taxes should be paid regionally.
Some Warnings to Consider
Being late in paying the company taxes and individual taxes in Indonesia may result in a financial penalty. The taxpayer should pay an interest of 2% per month for late payment.
Considering the big amount of extra money you have to spend on the fine, it is always recommended to follow the deadline strictly. Don’t be late, even for one business day, or it will be calculated as one full month penalty.
It is not an obligation for all companies to hold a financial audit by a public accountant. The regional tax office will not put any interest in your company if you always provide complete data or documents during your tax reporting period.
It is also important to make sure that you never miss any deadlines and follow all the rules and regulations applied by the Indonesian taxation laws.
To deal with some disputes on tax-related issues, we can give you several practical recommendations as follow:
- Always keep in mind that you must pay your taxes on time on a regular basis. Once your company is registered, you have the obligation to report your tax recurrently. Don’t miss the deadline, and never try to cheat on the bureaucracy, which means that all the documents needed in the tax reporting should be submitted.
- Hire local accountants who know the local bureaucracy well. Otherwise, you can invite a third party to handle your taxation matters. Choose a qualified consultancy agency to help you deal with the Indonesian taxation system. We are keen to help you with this issue.
- Be updated with any changes in Indonesian laws and regulations. It is better to have a partner to inform you of any updates. We are always open to being your tax consultant.
- When your revenue increases dramatically, we strongly recommend you open a different PT PMA so that you don’t need to pay a huge amount of money only for your company taxes. To know how to do that, contact our support team to discuss it further.
If you need further detailed information about accounting and tax reporting in Indonesia, feel free to contact Cekindo and we will provide you all the required information and assistance.