Understanding corporate tax in Indonesia

October 21, 2020

Corporate tax in indonesia

Indonesia Tax Regulations for Businesses

Home to the largest economy in Southeast Asia, Indonesia sits high on the global watchlist as one Asia’s emerging markets.

Ever since weathering the storm of the Asian Financial Crisis in the late nineties, it has gone on to become a member of the G-20, reduce its country’s poverty rate to 9.78% as of 2020 and grow into a hub for an increasingly diverse and talented workforce.

For many international businesses who are looking to set up a presence in Indonesia, understanding the rules that govern its taxation system is a crucial part in laying down the foundation of a successful venture.

Our article below explains everything businesses need to know about how to pay corporate tax in Indonesia. Additionally, if you're looking to find out more about tax regulations for individuals, our guide to personal income tax for expats will have you covered.


Corporate Income Tax Systems in Indonesia  

Also referred to as CIT. A corporate income tax rate of 25% is imposed upon all domiciled companies in Indonesia.

This rule also applies to foreign companies who operate through a permanent establishment (PE) in Indonesia. 

There can however, be exceptions to the rule. Such as in the case of the following: 

checkbox20% tax rate for companies listed on the Indonesia Stock Exchange that offer at least 40% of their total share capital to the public. 

checkbox12.55% tax rate for small and medium corporations (SMCs) with an annual gross turnover below IDR 50 billion. 

checkbox0.5% tax tariff for companies with an annual gross turnover below IDR 4.8 billion. 


Permanent establishments (PE)

Within Indonesia’s income tax law, a non-resident company is considered as taxable if it operates business activities in the form of:

  • a place of management
  • a branch of the company
  • a representative office
  • an office building
  • a factory
  • a workshop
  • a warehouse
  • a room for promotion and selling
  • a mining and extraction of natural resources
  • a mining working area for oil and natural gas
  • a fishery, animal husbandry, agriculture, plantation, or forestry location
  • a project of construction, installation, or assembly
  • the furnishing of services in whatever form by employees or other person, insofar conducted not more than 60 days within a 12-month period
  • a person or corporation acting as a dependent agent
  • an agent or employee of an insurance company that is not established and domiciled in Indonesia that receives insurance premiums or insures risk in Indonesia
  • the computers, electronic agent, or automated equipment owned, leased, or used by an electronic transactions provider to conduct business via the Internet.

What is corporate income tax collected for?

It includes various types of transactions such as: 

checkboxImportation of goods 

checkboxSale of goods to the government

checkboxSale or purchase of certain products

checkboxSale or purchase of very luxurious goods

checkboxPayment of certain services.  


Other forms of corporate tax

Value-added tax (VAT)

For businesses that are involved in delivering taxable goods and services that exceed a certain amount within a fiscal year, they are required to pay Value-added tax (VAT); a form of consumption tax that is imposed on the delivery of all goods and services within Indonesia until the final point of sale. Examples of taxable events are:

checkboxLocal delivery of taxable goods and services

checkboxImport and export of taxable goods

checkboxUse or consumption of taxable intangible goods/services originating from abroad

checkboxExport of intangible taxable goods and services. 

VAT rates

The standard VAT rate is 10%. However, there is a zero-rate VAT tax for the following taxable events:

checkboxExport of taxable goods

checkboxExport of intangible taxable goods

checkboxExport of certain taxable services such as technology and information services, legal consultation and more.

Find the full- list of zero-rated VAT items here.

 Luxury goods sales tax (LGST)

Certain items (such as luxury automobiles and residences) are specified as luxury goods. They are subject to a surcharge that can range anywhere from 10% all the way up to 200%. The criteria required for an item to fall under this category are:

checkboxDoes not constitute a basic staple

checkboxConsumed by a certain group

checkboxConsumed by an exclusive group (high income) consumers

checkboxConsumed for status rather than utility

Annual property tax

This is levied at progressive rates and is based off the assessed value of the property. Reductions of up to half of the property tax can be made for non-profit activities, healthcare services and etc.

Tax Rate Property Value (IDR)
0.01% Up to 200 million
0.10% 200 million to 2 billion
0.20% 2 billion to 10 billion
0.30% Over 10 billion


Tax on rental income
 

Rental income tax for non-residents in Indonesia is imposed at a flat rate of 10% of gross income. For income gained by companies, they are taxed by a flat rate of 25% of net income. The VAT is imposed at a flat rate of 10% on the gross rental income. 

Land and constructions tax (PBB)

Also referred to as PBB. This must be paid annually or can be arranged to be paid in ten-year blocks. This tax mainly applies to individuals of middle-class stature and beyond. Landholding businesses must also pay PBB.

Non-individuals are not legally allowed to own land within the country, but they have the option to pursue long-term arranged leases from the Indonesian Central Government.  

Free trade zones

There are several free trade zones in Indonesia that exempt companies domiciled in the designated area from having to register as VAT entities. Additionally, the import and delivery of taxable goods and services are also spared the imposition of VAT and LGST. Free Trade Zones include Batam Island, Bintan Island and Karimun Island.


Important payment dates

All payments for tax liabilities in Indonesia must be made to the State Treasury via a designated bank. Once this is done, the next step is to file all relevant tax returns at the Indonesia Tax Office.

Tax payments and filing should be performed either monthly or annually and depends on the tax obligation at hand. Take note that all of this can also be done electronically so save you the effort of having to trek to your local tax office.

For resident taxpayers and PEs of foreign companies, tax liabilities can be settled by direct payments, third party withholding or a combination of the two.

For companies without a PE, tax liabilities for income earned in Indonesia should be settled by the withholding of the tax by the Indonesian party responsible for paying the income.   

Monthly and annual tax obligations

The table below helps to illustrate the important dates for taxpayers to keep an eye out for.

Type of Tax Monthly Payment Deadline Monthly Filing Deadline Annual Filing Deadline
CIT 15th of the following month 20th of the following month End of the 4th month after the tax year ends
Employee Withholding Tax 10th of the following month 20th of the following month N/A
Other Withholding Taxes 10th of the following month 20th of the following month N/A
VAT and LGST Before the VAT filing deadline End of the following month N/A

 

Penalties and sanctions

All late payments of the taxes in the table above will incur penalties of 2% monthly and this can go up to a maximum of 48%.

For those who are late or fail to file the necessary tax returns, the table below illustrates the penalties imposed:  

Type of Tax Return Penalty (IDR)
VAT Return 500,000
Other monthly tax returns 100,000
CIT return 1,000,000

 


Find tax regulation support from Airswift

Are you in the midst of dealing with the ins-and-out of understanding tax regulations in a new country? Airswift’s global employment and mobility team is dedicated to helping both organisations and the individual taxpayer make sense of the nuances that often come with relocation and international expansion.

Reach out to us today to learn about the different solutions we offer and discover how we can help you simplify a variety of processes ranging from immigration to HR.

 

 

This post was written by: Leanna Seah, Content Marketing Coordinator