The distinction between resident company and foreign company
A company is considered an Indonesian resident for tax purposes if it has a permanent establishment or if its place of management is in Indonesia. Regarding taxation, a permanent establishment can be assessed if the company operates through a branch, representative office, factory, workshop or warehouse, d '' a natural or legal person acting as an agent, etc.
THE STANDARD RATE
- Pajak penghasilan (Corporate tax)
↳ - 22% for fiscal years 2020 and 2021 - 20% from fiscal year 2022
- Reduction of corporate income tax rates
- Companies listed on the Indonesian Stock Exchange (and offering at least 40% of their share capital to the public)↳ Benefit from a tax reduction of 3% on the normal rate, offering an effective tax rate of 19%. (17% from 2022)
- Small businesses (corporate taxpayers whose annual turnover does not exceed IDR 50 billion)↳ Right to a tax reduction of 50% of the normal rate
- Small businesses with gross income below IDR 4,8 billion
↳ 0,5% of gross income
The tax rate for foreign companies
Resident companies are taxed on the basis of worldwide income. A foreign company that carries on business activities through a permanent establishment in Indonesia will generally be required to meet the same tax obligations as a resident taxpayer.
Taxation of capital gains
Capital gains are taxable as ordinary income and capital losses are deductible. However, the transfer of shares listed on the Indonesian Stock Exchange is subject to a tax of 0,1% of the transaction value. The shares held by the founder are also subject to an additional final tax of 0,5% on the value of the share on an initial public offering, whether the shares are held or sold following the offer. . The sale of land and / or buildings is subject to a tax of 2,5% of the transaction value. Capital gains from the disposal of Indonesian assets held by foreigners are taxable at the rate of 5% of gross proceeds, unless the rate is reduced under a tax treaty.
Deductions and tax credits
In general, all legitimate business expenses directly or indirectly related to the realization, receipt or maintenance of income are deductible from taxable income.
The costs of building up and expanding the capital of a business can be declared in full in the year in which the expense is incurred or can be depreciated using the declining balance or straight-line method. Interest incurred in the ordinary course of business is deductible as long as the corresponding loan is used for business purposes. Bad debts are tax deductible, under certain conditions.
Donations for national disasters, educational facilities, sports development and social infrastructure may be deductible in the year in which the donations are provided. Most in-kind benefits received by employees, such as free housing, are not tax deductible for the entity providing the benefit. Free motor vehicle and telephone costs, including depreciation, are tax deductible up to 50% of the total costs incurred. Meal and transportation costs are tax deductible when made available to all staff. Salary expenses and insurance premiums can be deducted.
Losses can be carried forward for up to five years. Carrying back losses and compensating losses within a group of companies is not allowed. Land and property tax and regional taxes can be deducted from taxable income.
Tax incentives are granted to companies operating in certain strategic industries (notably the petroleum and manufacturing industry) or in geographic areas in the form of a tax reduction of up to 30% of the investment (5% reduction each year for six years). Other incentives include: an extension of the loss carryforward to 10 years (instead of five) and a reduction in withholding taxes on dividends paid to non-residents to 10% (as opposed to the regular rate of 20% ). For companies in pioneering industries that have a wide range of connections, provide additional value and high externalities, introduce new technologies, and have strategic value to the national economy, a 100% tax holiday on corporate tax. Companies owed is granted for 5 to 20 years (depending on the amount of investment) from the start of commercial production, plus two years of 50% reduction after the full reduction period.
Other corporate taxes
Employers are responsible for covering their employees by the Workers' Social Security program run by Badan Penyelenggara Jaminan Sosial (BPJS). Employee contributions are collected through payroll deductions. Employer contributions are 0,24% to 1,74% for protection against accidents at work; 0,3% for death insurance; 3,7% for retirement savings; and 2% (subject to a salary cap) for the pension scheme. The employer's contribution for the health care system is 4% (subject to a salary cap). The contribution to the pension scheme is not compulsory for expatriates. A stamp duty of IDR 10 is levied on certain documents.
International comparison of corporate taxation
|Indonesia||East Asia + Pacific||United States||Germany|
|Number of tax payments per year||43||22,9||10,6||9|
|Time required for administrative formalities in hours||207,5||198||175||218|
|Total amount of taxes as% of profits||30,1||33,9||43,8||49|
Source: Doing Business - 2017.
Note: * The larger the index, the more transparent the transactions. ** The larger the index, the more managers are personally responsible. *** The larger the index, the more power shareholders have to defend their rights. **** The larger the index, the greater the protection of shareholders.
THE ACCOUNTING SYSTEM
Accounting standards (Standar Akuntansi Keuangan - SAK) are established by the Indonesian Accounting Standards Board and converge to some extent with IFRS. On May 25, 2016, the Indonesian Institute of Accountants announced its intention to deepen cooperation with IFRS as Indonesia plans to achieve full convergence with IFRS.
OJK, Financial Services Authority
Bank Indonesia, Central Bank of Indonesia,
Ministry of Finance
Indonesian Limited Liability Company Law No. 40/2007 and Capital Market Law No. 8/1995
The difference between national and international standards (IAS / IFRS)
Indonesian Accounting Standards (SAK) are required for domestic and foreign companies. Indonesia is gradually converting its standards to IFRS, but without a plan to fully adopt IFRS at this time.
THE ACCOUNTING SYSTEM
The fiscal year
Calendar year. Companies can choose to file returns according to the accounting year.
The structure of the accounts
The balance sheet is presented in the form of accounts with liabilities made up of constant capital and debts. The summary of the results gives priority to the filing of the overall production and leaves the choice of the classification of costs, either by nature or by function.
Foreign investment companies (PMAs), permanent establishments, certain foreign-invested entities, and companies that prepare their financial statements in US dollars as their functional currency may keep books in English and US dollars for tax purposes, provided to have obtained the authorization of the Ministry of Finance.
The financial statements must contain at least: a statement of changes in equity excluding the reserve account and balance sheet carried forward, a cash flow statement, appended notes The summary statements of activity during the financial year include the balance sheet, the statement of assets and liabilities, the interim balance, the table of sources and use of relative funds and the statement of additional information. They form an inseparable whole. The reports must be published annually.
Five types of limited liability companies (banks and financial institutions, listed companies, issuers, state-owned companies and companies with assets of at least IDR 50 billion) must publish financial statements audited and approved by the assembly general shareholders. Annual reports should be prepared in accordance with generally accepted accounting principles in Indonesia.
THE ACCOUNTING PROFESSION
As of 2014, all accountants in Indonesia must join a professional organization before being registered with the Minister of Finance
IAI, The Indonesian Institute of Accountants
Indonesian Accounting Company
Membership of IFAC (International Federation of Accountants)
Membership of other federations of accountants
UGM Faculty of Economics is a member of the Asian Academic Accounting Association (AAAA).
The Indonesian Institute of Accountants represents the accounting profession. The Department of Finance has the authority to issue recommendations and establish accounting obligations.
The nature of the tax
Value added tax, Pajak pertambahan nilai (PPN).
The standard rate
The reduced rate
Zero-rated items include exports of taxable goods (tangible or intangible) and services.
Consumption tax exemptions
Calculation and declaration methods
A value added tax (VAT) is applicable on sales of goods and services in Indonesia. Entrepreneurs whose gross turnover of taxable goods and services exceeds IDR 4,8 billion are required to register for VAT and issue a standard VAT invoice on the delivery of taxable goods and / or services. VAT returns are filed monthly (before the end of the following month) and debts paid in IDR. The monthly VAT payment deadline predates the filing of the VAT return.Following the COVID-19 crisis, the Indonesian government decided to include foreign traders, offshore service providers or e-commerce providers within the scope of VAT.
Other consumption taxes
The distinction between resident and non-resident
THE STANDARD RATE
|Pajak penghasilan (individual income tax)||Progressive rate from 5% to 30%|
|From 0 to 50 IDR||4,1%|
|From IDR 50 to IDR 000||15%|
|From IDR 250 to IDR 000||25%|
|More than IDR 500||30%|
|Income earned or received by a resident individual |
whose business value does not exceed 4,8 billion IDR
|0,5% final tax|
|Severance pay tax||Progressive rate from 5% to 30%|
|From 0 to 50 IDR||0%|
|From IDR 50 to IDR 000||4,1%|
|From IDR 100 to IDR 000||15%|
|More than IDR 500||25%|
|Tax on lump-sum pension payments|
|From 0 to 50 IDR||5%|
|More than IDR 50||5%|
Deductions and tax credits
Personal allowances are available: IDR 54 million, with an additional IDR 4,5 million each for a spouse (additional Rp 54 million for a wife whose income is combined with that of her husband), a dependent or adopted child (three in maximum).
Deductible employment expenses include: professional expenses (5% of gross income, up to IDR 6 million); employee contribution to BPJS Ketenagakerjaan for retirement savings (fully deductible); pension contribution (up to IDR 1) Certain donations, such as for national disasters, research and development, educational facilities, sports development and social infrastructure, are deductible if the respective conditions are met . Mandatory religious contributions (such as zakat) may be fully deductible, provided valid evidence is available.
An individual carrying on a business can deduct expenses from business income. Losses can generally be carried forward for five years.
Special regimes for expatriates
The wealth tax
Countries with which a double taxation treaty has been signed
Other useful resources