Taxation System in Indonesia: A Comprehensive Guide 2023

Income Taxation System in Indonesia: A Comprehensive Guide 2023

  • InCorp Editorial Team
  • 27 December 2023
  • 6 minute reading time

With the current global condition, emerging market countries are the latest investment destinations, and Indonesia is no exception. Suppose you are planning to open a business in Indonesia. In that case, you may know that the overall process can be quite a hassle due to bureaucratic and legal matters in the taxation system in Indonesia.

Once you finish those matters, the next important thing is understanding Indonesia’s taxation system. Like many countries, Indonesia operates a self-assessed taxation system divided into state and local taxes. State taxes include income tax (corporate, individual, withholding), VAT (Value Added Tax), stamp duty, and customs tax. You will find more complete obligations under Indonesian tax regulations.

Local taxes are mainly related to commercial subjects such as property, vehicle, promotional, and leisure activities. Therefore, you must understand income tax to start your business in Indonesia. Generally, Indonesia’s income tax system is applied to individuals and corporations.

CIT and PIT infographics

What Is Corporate Income Tax in Indonesia?

To understand corporate tax in Indonesia, the location where you establish your business is vital because it will define whether you’ll be taxed as a resident or non-resident company. Therefore, a resident company is defined as a company that is incorporated and conducts business activities in Indonesia.

A foreign company with a permanent establishment (PE) in Indonesia is imposed tax obligation the same as a resident taxpayer that must follow the taxation system in Indonesia. On the other side, A non-resident is a foreign company incorporated overseas but acquiring revenue from Indonesia.

Therefore, there would be plenty of benefits as a resident company. For instance, you could receive income tax relief when you do business in high-priority sectors or specific geographic areas. It means you would be eligible for a reduction in net income up to 30% of the amount invested, prorated at 5% for six years of production

Read more: Understanding the Tax Benefits for Investors in IKN Nusantara

There would also be a privilege for tax relief for resident taxpayers (Indonesian citizens) based on the tax treaty between Indonesia and its treaty partner.

How Much Is The Corporate Tax Rate in Indonesia?

Under Indonesian tax regulation, the corporate tax rate is generally flat at 25% (22% in 2020). However, special conditions may apply to a resident company. With that being said, if your company is listed and meets specific requirements, you will receive a 5% reduction. The best benefits apply to small businesses with a gross turnover

No.Gross IncomeTax Rate
1.up to IDR 4,8 billion0.5% of annual turnover (final)
2.IDR 4,8 billion- IDR 50 billion25% of net profit (22% of profits – in 2020)
3.More than IDR 50 million25% from net profit (22% of profits – in 2020)

Besides, there are also special tax rates applied to specific business activities as listed in the following table:

No. Business Activity Income Tax Rate
1. Oil and Gas 30%- 45%
2. Mining 30%- 45%
3. Construction 2%
4. Building Design, supervision or consultancy except legal and tax consultancy 4%
5. Geothermal 34%
6. Foreign Drilling operations> 3.75%
7. Non-resident international shipping and airlines 2.64%

Understanding revenue collection in Indonesia, you will have flexibility in your tax liability settlements. You can choose between direct payment to DGT (Director General of Tax), through third-party withholding, or a combination of both. As a non-resident company, it can only be done through withholding tax from the source of income in Indonesia, where you will be subject to 20% of various amounts.

What Is An Individual Income Tax in Indonesia?

If you are a foreign worker like foreign companies, you can be considered a resident or non-resident taxpayer. A foreign worker is categorized as a resident taxpayer once they have stayed over 183 days in 12 months.

The top marginal income tax rate for resident taxpayers is 30% (for income above IDR 500 million). These applicable tax rates are progressive based on annual income. Below are applicable income tax rates for individual taxpayers:

No. Taxable Income Tax Rate
1. Up to IDR 50  million 5%
2. Over IDR 50 million 15%
3. Over IDR 250 million- IDR 500 million 25%
4. Over IDR 500 million 30%

When talking about income taxation in Indonesia for foreigners, Non-resident taxpayers are subject to a final withholding tax of 20% on gross income. Still, they may be at a lower rate under the tax treaty. In terms of tax payments, individual income tax is collected through third-party withholding.

Read more: Indonesia to Adopt Global Minimum Tax in 2023: What it Means for Businesses

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What Is The Timeline for Tax Obligations in Indonesia?

In Indonesia, payments for both corporate and individual tax liabilities are typically made to the State Treasury through a designated tax payment bank. Afterward, you must submit related tax forms to the tax office.

Type of Tax Monthly payment Deadline Monthly Filing Deadline Annual Filing Deadline 
Corporate Income Tax 15th of the following month 20th of the following month End of the 4th month after the tax year ends²’
Individual Income Tax 15th of the following month 20th of the following month End of the 3rd month after the tax year ends²’
Employee Withholding Tax 10th of the following month 20th of the following month N/A
Other Withholding Tax 10th of the following month 20th of the following month N/A
VAT & LGST Before the VAT return filing deadline End of the following month N/A

Note:

1) Any underpayment of tax must be settled before submitting the annual tax return.

2) Taxpayers can extend the period of submission of the annual income tax return for a maximum of two months by submitting a notification to the Directorate General of Taxation.

3) Self-assessed VAT on utilization of intangible taxable goods and/or taxable services from offshore and VAT collected by VAT Collector other than State Treasurer is due by the 15th of the following month.

Read more: How to Get Indonesia Tax Incentives Via OSS

Other Taxes

The government’s current VAT rate is 10% VAT on the sales price in Indonesia. However, It may change because the government can amend the objective tax to a minimum of 5% and a maximum of 15%.

Moreover, if you want to import products such as branded gadgets or shoes, you must be prepared to pay much more than you would in other countries. This is because import duty rates could be up to 150% of the original sales price.

Engage With InCorp’s Internal Audit Service

Ensuring the integrity, transparency, and compliance of your organization’s financial and operational processes is not just a best practice. it’s necessary in today’s complex business landscape. At InCorp Indonesia, we understand the importance of internal audits as a crucial tool for achieving these objectives.

Our team of experienced professionals is committed to partnering with your organization to provide tailored internal audit solutions that meet regulatory requirements and add value to your operations. By choosing InCorp Indonesia, you’re not just investing in an audit service; you’re investing in your business’s future success and sustainability.

To find out more about taxation issues in Indonesia, kindly contact us by filling out the form below.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Get in touch with us.

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Disclaimer: The information is provided by PT. Cekindo Business International (“InCorp Indonesia/ we”) for general purpose only and we make no representations or warranties of any kind.

We do not act as an authorized government or non-government provider for official documents and services, which is issued by the Government of the Republic of Indonesia or its appointed officials.

We do not promote any official government document or services of the Government of the Republic of Indonesia, including but not limited to, business identifiers, health and welfare assistance programs and benefits, unclaimed tax rebate, electronic travel visa and authorization, passports in this website.

Frequent Asked Questions

Yes, submitting monthly and annual tax reports is mandatory even if your company does not have any business activities, thus zero taxes.