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.
1. A unique code that is used in all tax matters
2. Managing 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 meets one of the following conditions, he / she is considered a taxpayer in Indonesia (unless a relevant tax treaty overrides this rule):
● the individual lives in Indonesia;
● the individual has been in Indonesia for more than 183 days in a 12 month period;
● the person is in Indonesia during the fiscal year and intends to reside in Indonesia.
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
Up to IDR 50 million
Over IDR 50 million to IDR 250 million
Over IDR 250 million to IDR 500 million
Over IDR 500 million
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)
For interest, dividends & royalties
for land and building rental (final tax)
These withholding taxes are considered corporate tax prepayments
Withholding tax calculated on sales/revenue is considered a final tax
Withholding Tax (for payments to non-residents)
Normal rate (can be reduced by using tax treaty provisions, or exempt services that qualify as business profits)
Corporate Income Tax
The company is subject to tax obligations set by the Indonesian government if the company is domiciled in Indonesia. Likewise, foreign companies that have a (permanent) establishment in Indonesia – and carry out business activities through this local entity – are included in Indonesia’s 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 tax by the Indonesian party who pays the income.
In general, the 25 percent corporate income tax rate applies in Indonesia.
Corporate Income Tax
Public company with >40% of its shares traded on the IDX
Companies with a gross turnover below IDR 50 billion
Companies with a gross turnover below IDR 4.8 billion
The Withholding Tax system in Indonesia is applied to the Tax withholding / collection mechanism (Pajak Penghasilan, PPh). The term withholding is intended to denote the amount of tax withheld by the income payer for the amount of income given to the income recipient, resulting in a reduction in the amount of income received (eg Ph. Article 21 and Income Tax Article 23). Additionally, collection refers to the amount of tax collected on the payment that has the potential to generate income to the recipient (eg Income Tax Article 22).
Withholding Income Tax Article 21
Income Tax Article 21 is tax withheld from income in connection with work, services, and/or activities carried out by Domestic Individual Taxpayers (WP). Namely, income in the form of salary, wages, honoraria, allowances, and other payments in whatever name or form.
Article 22 Income Tax Collection
Income Tax Article 22 is a tax collected by:
a. Government treasurers related to the payment for delivery of goods originating from the State Revenue and Expenditure Budget (APBN);
b. Specific entities related to income from activities in the import sector or business activities in other fields; and
c. Specific corporate taxpayers related to payments from buyers for sales of goods classified as very high luxury.
Withholding Income Tax Article 23
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, compensation for services), or organizing activities (prizes, awards, and bonuses) other than those that are deducted under Income Tax Article 21.
Withholding Income Tax Article 26
Income Tax Article 26 is a tax withheld from the income of foreign taxpayers on non-income coming from running a business or activity through a PE originating in Indonesia. Withholdings under Income Tax Article 26 are 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 a tax withheld from income treated separately and regulated through government regulations and is final. Income withheld under Income Tax Article 4 (2) is taken from other income in the form of interest on deposits and savings / current accounts, and discounts on Bank Indonesia Certificates, income from the sale of shares on the stock exchange, income in the form of interest and discounts bonds sold on the capital market, income in the form of interest on deposits paid to cooperative members (WP Orang Pribadi), venture capital income from the sale of shares / transfer of company’s partner’s capital investment, leasing land and / or buildings, transfer of rights to land and / or buildings, construction service business income, and income on discounted State Treasury Bills.
Withholding Income Tax Article 15
Income Tax Article 15 is a tax withheld from income using calculated norms specifically for certain groups of taxpayers, in order to make it easier for taxpayers to perform their taxation obligations, such as shipping companies or international airlines; outside insurance companies; oil, gas and geothermal drilling companies; foreign trading companies; and companies investing in the form of building, operating and transferring. To calculate the amount of taxable income for a certain class of WP, the Minister of Finance is given the authority to set Special Calculated Norms to calculate the amount of net income from that particular WP.
Withholding Tax revenue in 2010 amounted to Rp.587.65 trillion, increased to IDR 730,418 trillion in 2011, and is expected to reach IDR 849.706 trillion for 2012 or 83.61% of the total 2012 tax revenue target of IDR 1,016.237 trillion. The Directorate General of Taxes requires all tax cutters and collectors to deposit and report their tax obligations in accordance with the applicable regulations
The subjects of the Land and Building Tax are individuals and bodies that have the following:
a) Have rights to the earth.
b) Benefit from the earth.
c) Own buildings.
d) Control the building.
e) Receive benefits from the building
Not all buildings and land are subject to PBB. There are also tax entities that are not subject to PBB. However, the tax entity must possess certain criteria as stated in Law Number 12 Year 1994 regarding 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. Used for graves, ancient relics, or the like.
c. The tax entities are protected forest, nature reserve forest, tourism forest, national park, cultivation land controlled by a 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 bodies 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 holidays are one form of tax incentive that is most often provided in an effort to attract foreign investment. The tax holiday itself takes the form of corporate income tax exemption or it can also be in the form of a reduction in the corporate income tax rate for companies that invest new capital in the country for a certain period of time. This incentive is intended to stimulate foreign investment.
Other modifications can also be in the form of a combination of the two, namely obtaining corporate income tax exemption, followed by a reduction for a certain period. It is therefore not surprising that tax holidays are considered the most ‘generous’ tax incentive.
Tax holidays are often used for specific industries to encourage growth in those sectors. However, not all industries enjoy a 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 over time, 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. compensation for losses that are longer, 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 rate according to the applicable taxation agreement stipulates a lower rate.
e. Tax holidays are also given to pioneering industrial companies making new investments in Indonesia that do not get the facilities as referred to in Article 31A of the Income Tax Law. This provision is regulated in Article 29 of Government Regulation Number 94 of 2010 concerning the Calculation of Taxable Income and Payment of Income Tax in the Current Year.
Provisions regarding the granting of tax holiday facilities for investment in certain business fields and / or in 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. an audited report on investment realization.
c. the provisions regarding this reporting procedure are regulated by the Director General of Taxes Regulation.
Who Has the Right to Receive It?
In Article 4 of the Minister of Finance Regulation Number 159 / PMK.010 / 2015, it is stated that taxpayers who can receive tax holiday facilities 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, at least in the amount of Rp1,000,000,000,000.00;
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 commitment 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 established on or after August 15, 2011.
The pioneer industries include 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.