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Based on Article 1 Number 6 of Law Number 28 of 2007, the Taxpayer Identification Number / Nomor Pokok Wajib Pajak (NPWP) is issued by the Directorate General of Taxes to taxpayers.
Advantages:
1. A unique code that is used in all tax matters
2. Manage the refund process for overpayments
3. Higher rate of Income Tax for those who do not have a Tax Identification Number.
Personal Income Tax
If a person fulfills any of the following requirements, he or she is considered a Taxpayer in Indonesia (unless the tax treaty overrides this rule):
● the individual resides in Indonesia;
● the individual has been in Indonesia for more than 183 days in a 12 month period;
● the individual is in Indonesia during the fiscal year and intends to reside in Indonesia.
The non-resident individuals are subject to a 20 percent withholding tax on income sourced from Indonesia.
The following progressive rates are charged on taxable annual income:
Individual Income Tax | Tax Rate |
|---|---|
Up to IDR 50 million | 5% |
Over IDR 50 million to IDR 250 million | 15% |
Over IDR 250 million to IDR 500 million | 25% |
Over IDR 500 million | 30% |
Most individual income tax is collected through withholdings by employers. Employers deduct income tax each month from salary and other compensation paid to employees. In the event that the employee is a resident taxpayer (residing in Indonesia), the tax rates stated above apply. If the person is a non-resident taxpayer, the withholding tax is 20 percent of the gross amount (in tax treaty terms, the amount may vary).
Withholding Tax (for payments to residents) | Tax Rate |
|---|---|
For interest, dividends & royalties | 15% |
For services | 2% |
for land and building rental (final tax) | 10% |
These withholding taxes are considered as prepaid corporate tax | |
Withholding tax calculated on sales/revenue is considered a final tax |
Withholding Tax (for payments to non-residents) | Tax Rate |
|---|---|
Normal rate (can be reduced by using the provisions of the tax treaty or tax-free services that qualify as business profits) | 20% |
Corporate Income Tax
Company is subjected to tax obligations determined by the Indonesian government if the company is domiciled in Indonesia. Likewise, foreign company that has a (permanent) establishment in Indonesia – and carries out business activities through this local entity – are also subjected to the Indonesian tax regulations. If the foreign company does not have a permanent establishment in Indonesia but generates income through business activities in Indonesia, it must settle its tax obligations through withholding taxes by the Indonesian party who pays the income.
In general, the corporate income tax rate of 25 percent applies in Indonesia.
Corporate Income Tax | Tax Rate |
|---|---|
Normal rate | 25% |
Public company with >40% of its shares traded on the IDX | 20% |
Companies with gross income below IDR 50 billion | 12,5% |
Companies with a gross income below IDR 4.8 billion | 1% |
One of the tax collection systems implemented in Indonesia is the Withholding Tax System (withholding / collection of taxes). In this system, a third party is entrusted with carrying out the obligation to withhold or collect taxes on income paid to the recipient of the income, at the same time depositing it into the state treasury. At the end of the tax year, the tax withheld or collected and has been deposited into the state treasury will be deducted from the tax or tax credit for the party withheld by attaching proof of withholding or collection.
The Withholding Tax System in Indonesia is applied to the mechanism of withholding/collecting Income Tax (PPh). The term withholding is intended to indicate the amount of tax withheld by the income provider on the amount of income given to the income recipient, resulting in a reduction in the income he or she receives (i.e. Ph. Article 21 and Income Tax Article 23). Whereas what is meant by collection is the amount of tax collected on a payment amount that has the potential to generate income for the payee (i.e. Income Tax Article 22).
Withholding Income Tax Article 21
Income Tax Article 21 is a tax deducted from income in connection with work, services, and activities carried out by Domestic Individual Taxpayers (WP), namely income in the form of salaries, wages, honorarium, allowances, and other payments with any name and form.
Income Tax Collection Article 22
Income Tax Article 22 is a tax collected by:
a. The government treasurers related to the payment for delivery of goods originating from the Revenue and Expenditure of State Government / State Budget (APBN);
b. Certain entities related to income from activities in the import sector or business activities in other fields; and
c. Certain corporate taxpayers related to payments from buyers for sales of goods classified as luxury.
Income Tax Article 23 is a tax withheld from the income of Domestic Taxpayers and Permanent Establishments / Bentuk Usaha Tetap (BUT) originating from the use of capital (dividends, interest, and royalties), provision of services (rent, fee for services), or organizing activities (gift, awards, and bonuses) other than those that are deducted under Income Tax Article 21.
Income Tax of Article 26 is a tax withheld from the income of a foreign Taxpayer on income derived from running a business or activity through a BUT originating from Indonesia. Withholding Income Tax Article 26 is final (cannot be used as a tax credit), unless otherwise specified.
Withholding Income Tax Article 4 paragraph (2)
Income Tax Article 4 paragraph (2) is withholding tax from income with separate treatment which is regulated through a Government Regulation and is final. Withholding tax from Income Tax Article 4 (2) is among other income in the form of interest on deposits and other savings, as well as discount on Bank Indonesia Certificates, income on sale of shares on the stock exchange, income in the form of interest sales and discount on bonds in the capital market, income in the form of interest on deposits paid to cooperative members (individual taxpayers), income from venture capital companies from the sale of shares or transfer of capital participation in the company’s business partners, leasing of land and/or buildings, transfer of rights to land and/or buildings, income from services business construction, and income from the Discount on State Treasury Bills.
Withholding Income Tax Article 15
Income Tax of Article 15 is a tax withheld from income by using special calculation norms for certain groups of Taxpayers (WP), in order to facilitate Taxpayers in carrying out their tax obligations, such as shipping companies or international airlines; foreign insurance companies; oil, gas and geothermal drilling companies; foreign trading company; and companies that invest in the form of (BOT) build – operate – transfer. To calculate the amount of taxable income for a certain category of WP, the Minister of Finance is authorized to stipulate a Special Calculation Norm to calculate the amount of net income from such WP.
The Withholding Tax Revenue in 2010 amounted to Rp587.65 trillion, increased to Rp730,418 trillion in 2011, and is targeted to be Rp 849.706 trillion for 2012 or 83.61% of the total target of tax revenue in 2012 of Rp1,016,237 trillion. Considering the importance of the role of withholding taxes in securing state income from the taxation sector, the Directorate General of Taxes requires all tax withholders and collectors to deposit and report their tax obligations in accordance with applicable regulations.
Subjects of the Land and Building Tax are individuals and entities under the following conditions:
a) Have rights to the land.
b) Gain benefit from the land.
c) Own the buildings.
d) Control the building.
e) Obtain benefits from the building
Exemption of Land and Building Tax Objects
Not all building and land are subjected to Land and Building Tax (PBB). There are also tax entities that are not subjected to PBB. However, the tax entity must have certain criteria as stated in Law Number 12 of 1994 concerning Land and Building Tax. The following is a list of these criteria:
a. The tax entity is used solely for the public interest in the fields of worship, social, health, education and national culture, which are not intended to attain a profit.
b. Being utilized for graves, ancient relics, or the like.
c. The tax entity is protected forest, nature reserve forest, tourism forest, national park, grazing land controlled by the village, or state land that has not been encumbered with a right.
d. The tax entity is used by diplomatic representatives and consultants based on the principle of reciprocal treatment.
e. The tax entity is used by institutions or representatives of international organizations as determined by the minister of finance.
Land and Building Tax Rates
The land and building tax rate has remained constant at 0.5%.
Tax holiday is a form of tax incentive that is most often provided in an effort to attract foreign investment. The tax holiday itself takes the form of exemption from corporate income tax or also in the form of a reduction in the income tax rate of companies that invest new capital in the country for a certain period. These incentives are intended to stimulate foreign investment.
Other modifications can also be in the form of a combination of both, namely obtaining corporate income tax exemption followed by a reduction in a certain period. Therefore, it is not surprising that tax holidays are considered the most ‘generous’ tax incentives.
Tax holidays are often used for specific industries to encourage growth in those sectors. However, not all industries are able to take advantage of the tax holiday. The investor must meet the requirements of a pioneer industry, create jobs, bring new technology, enter small and underdeveloped areas, and provide added value to the industry.
The provision of these facilities is regulated in Article 31A of Law Number 7 of 1983 concerning Income Tax as amended several times, most recently by Law Number 36 of 2008 (Income Tax Law). Facilities are provided in the form of:
a. reduction in net income is no more than 30% of the total investment made;
b. accelerated depreciation and amortization;
c. longer loss compensation, but not more than 10 years; and
d. the imposition of Income Tax on dividends as referred to in Article 26 at 10%, unless the rates according to the applicable taxation agreement stipulates lower.
e. meanwhile, tax holidays are also given to pioneer industrial companies making new investments in Indonesia that do not receive the facilities as referred to in Article 31A of the Income Tax Law. This provision has been regulated in Article 29 of Government Regulation no. 94 of 2010 concerning Calculation of Taxable Income and Payment of Income Tax in the Current Year.
Provisions regarding the provision of tax holiday facilities for investment in certain business fields and/or certain areas are further regulated in Government Regulation 18 of 2015.
Taxpayers who have obtained the tax holiday facility must submit periodic reports to the Directorate General of Taxes and the verification committee regarding:
a. reports on the use of funds placed in banks in Indonesia; and
b. audited investment realization reports
c. the provisions regarding this reporting procedure are regulated by the Director General of Taxes Regulation.
Who is Eligible for a Tax Holiday?
In Article 4 of the Regulation of the Minister of Finance No. 159 / PMK.010/2015, it is stated that a Taxpayer who can obtain a tax holiday facility must meet the following criteria:
1. is a new taxpayer;
2. is in a Pioneer Industry;
3. has a new investment plan that has been approved by the relevant authority, in the amount of at least Rp1,000,000,000,000.00; (one trillion Rupiah);
4. comply with the provisions on the ratio between debt and capital as referred to in the Regulation of the Minister of Finance concerning the determination of the ratio between debt and company capital for the purposes of calculating Income Tax;
5. submit a statement of ability to place funds in banks in Indonesia of at least 10% (ten percent) of the total investment plan as referred to in letter c, and the funds are not withdrawn prior to the commencement of the implementation of investment realization; and
6. must have the status of an Indonesian legal entity whose ratification was stipulated on or after 15 August 2011.
The designated pioneer industries cover 9 sectors as follows:
1. Upstream metal industry;
2. Petroleum refining industry;
3. Organic basic chemical industry sourced from petroleum and natural gas (petrochemical);
4. Machinery industry producing industrial machines;
5. Agricultural, forestry, and fishery product-based processing industries;
6. Telecommunication, information, and communication industry;
7. Marine transportation industry;
8. Processing industry which is the main industry in Special Economic Zones; and / or
9. Economic infrastructure other than those using the Public Private Partnership (PPP) scheme.
Badan Pengusahaan Kawasan Perdagangan Bebas dan Pelabuhan Bebas Batam (BP Batam) is the central government institution/agency established under the Government Regulation of the Republic of Indonesia Number 46 of 2007 with the duty and authority to carry out the management, development, and construction of the zones according to its respective functions.
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