Indonesia, a country of over 270 million residents, is a huge market for both local businesses and foreign investors. With the continuous economic growth, taxation issues become particularly relevant. The Indonesian tax system for individuals has its own peculiarities, which are important to understand for anyone working or intending to open a business in Indonesia.
Indonesia has several main types of taxes for individuals. The first and most important of these is income tax (Pajak Penghasilan).
The obligation to pay income tax is imposed on tax residents. A person is recognized as a tax resident if their presence in the country exceeds 183 days within 12 months, or if they intend to stay in the country, which can be confirmed by appropriate documents (visa, residence permit, etc.).
Indonesian resident taxpayers are obliged to pay tax on income received in this country or abroad, provided that there is no double taxation treaty.
Non-residents are taxed only on income earned in Indonesia, provided that the country of which the person is a citizen does not have a tax treaty with Indonesia. In such a case, tax exemption or reduced rates may be applied.
A territorial tax treatment may be applied to foreign citizens who have become residents. Only income earned in Indonesia is taxable, but documentation of experience is required.
The tax system is different for residents and non-residents:
• For residents there is a progressive tax from the beginning of 2024, the rates range from 5 to 35% and depend on the level of income.
• For non-residents there is a flat rate of 20% of gross income.
Taxation is done on the principle of self-assessment: each taxpayer must calculate their own income and file a tax return. To file a tax return, a foreign person needs a taxpayer identification number (NPWP). The filing of the return must take place annually - on March 31 of the year following the reporting year.
When purchasing land or real estate for yourself or for doing business in Indonesia, you must pay Pajak Bumi dan Bangunan. This is a mandatory tax for individuals and companies who own or have use of real estate and land. The amount of the tax depends on the assessed value of the property and land. Until 2022, the rate ranged from 0.01% to 0.3% but was then raised to 0.5%.
Two figures are important for calculating the tax:
• NJOP: this is the market value at which the property can be sold. In the absence of recent sales data, the local government establishes NJOP by comparing the property to similar ones on the market.
• NJKP: This is the assessed value determined based on the NJOP.
NJKP is calculated using the following formula: NJKP = 40% or 20% x (NJOP - NJOPTKP),
40% - if the value of the property ≥ 1 billion IDR
20% - if the value of the property is < 1 billion IDR
Further, the PBB tax is calculated using the formula PBB = 0.5% x NJKP.
Tax payment is made within six months, after the tax office sends a notice with the calculated amount.
Besides income tax, there are other types of personal taxes, one of which is VAT on the purchase of goods and services. VAT is charged to end consumers, but it is primarily carried by business entities as tax collectors. The VAT rate in Indonesia is 11%, but it will be increased to 12% starting January 1, 2025. By law, all goods or services are taxable unless otherwise stated.
The list of goods and services that are not taxable includes the following:
• Food and beverages served in hotels, restaurants, takeaways and deliveries
• Money, gold, securities
• Religious services
• State services
• Public services: hotels, entertainment establishments, catering services
The reporting period for companies and individuals is monthly.
This is a tax charged on goods categorized as luxury goods to manufacturers when imported or delivered to another party. The tax ranges from 10% to 200%. The taxable items include:
• High-end residential properties
• Weapons
• Private sea or air vehicles
• Jewelry
• Cars, etc.
In addition to the aforementioned taxes, there are others managed by regional authorities (in districts, cities, or provinces). Tax rates typically range from 0.2% to 75%. These include:
1. Land and Construction Rights Acquisition Tax (BPHTB)
2. Vehicle Tax (PKB)
3. Advertising Tax
4. Fuel Tax for Vehicles (PBBKB)
5. Carbon Emissions Tax, etc.
This tax is charged for the use of documents such as letters of agreement, securities, payment receipts and more. The fee is around IDR 10,000.
So, if you are planning to stay in Indonesia for an extended period of time, it is important to know the main types of personal taxes. The Indonesian government will continue to regulate and update tax policies, which requires citizens to keep up to date and file reports on time to avoid penalties, especially if you, as a foreigner, are doing business in the country. If, opening a business in Bali, or another part of Indonesia, you want to be confident in your accounting, save time on collecting documentation and filing reports - our consulting agency, Good Luck Group, offers accounting services for foreign companies in Indonesia. Email us to get more information about the service.
