Tax is a key issue in investment matters no matter where you are. As one of the major contributors to a country's income, the amount of tax imposed is often a determining factor for investors who are considering entering a market country.
Indonesia is no exception. It imposes both corporate taxes on companies doing business in Indonesia as well as personal income tax for the individuals.
Here we explain the main taxes in Indonesia:
1. Corporate Income Tax
A company is treated as a resident for tax purposes in Indonesia. Thus, business owners have tax obligations as residents. A company will assume the same tax obligations as a resident as long as it has its establishment in Indonesia. Foreign companies with a permanent establishment in Indonesia can settle their taxes through direct payment, third party withholdings, or both.
Tax Rate:
As per 2020, a flat corporate tax rate of 22% applies to net taxable income. In 2022 onwards, a flat corporate tax of 20% will be applied. However, there are a few exemptions;
· Companies with an annual turnover of up to 50 billion IDR are entitled to a tax deduction. Plus they can qualify for up to 50% tax discount.
· Companies with an annual turnover below 4.8 billion get a tax rate of 1%.
· Companies listed on the Indonesia stock exchange that offer a minimum of up to 40% of their total share are subject to a 5% tax rate.
· International companies with an Indonesian branch obtain 20% tax on the income accumulated from the permanent establishment.
2. Personal Income Tax
Income tax applies to both residents and non-residents of Indonesia. An individual is obligated to pay tax if he or she fulfills the following conditions;
· Lives in Indonesia.
· Stays in the country for more than 183 days during 12 months in Indonesia.
· Present in Indonesia during a fiscal year with the intention to reside in the country even in cases where they have spent less than 183 days.
· Citizens who work abroad but are still earning any form of income in Indonesia
Note: Tax exemption is applicable in cases where tax treaties override the conditions;
Tax Rate:
· Residents’ tax rates depend on the individual’s income ranging from 5% to 30%.
Up to 50 million IDR income per year = 5%
Between 50 -250 million = 15%
250-500 million = 25%
0ver 500 million = 30%
· Non-residents are subject to a 20% tax rate on their Indonesia—sourced income
3. Value-added Tax
Value Added Tax (VAT) applies to delivering taxable goods or services within the Customs Ares. Categories of goods and services that are taxable include;
· Some taxable import and export goods
· Export of taxable services and intangible goods
· Deliveries of taxable goods between head office and a branch or branches of the same company
· Movement of goods on consignment
· Consumption of taxable intangible goods and services originating offshore
Tax Rate:
General VAT is 10%. However, it may be increased to 15% or decreased to 20% according to government regulations.
4. Luxury-Goods Sales Tax (LGST)
Some luxury goods are subject to luxury tax in addition to value-added tax. Luxury goods generally include cars, houses, and other things consumed by upper-income individuals.
Tax Rate:
· Minimum of 10% and a maximum of 125%.
In conclusion, the tax categories and tax rates differ from one another. It’s best to also talk to your tax adviser to find the rate applicable to your business. Learn more about the Indonesia Tax system on Wallex. Get in touch with us and get to know more on how to avoid unfavourable exchange rates, and unnecessary disbursements.
