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Income Tax in Indonesia




Individual Income Tax

Residency Rules:

Resident taxpayers are defined as individuals who:

·        are domiciled in Indonesia; or
·        stay in Indonesia for more than 183 days in any 12-month period; or
·        are present in Indonesia during a tax year and intending to reside in Indonesia.

A foreigner who qualifies to be a resident taxpayer becomes a tax resident from the date of arrival in Indonesia until the date of final departure from Indonesia.

An Indonesian national is considered a tax resident from birth unless he or she leaves Indonesia permanently. If an Indonesian national is leaving Indonesia temporarily, for example, for working assignment to another country for a period of 6 months or more, he/she can be considered as non-resident during the assignment period and will be taxed only on Indonesian sourced income.

Tax Obligations

Resident Taxpayers:

·        Must register with the Indonesian Tax Office and obtain Tax ID Number (‘NPWP’)
·        Are taxed on worldwide income, regardless of source.
·        Indonesia uses a self-assessment system whereby resident taxpayers will need to file individual income tax returns declaring worldwide income and assets and liabilities annually. The forms are called Form 1770 (for resident taxpayers with business income), Form 1770-S (for resident taxpayers who receive income from employment and other income), and Form 1770-SS (for resident taxpayers with annual gross income not exceeding IDR 60 millions).
·      Annual tax underpayment, if any, must be paid before the tax return is lodged. The annual tax return is for the period from 1 January to 31 December and shall be lodged with the Tax Office not later than 31 March of the following year. The annual tax return can be lodged directly to the Tax Office where the taxpayer is registered, or through Drop Boxes.
·      Resident taxpayers may need to pay monthly tax instalment / tax prepayment (“Article 25 Income Tax”), the amount of which is to be calculated when the annual income tax due is calculated and to be reported in the annual income tax return.
·      Maintain documents to support the income, taxes paid, and assets and liabilities declared in the individual tax return, e.g. bank statements, tax withholding slips, foreign tax returns, asset ownership certificate, etc. Documents shall be maintained for a minimum period of 10 (ten) years.
·        Must deregister tax ID number/NPWP if leaving Indonesia permanently.

Non-resident Taxpayers:

·        Do not have obligation to register for tax ID number and do not have any individual tax filing obligation.
·        Are taxed on Indonesian sourced income only and the tax is paid via withholding by the Indonesian payer.

Worldwide Income:

The Indonesian tax regime adopts the worldwide income concept for resident taxpayers. Income is defined as any increase in economic prosperity received or accrued, originating within or outside Indonesia, used for consumption or to increase the wealth of the taxpayer, in whatever name or form.

Taxation on employment income:

Indonesian tax resident companies and permanent establishments are required to withhold income tax (“Article 21 Income Tax”) from the salaries payable to their employees on a monthly basis and pay the tax to the State Treasury on their behalf; and then report to the Tax Office.

Resident individual taxpayers without a tax ID number/NPWP are subject to a surcharge of 20% in addition to the standard Article 21 Income Tax rates.

Employment income in Indonesia is subject to tax, regardless of where the income is paid. In addition to salary, taxable employment income includes bonuses, commissions, overseas allowances, and fixed allowances for education, housing, and medical care. In-kind benefits paid for by the employer, such as medical expenses, company-provided cars and housing, home leave etc., are not, in most cases, taxable as income to the employee. However, it should be noted that payments of these benefits are not tax deductible by the employer. The in-kind benefits could be subject to tax if they are provided by certain categories of employer.

Taxation on Capital Gains and Investment Income:

Capital gains are generally assessable at standard income tax rates, together with other income of the individual. The exceptions are:

·     Sale of land and/or buildings located in Indonesia. The tax is 5% final tax on the taxable sale value or the actual proceeds whichever is higher.
·        Sale of shares traded in the Indonesia Stock Exchange. The tax is 0.1% final tax on the sales proceeds.

Interest income on time deposits and savings with Indonesian banks or Indonesian branches of foreign banks (in any currency), is subject to final tax at 20%. Interest income which is overseas sourced is taxed at standard income tax rates.

Interest on Indonesian bonds is subject to final tax at 15%, whilst a final withholding tax of 10% is imposed on dividends received from an Indonesian company.

Other types of investment income are assessable at standard income tax rates.

Individual Tax Rates:

Resident Taxpayer:

The standard tax rates on taxable income received by resident taxpayers are as follows:

Taxable Income
Rate
Up to Rp 50,000,000
5%
Over Rp 50,000,000 but not exceeding Rp 250,000,000
15%
Over Rp 250,000,000 but not exceeding Rp 500,000,000
25%
Over Rp 500,000,000
30%

Non-resident Taxpayer:

Single rate of 20% is imposed on gross income, except for income on sale of shares in Indonesian incorporated company and certain assets which is subject to 5% final tax on the sales proceeds.

Personal Deductions:

The following personal deductions are available for resident individual taxpayers in calculating their taxable income, depending on the taxpayer’s personal circumstances.

Basis of Deduction
Deductible Amount (per year)
Taxpayer
Rp 36,000,000
Spouse
Rp 3,000,000(additional Rp 36,000,000 for a wife whose income is combined with her husband’s)
Dependents
Rp 3,000,000 each (up to a maximum of 3 individuals related by blood or marriage)
Occupational Support
5% of gross income up to a maximum of Rp 6,000,000
Pension cost (available to pensioners)
5% of gross income up to a maximum of Rp 2,400,000
Contribution to approved pension fund, e.g. BPJS Ketenagakerjaan
Amount of self-contribution
Compulsory tithe (“zakat”) or religious contributions
Actual amount, provided that valid supporting evidence is available and certain requirements are met

Tax Credits:

An individual tax resident can claim the following tax credits against the tax due at fiscal year-end.

Domestic Tax Credits:

·        Income tax on employment income withheld by the employer (Article 21 Income Tax);
·        Tax collected on business income;
·        Withholding tax on other income which is not final tax in nature; and
·        Provisional monthly income tax installments (Article 25 Income Tax) made by the taxpayer during the fiscal year.

Foreign Tax Credits:

·      Country-by-country basis; Indonesian tax due can be reduced by tax paid abroad on income received or accrued abroad on a country-by-country basis.
·        The foreign tax credit claim is limited to the total Indonesian income tax due on the foreign income.
Generally, proof of tax paid or withheld needs to be attached to the tax return to claim the tax credit.

Tax Audits:

The Tax Office will audit an individual taxpayer in the following circumstances:

·        Tax return shows overpayment
·        Tax ID deregistration application
·        Random audit to test compliance

During the tax audit, the Tax Office will examine the taxpayer’s records to ensure that the income tax is calculated properly. In general, records requested by the Tax Office are bank statements, employment agreement, pay slips, original withholding tax slips or tax payment slips, cost of living estimation, and other records which are needed by the tax auditor in verifying the income reported in the tax return.




Corporate Income Tax:

A company is subject to the tax obligations set by the Indonesian government if the company's domicile is in Indonesia. Similarly, a foreign company that has a (permanent) establishment in Indonesia - and carries out business activities through this local entity - falls under the Indonesian tax regime. If the foreign company does not have a permanent establishment in Indonesia but does generate income through business activities in Indonesia, then it needs to settle its tax liabilities through withholding of the tax by the Indonesian party paying the income.

In general, a corporate income tax rate of 25 percent applies in Indonesia. However, there are several exemptions:

·        Companies listed on the Indonesia Stock Exchange (IDX) that offer at least 40 percent of their total share capital to the public obtain a 5 percent tax cut (hence a tax rate of 20 percent applies for these public companies).
·        Small and medium-enterprises with an annual turnover below IDR 50 billion (approx. USD $3.8 million) obtain a 50 percent tax discount (imposed proportionally on taxable income of the part of gross turnover up to IDR 4.8 billion). In 2013, Indonesia's Finance Ministry issued a regulation that set a one percent income tax tariff on individual and institutional taxpayers with an annual gross turnover below IDR 4.8 billion (approx. USD $363,636).


Corporate Income Tax
Tax Rate
Normal rate
25%
Public company with >40% of its shares traded on the IDX
20%
Companies with a gross turnover below IDR 50 billion
12.5%
Companies with a gross turnover below IDR 4.8 billion
1%



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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.


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This blog is Created by CA Anil Kumar Jain.