TAX LAWS
The Indonesian Government is undertaking various tax reforms and amendments. The primary aim is to provide taxpayers with increased fairness and more certainty of their rights and obligations. It also aims to provide greater clarity and simplicity in both procedural and technical matters.
CONCESSION ON TAXES AND OTHER LEVIES
Foreign capital enterprises are granted the following concessions on taxes and other levies:
a. Exemption from:
- Company tax on profits during a specified period not exceeding five years from the moment the enterprise commences production.
- Dividends tax on that part of accrued profits paid to shareholders, as long as these profits are earned during a period not exceeding five years from the moment the enterprise commences production.
- Company tax on profits which reinvested in the enterprise in Indonesia, for a specified period not exceeding five years from the time of reinvestment.
- Import duties at the time of entry into Indonesia of fixed assets such as machinery, tools or instruments needed for the operation of said enterprise.
- Capitals stamp duties on the issuance of capital originating from foreign investment.
b. Relief:
- In the levy of company tax through a proportional rate of not more than 50% for a period not exceeding five years after expiration of the exemption period.
- by off-setting loses suffered during the period of exemption intended by section (a) sub 1, against profits subject to tax following the period mentioned above.
- by allowing accelerated depreciation of fixed assets.
1. Corporate Tax
Tax Year
In most cases Indonesian companies adopt the calendar year as their financial and tax year, however under special circumstances substituted accounting periods are available.
Classification of Corporate Taxpayers
A corporation, for tax purposes, is classified as “resident” or “non-resident”.
Resident corporations are taxed on their worldwide income. Non-residents are taxed only on income derived from Indonesian sources, subject to any relief available under double taxation
agreements.
Income Subject to TaxTaxable income is defined as any increase in economic prosperity received or accrued by a taxpayer, certain income is exempt from tax, such as dividends earned by a domestic corporation from another domestic corporation, provided that the dividend is from the retained earnings, the shareholding of the recipient is at least 25%, and the recipient maintains other active businesses.
Allowable Tax Deductions
Taxable income is determined by subtracting allowable deductions from revenue. In addition, interest incurred to finance the acquisition of shares is not deductible unless dividends from the shares purchased are taxable.
Depreciation and Amortization
Investors can adopt either the straight line or the double declining balance method for depreciation of tangible assets. The taxpayer should apply the depreciation method chosen consistently. The Tax Office must approve any change in method.Corporate Tax Rates
The corporate tax rates are as follows:
- 10% for taxable income up to Rp. 50 million.
- 15% for taxable income between Rp. 50 and 100 million.
- 30% for taxable income in excess of Rp. 100 million.
2. Partnership Tax
Partnership income is taxed in the same manner as corporations. Profits shared by individual partners are not taxable.
3. Individual Tax
Tax Year
In most cases, the tax year is the calendar year ending December 31.
Classification of Individual Taxpayers
Resident: An individual is considered a resident taxpayer if he stays in Indonesia for more than 183 days and intends to reside in Indonesia. Taxpayers are subjected to national income tax and are taxed on their worldwide income and allowed a credit for taxes paid abroad. Non-resident: taxed only on their Indonesian-source income.Tax Payments and Rates
Employees are subject to withholding tax from their remuneration. Those who are self-employed or who have other income, pay monthly estimated taxes as well.
Below are the applicable individual tax rates:
Income Range (Rupiah Millions)
Tax Rate (%)
up to 25
5
25 - 50
10
50 - 100
15
100 - 200
25
More than 200
35
Non-residents are subject to a flat rate of 20% of gross income.
Deductions and ExemptionsIndividuals are allowed to deduct from their employment income occupational costs of 5% of gross income a year and contributions to an approved pension fund. No other deductions from employment income are allowed.
If an individual’s source of income is a personal business, the same general deduction rules as those for a corporation apply, provided that the individual maintains adequate bookkeeping.
An individual is also entitled to an exemption for dependents. The exemption varies based on the number of dependents, as shown in the following table:
Status
Exemption
(Rupiah)Appropriate
US$ EquivalentSingle 2,880,000
300
Married 4,320,000
455
Additional dependents (max. of 3) 1,440,000
150
With self-employed or working spouse 2,880,000
300
Taxable IncomeAny increase in economic prosperity received or accrued by a resident taxpayer, whether originating from within or outside Indonesia, that may be used for consumption or to increase the recipient’s wealth in whatever name and form is taxable. This includes wages, salary, commission, bonuses, lottery prizes, interest, dividends, etc.
Special tax treatment applies to the following income:
- Benefits in kind are not taxable unless is not an Indonesian taxpayer (e.g. a representative office).
- Interest income from Indonesian banks is generally subject to final withholding tax of 20%.
- Others income which include rental of land or buildings (10% final tax from the gross proceeds), capital gains from the sale of shares listed on an Indonesian stock exchange (0.1% final tax from the gross proceeds plus an additional 0.5 % for founder shares), and income from the sale of land or buildings (5% final tax from the gross proceeds).
- Lottery prizes are taxable in Indonesia at 25%.
Expatriate Tax Rules
The law requires foreign nationals residing in Indonesia to register and file income tax returns with the BADORA Tax Office and Tax Offices having jurisdiction over their domicile, respectively. It should be noted that under the new tax law, expatriates would effectively be required to register for tax and file individual income tax returns.
4. Withholding TaxTo facilitate higher tax collection and greater compliance, Indonesia has an extensive withholding tax system. There are two types of withholding tax, ‘prepayment’ and ‘final tax’.
Payments made to resident taxpayers and permanent establishments by resident corporate taxpayers, government bodies, activity organizers, permanent establishments, representative offices and certain appointed individuals are subject to withholding tax at the rates specified in the following table:
Rate (%) Transaction 6 · Land and building rental payments to companies and
permanent establishments (final tax).· Rental and other payments for the use of property other than
land or buildings.· Compensation related to management services, and technical
services.7.5 · Compensation related to professional services, including legal
and tax services.10 · Land and building rental paid to individuals (final tax).
15 · Dividends payable to individuals.
· Interest, including premiums, discounts and guarantee fees
· Royalties.
The following payments made by a government body, resident taxpayer, activity organizer, permanent establishment and representative office to a non-resident taxpayer are subject to 20% (or applicable reduced treaty rate) of the gross amount:
- After-tax profits of permanent establishments.
- Compensation for technical, management and other services.
- Income derived from the disposal of assets (withholding on estimated net income).
- Insurance premiums (withholding on estimated net income).
- Interests including premiums, discounts, guarantee fees and interest rate swap premiums.
- Royalties, rent and other income with respect to the use of property.
The non-resident has to obtain from its own competent authority a Certificate of Domicile/ Certificate of Residence and present it to the Indonesian payer and will a reduced withholding rate or exemption.
Individuals and organizations resident in Indonesia that derive income from the following business lines are subject to final tax at the rates listed below if they satisfy the definition of small business:
1. Planning construction services 4%
2. Supervisory construction services 4%
3. Construction services 2%
In order to satisfy the definition of small business, one will have to meet certain income requirements and obtain a certificate issued by the authorized government agency.
5. Indirect TaxesTax on Land and Buildings
The tax is based on the sales value of the land and buildings as determined by the Ministry of Finance. Land value is reassessed every three years in most areas and every year in rapidly developing areas. The current effective tax rate on land and buildings is 0.1% of the sales value.Exit Tax
This is commonly known as “Fiscal Tax” and is paid by Indonesian residents and foreign nationals residing in Indonesia whenever they leave the country. Sets the rates at Rp. 1,000,000 for departure by air, Rp.500, 000 by sea, and Rp. 250,000 by land.
Customs Duty
Most duties are in the 5% to 40% range. The minimum rate is 0% and the maximum rate is 200%.
6. Double Taxation
To improve economic and trade relationship with other countries, Indonesia would like to have certain law provisions that regulate the right of tax imposed from each country. The purposes of those provisions are achievement of rule of law, avoiding double taxation, and prevention of tax evasion. Government is entitled to make an agreement with other countries to avoid double taxation and to prevent tax evasion.
The framework and the matter of this agreement are based on international convention and other rule of laws and also the tax regulation of each country.
Taxation
Malaysia
Culture
Law
Reference
Incoterm
Contact
Home