9 Jan 2018
Tax Considerations in Indonesia
The tax authority in Indonesia is the Directorate General of Taxation (in Indonesian only), of the Ministry of Finance. Taxes are levied under the following three laws:
- General Tax Provisions and Procedures
- Income Tax
- Value Added Tax (VAT) on goods and services and Sales Tax on Luxury goods (STLG)
An overview of the major types of taxes levied in Indonesia is provided in the table below. Other taxes may also be applicable, including taxes on land and buildings and capital gains tax. Indonesia and Hong Kong have a Double Tax Agreement (2010) in place which Hong Kong companies may be able to enforce.
Corporate Income Tax (CIT)
A company is taxed on chargeable income earned in the preceding financial year (calendar year). The following organisations are subject to taxation in Indonesia:
– All organisations incorporated in Indonesia.
– Those incorporated overseas receiving or accruing income from Indonesia and are required to register for tax purposes if they have a Permanent Establishment (PE) in the country. A PE also covers RO consultants who provide services in Indonesia. As PE is very broadly defined, foreign companies should be careful of inadvertently creating a PE.
Companies can enjoy lower tax rates if they meet certain conditions (see Section 2 for business incentives).
VAT and STLG
Imposed on goods and services supplied in Indonesia as well as on importation of goods. It is necessary to determine the applicability of the STLG on a case-by-case basis as the rules are complex and subject to change.
Personal Income Tax
Income tax rates depend on an individual's tax residency status:
– Resident if stayed or worked in Indonesia for 183 days or more in any consecutive 12 months period. Taxed on worldwide income.
– Non-resident if not meeting that criterion – taxed on employment income and director or consultation fee.
Withholding Tax (WHT)
WHT is imposed at various rates on various amounts payable either by a resident corporation, a PE of a foreign company or certain individuals appointed as WHT collectors, to other residents. In most cases, the WHT liability arises when the expense is incurred, not when the payment is made. There are numerous related regulations and WHT rates charged vary with the type of transaction. WHT is applicable to dividends, interests, royalties, rent, employment income, etc.
10% to 25% (depending on the type of transaction)
Imposed on certain goods for which distribution and consumption needs to be controlled due to their potential negative effect on society. Currently, goods subject to excise are ethyl alcohol, alcoholic drinks and tobacco products.
275% to 1,150% of customs value
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