The tax system in Indonesia is similar to that of Russia, but it can be challenging for foreigners to understand. Many websites provide general, outdated information without specifics. In this article, we’ve compiled up-to-date data on corporate taxation for 2024. If you are a foreign citizen planning to open a business in Indonesia, this guide will be useful for you.
A company registered in Indonesia is considered a tax resident. A foreign company operating through a permanent representative office is taxed at the same rates as a resident company. A company is considered a non-resident if it is registered abroad but receives income in Indonesia.
To be able to pay taxes and file returns, individuals or companies must have the following:
• NPWP — personal tax identification card
• EFIN — electronic filing system from the tax authority
• Accounting system
For companies with an annual turnover exceeding IDR 50 billion, a flat income tax rate of 22% is applied to profits. For businesses with an annual turnover between IDR 4.8 billion and IDR 50 billion, a 50% discount is applied, meaning the tax rate is 11%. Certain businesses with a gross turnover below IDR 4.8 billion are subject to a final tax of 0.5% of turnover.
If your company's income exceeds IDR 4.8 billion, you are allowed to reduce your income tax by deducting expenses from the gross income. A strict accounting of income and expenses must be maintained for this.
The formula is as follows: Taxable Income = Gross Income – Deductions
Then, the final income is multiplied by either the 22% or 11% rate. However, not all deductions are allowed. These include:
1. Expenses not related to business;
2. Gifts and aid not related to business in Indonesia, except for certain religious donations/charitable contributions;
3. Income tax payments;
4. Tax penalties;
5. Profit distribution;
6. Expenses related to income taxed at a final rate, such as interest on loans related to term deposits;
7. Expenses related to income exempt from tax, such as interest on loans used to purchase shares when dividends received are exempt from income tax;
8. Salaries or compensation received by members of partnerships or firms when their participation is not divided into shares.
Allowed deductions include:
1. Purchase of raw materials
2. Salaries
3. Rent
4. Marketing and promotion
5. Research and development
The annual corporate tax payment deadline is the fourth month after the end of the financial year. In addition, income tax returns must be filed by the end of the fourth month after the company's tax year ends.
Employers are required to withhold income tax monthly from the wages and other compensation paid to employees. If the employee is a tax resident, the amount of tax withheld is calculated based on the standard tax rates, which typically range from 5% to 30%. If the employee is a non-resident taxpayer, the tax withheld is 20% of the gross amount (this can be set at a lower rate according to a tax treaty).
General VAT is usually charged on events related to the transfer of taxable goods or the provision of taxable services within Indonesia’s customs territory.
VAT obligations arise for transactions exceeding IDR 4.8 billion annually. According to the law, all goods and services, unless otherwise specified, are taxable.
The VAT rate is currently 11% and will increase to 12% by January 1, 2025. It can be raised or lowered to between 15% and 5%, according to government regulations. However, VAT on the export of taxable tangible and intangible goods, as well as services, is set at 0%. Specific restrictions apply to the zero VAT rate for service exports.
Dividends paid to shareholders based on company profits are taxed under the following conditions:
For non-residents, the tax rate is 20%
If the non-resident is covered by a double taxation avoidance agreement, the rate may be lower.
For residents, the tax rate is 10%
A resident may be exempt from dividend tax if the dividends are reinvested in the company (their own or another Indonesian company), an Indonesian financial instrument recognized by the Ministry of Finance, or used as cash payouts to investors.
Depending on the type of tax, companies must strictly adhere to tax obligations and timely reporting to the relevant authorities. Non-compliance with tax requirements can result in penalties, fines, and criminal charges.
In July 2024, the authorities implemented an updated tax system allowing the tax administration to integrate corporate bank accounts into their systems. These innovations are aimed not only at simplifying tax accounting but also at monitoring companies that evade taxes.
The Indonesian tax system is quite complex and requires strict compliance. Additionally, tax legislation undergoes various changes annually, so if you need assistance from a competent specialist who understands all the nuances, you can contact our company, Good Luck Group. We are located in Bali, and business consulting is our specialty. For four years, we have been helping open accounts and businesses in Indonesia, as well as providing other services related to business activities in the country.
