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Business Taxation for Expats in Indonesia

Submitted: October 2014

The authority responsible for tax in Indonesia is the Directorate-General of Taxes (DGT) or Direktorat Jenderal Pajak (DJP). The website for the DJP is here.

Registration

For expats, a common form of business structure in Indonesia is the perseroan terbatas (PT), which is essentially the same as a limited liability company. For foreign investors there is a special form of PT called a Penanaman Modal Asing (PMA) which offers the advantages of:

It should be noted that at least one member of the board of directors must hold an Indonesian tax card.
PMAs are limited in terms of the industry sectors they can invest in by the negative investment list (Daftar Negatif Investasi or DNI) which contains a list of sectors which are wholly prohibited, and a list of sectors which can be invested in subject to certain conditions, usually regarding the percentage ownership by foreign investors.

Company registration in Indonesia can be something of a bureaucratic nightmare, especially if you are intending to employ more than ten people. Most expats use an agent to help complete the process. Generally registration takes around two months to complete, though the process has been somewhat simplified by the recent One Stop Service.

 

Corporate Income Tax

The Indonesian tax year for companies runs from 1 January to 31 December. If a company’s accounting year is different from the tax year, its tax return period must be based on the accounting year. Indonesian resident companies are liable for corporate income tax on their worldwide income.

The corporate tax rate is 25%. Companies with an annual turnover of less than Rp50bn are taxed on only 50% of their revenue up to Rp4.8bn; any income above Rp50bn is fully taxable. Companies with an annual turnover of less than Rp4.8bn are taxed at a rate of 1% on gross monthly rental income, provided that the company is not already eligible for a reduced the reduced rate above.

Non-resident companies are subject to a 20% final withholding tax on income derived in Indonesia.

For resident companies, capital gains are treated as ordinary income and taxed as such. For non-resident companies, capital gains from Indonesian sources are subject to a 20% final withholding tax, though this may be reduced if an appropriate tax treaty is on place.

Indonesian companies paying dividends to resident shareholders are required to apply a withholding tax of 10% in the case of individuals and 15% in the case of companies, unless the shareholder is entitled to an exemption. Indonesian companies paying dividends to resident shareholders are required to apply a withholding tax of 20%, though this may be reduced if an appropriate tax treaty is on place.

Companies must file monthly tax returns and make payments based on one twelfth of the previous year’s tax bill. The payment deadline is the 15th day of the following months, and the return must be submitted by the 20th day of the following month. Companies must also file an annual return and make a final payment of any outstanding tax due. The payment must be made before the tax return deadline which is the last day of the fourth month following the end of the company’s tax year. Companies generally ensure that there is a final payment of tax to be made after the end of the year because any return which shows a refund due will be subject to audit prior to the refund being paid.

There are penalties for late filing of returns, and interest is charged on late payments.

 

 

 




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