Regardless of where you are doing business, you are required to stay in 100% compliance. Tax registration, tax payment, and tax reporting are mandatory. In Indonesia, there are many types of taxes and as a foreign investor, it may be challenging to comprehend all, especially when regulations are prone to changes. This is why consulting with a tax consultant in Indonesia is highly recommended.
To help you sort things out, this article discusses some of the most important taxes in Indonesia that you need to be aware of, along with sanctions and penalties for tax non-compliance. Later, the article also elaborates on payroll compliance in Indonesia.
Tax Compliance in Indonesia
Corporate income tax (CIT) and value-added tax (VAT) are considered to be the most important taxes that every business owner should pay attention to. Tax requirements and rates may be different and they depend on business classification, activities, and location. For details, you are welcome to reach out to an Indonesia tax consultant at Cekindo.
Tax Non-Compliance in Indonesia: Be Ready for Sanctions and Penalties
Non-compliance cases in Indonesia can be classified into non-severe and severe, with sanctions and penalties incurring accordingly. For example, if a company is late for tax payment, it will be subject to a monthly surcharge of 2%. What if a company is never late to pay for tax but late for reporting tax? Then, depending on the tax type, it will be fined between IDR 100,000 and IDR 1,000,000. Incomplete, late issuance, non-conforming issuance, or non-issuance of the VAT invoice will be subject to a surcharge of 2%.
Serious tax infringements in Indonesia such as providing wrong information for tax returns and not submitting tax returns may result in imprisonment of between 3 and 12 months or a fine of 200% of the underpaid tax. Fraud, embezzlement, and improper bookkeeping cases can result in a maximum of 6-year imprisonment or a surcharge of 200-600% of the actual payments.
Payroll Compliance in Indonesia
If your company employs workers, you are required to withhold your employees’ income taxes, regardless of their citizenship. At the end of the year, you as an employer in Indonesia will provide employees with their annual tax returns. Then, they will need to submit their annual tax returns to the tax authority no later than 31 March of the following year.
Everyone’s income is subject to a basic tax allowance in Indonesia. But if the income is below the minimum amount, the taxable income is not subject to tax. If the taxable income is higher than the basic tax allowance, they are required to pay for their income tax, and the tax rates are progressive. In other words, the higher a taxable income is, the higher the amount to be paid in order to fulfill tax obligations.
All tax residents, including foreign nationals, are required to register for the National Taxpayer Identity Card (NPWP). Those without the NPWP are subject to an additional 20% charge on their income tax withholding.
The following tax rates can be used as the basic guidance for income tax calculation in Indonesia:
- The first IDR 50,000,000: 5%
- The next IDR 200,000,000: 15%
- The next IDR 250,000,000: 25%
- The next amount over IDR 500,000,000: 30%
In addition to deducting the income tax, there are several things to consider for payroll calculation in Indonesia:
- Minimum salary: amount may vary between regions in Indonesia
- Work hours: 40 hours is usually the standard work hours (Monday to Friday) for employees in Indonesia
- Overtime work: each employee is only allowed to 3-hour overtime per day. The overtime time rate is 1/173 of the monthly salary of an employee
- Allowance: a religious holiday allowance (THR) must be given to all employees. This allowance is an extra income that is not part of the monthly salary. It is usually given either before Eid al-Fitr or Christmas.
- Mandatory insurances: All local and foreign employees who have worked and resided in Indonesia for more than six months are required to participate in the BPJS Employment Program in Indonesia. This program consists of a healthcare BPJS and a social security BPJS.
Cekindo, Your Trusted Tax and Payroll Consultant in Indonesia
It is always better to be safe than sorry. As mentioned above, it is a must to ensure 100% compliance when it comes to taxation and payroll when doing business in Indonesia. While you can do it all by yourself, it is best to let a team of experts handle the matters related to taxation and payroll. Tax, accounting and payroll outsourcing, then is a smart business decision. You can get rid of those burdens and finally have the peace of mind that you need for growing your business even more.
To gain more insights into how business process outsourcing can support your business growth in Indonesia, have a free consultation with our specialists by completing the form below.