Understanding corporate tax in Indonesia

Indonesia Tax Regulations for Businesses

Home to the largest economy in Southeast Asia, Indonesia sits high on the global watchlist as one of Asia’s emerging markets.

Ever since weathering the storm of the Asian Financial Crisis in the late nineties, it has become a member of the G-20, reduced its country’s poverty rate to 9.78% as of 2020 and grown into a hub for an increasingly diverse and talented workforce.

For many international businesses looking to establish a presence in Indonesia, understanding the rules that govern its taxation system is crucial in laying down the foundation of a successful venture.

Our article below explains everything businesses need to know about how to pay corporate tax in Indonesia. Additionally, if you want to learn more about individual tax regulations, our guide to personal income tax for expats will have you covered.

Corporate Income Tax Systems in Indonesia  

Also referred to as CIT, corporate tax is imposed upon all companies in Indonesia. This rule also applies to foreign companies that operate through a permanent establishment (PE) in Indonesia.

The table below illustrates the current corporate tax rates for 2021

Permanent establishments (PE)

Within Indonesia’s income tax law, a non-resident company is considered taxable if it operates business activities in the form of:

• a place of management
• a branch of the company
• a representative office
• an office building
• a factory
• a workshop
• a warehouse
• a room for promotion and selling
• mining and extraction of natural resources
• a mining working area for oil and natural gas
• a fishery, animal husbandry, agriculture, plantation, or forestry location
• a project of construction, installation, or assembly
• the furnishing of services in whatever form by employees or other persons, insofar conducted not more than 60 days within 12 months
• a person or corporation acting as a dependent agent
• an agent or employee of an insurance company that is not established and domiciled in Indonesia that receives insurance premiums or insures risk in Indonesia
• the computers, electronic agents, or automated equipment owned, leased, or used by an electronic transactions provider to conduct business via the Internet.

What is corporate income tax collected for?

It includes various types of transactions, such as: 

Importation of goods 

Sale of goods to the government

Sale or purchase of certain products

Sale or purchase of very luxurious goods

Payment of certain services.  

Other forms of corporate tax

Value-added tax (VAT)

For businesses that are involved in delivering taxable goods and services that exceed a certain amount within a fiscal year, they are required to pay Value-added tax (VAT); a form of consumption tax that is imposed on the delivery of all goods and services within Indonesia until the final point of sale. Examples of taxable events are:

Local delivery of taxable goods and services

Import and export of taxable goods

Use or consumption of taxable intangible goods/services originating from abroad

Export of intangible taxable goods and services. 

VAT rates

The standard VAT rate is 10%. However, there is a zero-rate VAT tax for the following taxable events:

Export of taxable goods

Export of intangible taxable goods

Export of certain taxable services such as technology and information services, legal consultation and more.

Find the full- list of zero-rated VAT items here.

 Luxury goods sales tax (LGST)

Certain items (luxury automobiles and residences) are considered luxury goods. They are subject to a surcharge that can range anywhere from 10% all the way up to 200%. The criteria required for an item to fall under this category are:

Does not constitute a basic staple

Consumed by a certain group

Consumed by an exclusive group (high-income) consumers

Consumed for status rather than utility

Annual property tax

This is levied at progressive rates and is based on the property's assessed value. Reductions of up to half of the property tax can be made for non-profit activities, healthcare services, etc.

Tax on rental income  

Rental income tax for non-residents in Indonesia is imposed at a flat rate of 10% of gross income. For income gained by companies, they are taxed at a flat rate of 25% of net income. The VAT is imposed at a flat rate of 10% on the gross rental income. 

Land and constructions tax (PBB)

Also referred to as PBB. This must be paid annually or can be arranged to be paid in ten-year blocks. This tax mainly applies to individuals of middle-class stature and beyond. Landholding businesses must also pay PBB.

Non-individuals are not legally allowed to own land within the country, but they can pursue long-term arranged leases from the Indonesian Central Government.  

Free trade zones

Several free trade zones in Indonesia exempt companies domiciled in the designated area from having to register as VAT entities. The import and delivery of taxable goods and services are also spared the imposition of VAT and LGST. Free Trade Zones include Batam Island, Bintan Island and Karimun Island.

Important payment dates

All payments for tax liabilities in Indonesia must be made to the State Treasury via a designated bank. Once this is done, the next step is to file all relevant tax returns at the Indonesia Tax Office.

Tax payments and filing should be performed monthly or annually, depending on the tax obligation. Note that all of this can also be done electronically, saving you the effort to trek to your local tax office.

For resident taxpayers and PEs of foreign companies, direct payments can settle tax liabilities, third-party withholding or a combination of the two.

For companies without a PE, tax liabilities for income earned in Indonesia should be settled by the tax withholding by the Indonesian party responsible for paying the income.   

Monthly and annual tax obligations

The table below helps to illustrate the important dates for taxpayers to keep an eye out for.

Penalties and sanctions

All late payments of the taxes in the table above will incur penalties of 2% monthly, which can go up to a maximum of 48%.

For those who are late or fail to file the necessary tax returns, the table below illustrates the penalties imposed:  

Find tax regulation support from Airswift

Are you dealing with the ins-and-out of understanding tax regulations in a new country? Airswift’s Employer of Record (EOR) team is dedicated to helping organisations and the individual taxpayer make sense of the nuances that often come with relocation and international expansion.

Reach out to us today to learn about our different solutions and discover how we can help you simplify various processes ranging from immigration to HR.