Income Taxation System in Indonesia
19 August, 2014
Global markets which were affected with crises and still many of them are still fighting for growth. Emerging markets of countries like Indonesia attract many investors and companies as despite of global conditions these markets are still growing. Indonesia faced to bottom of the easy to start a Business chart. Even you start doing business in Indonesia; the next important thing is to understand the tax system.
Indonesia, like many countries, operates a self-assessed taxation system and divided into state and local taxes. What do state taxes include? Income tax (corporate, individual, withholding), VAT, stamp duty and custom tax. What do local taxes include? Mainly they are related to commercial subjects such as property, vehicle, promotional and leisure activities. Do you want to start your business in Indonesia? You need to understand about the income tax properly.
Overview of Income Tax
Corporate tax in Indonesia, Important for business establishment is your destination and reside because it defines whether youll be taxed as resident or non-resident company.
Being a resident company attracts plenty of benefits. For instance, when you do business in high priority sectors or in certain geographic area, you could receive income tax relieves. It means that you will be eligible for a reduction in net income up to 30% of the amount invested, prorated at 5% for 6 years of production.
The corporate tax rate is generally flat at 25%. Special condition applies to the resident company. In situation your company is listed and meet a certain condition, you will receive 5% reduction. Best treatment is applicable to small business with a gross turnover <IDR 50 billion that entitled for 50% of standard tax rate.
Resident company has flexibility in tax liabilities settlements. You can choose between direct government tax, through withholding tax to direct payment or combination of both. Non-resident company, it could only be done through withholding tax and you will be imposed to 20% on various amounts payable.
For foreigner worker there is also difference be a resident or non-resident. As a resident, the top marginal income tax rate is 30% (for income above IDR 500million) but as a non-resident, the tax rate could be up to 36% because you are subject to a surcharge of 20% on the tax rate.
The payment for both corporate and individual tax liabilities are typically be paid to State Treasury through a designated tax payment bank. Afterwards, you have to submit related tax forms to the tax office in Indonesia. Below there is an overview of taxes:
1) Taxpayers can extend the period of submission of the annual income tax return for two months at the maximum by submitting notification to the Directorate General of Taxation.
2) Except for 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, which is due by the 15th of the following month.
3) Any underpayment of tax must be settled before submission of the annual tax return.
Usual VAT rate you can find in Indonesia is 10 percent. This is approved rate by Government, the allowed amendment Government is allowed is from minimum 5 percent up to maximum 15 percent. However for imported products the import duty can be up to 150% on the original sales price.
Feel free to contact us and get a free quotation for Accounting and Tax reporting, Payroll processing and outsourcing in Indonesia.
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