Taxation in Indonesia
The sections below provide the basic information on taxation in Indonesia.
|Taxable Income Band IDR||National Income Tax Rates|
|1 - 50,000,000||5%|
|50,000,001 - 250,000,000||15%|
|250,000,001 - 500,000,000||25%|
The above are the tax rates applicable to individuals.
Non-resident taxpayers are subject to tax at a flat rate of 20% on all Indonesian-source income.
If the resident individual does not have a required Tax Identification Number, the tax rates for withholding tax on employment income are increased by 20%. As a result, the rates range from 6% to 36%.
Indonesian resident taxpayers are subject to tax on worldwide income. Non-residents are subject to tax on Indonesian-source income only. Diplomats and representatives of certain international organisations are excluded from Indonesian tax if the countries they represent provide reciprocal exemptions.
In general, all income received or accrued in India is subject to tax.
Employment income - Taxable income of an employee includes wages, salary, commissions, bonuses, pensions, directors' fees and other compensation for work performed. Compensation in kind for work or services is not taxable income for the employee and is not a deductible expense for the employer. However, this treatment does not apply to employees of the following:
Termination pay and lump sum pension payments are subject to final withholding tax at rates different to the usual income tax rates.
An Indonesian national who works overseas for more than 183 days within a 12 month period is not subject to tax on his or her employment income that is earned overseas and that is subject to tax overseas.
Self-employment income - Members of partnerships, firms and associations, as well as other individuals, may be subject to tax on self-employment or business income.
Self-employment and business income is combined with other income and taxed at the applicable income tax rates.
A self-employed business person may deduct from gross income ordinary expenses connected with earning income, including costs of materials, employee remuneration, bad debts, insurance premiums and administrative costs. Taxes other than income tax are deductible. If employee income taxes are borne by an employer, a grossing-up calculation must be made to claim the expense as a deduction from gross profit.
In general, losses may be carried forward for up to five years.
A spouse's business losses may be offset against the business profits of the other spouse.
Directors' fees - Directors' fees are included in taxable employment income.
Investment income - Dividends paid to individuals, rents, royalties and certain interest are subject to withholding tax at various rates. These types of investment income generally are combined with other income and taxed at the applicable income tax rates. However, the 20% withholding tax on interest derived from the following investments is a final withholding tax:
Income from the rental of land and buildings is subject to a final withholding tax at a rate of 10%.
Dividends paid to resident individuals are subject to a final withholding tax at a rate of 10%.
Taxation of employer-provided stock options - Employer-provided stock options are not taxable to an individual at the time of grant or exercise. Income tax at the individual's marginal tax rate is imposed at the time of sale on the difference between the sale price of the shares and the strike price. Sales of stock on the Indonesian stock exchange are also subject to a final withholding tax at a rate of 0.1% on the gross sale value of the stock.
Individuals are considered resident for tax purposes if they are present in Indonesia for more than 183 days within a 12 month period or if within the calendar tax year, they reside in Indonesia with the intent to stay.
Under a tax regulation which was issued on 12 January 2009, an Indonesian national who works overseas for more than 183 days within any 12 month period is considered a non-resident.
Capital gains are taxed at the same rates as business income and income from employment. Capital gains are added to income from other sources to arrive at total taxable income.
The transfer of shares listed on the stock exchange is subject to withholding tax at a rate of 0.1% of the gross value of the transfer if the transferred shares are ordinary shares. An additional tax at a rate of 0.5% of the share value is levied on sales of founder shares associated with a public offering. Both withholding taxes are final. Founder shareholders must pay the 0.5% tax within one month after the shares are listed. Founder shareholders who do not pay the tax by the due date are subject to income tax on the gains at the ordinary income tax rates.
Income tax on land and building transfer - A transfer of land and buildings is subject to final income tax on the deemed gain resulting from the transfer or sale. The tax is charged to the transferor (seller). The tax rate is 2.5% of the gross transfer value (tax base). However, for transfers of simple houses and simple apartments conducted by taxpayers engaged in the property development business, the tax rate is 1%. This tax must be paid on receipt of some or all payments for the transfer of rights to land and buildings. The income tax is calculated based on the amount of each payment received including the down payment, interest, collection fees and other additional payments made by the buyer with respect to the transfer of the land and building.
In general, a transfer of land and building rights is subject to duty on the acquisition of land and building rights (Bea Pengalihan Hak Atas Tanah dan Bangunan, or BPHTB). The duty is payable by the buyer or the party receiving or obtaining the rights. Qualifying land and building rights transfers include sale-purchase and trade-in transactions, grants, inheritances, contributions to corporations, rights separations, buyer designations in auctions and executions of court decisions with full legal force. Acquisitions of land and building rights in certain non-business transfers may be exempt from BPHTB.
The tax base for BPHTB is the Tax Object Acquisition Value (Nilai Perolehan Objek Pajak, or NPOP), which in most cases is the higher of the market (transaction) value of the NPOP of the land and building rights concerned. The tax due on a particular event is determined by applying the applicable duty rate of 5% to the relevant NPOP less an allowable non-taxable threshold. The non-taxable threshold amount varies by region. The maximum is IRD 60 million, except in the case of inheritance, for which it may reach IRD 300 million. The government may change the non-taxable threshold through regulation.
BPHTB is normally due on the date that the relevant deed of land and building rights transfer is signed before a public notary. The deed of rights transfer can be signed by a notary only if the BPHTB has been paid.
Withholding tax is levied on a variety of payments to residents. A self-employed professional, including an accountant, lawyer, architect or consultant, has tax withheld at source on the settlement of invoices. The withholding tax rate is 2% of the gross amount. Withholding tax is an advance payment of income tax.
Self-employed individuals must make monthly advance tax payments. The monthly payment amount is based on the previous year's tax liability, reduced by tax withheld at source during the preceding year. The payment is due on the 15th day of the month following the income month.
Non-resident foreign taxpayers are not required to file tax returns in Indonesia, unless they conduct business or activities in Indonesia through permanent establishments.
A taxpayer who has income derived outside Indonesia that is subject to taxation abroad is entitled to a credit, not to exceed the Indonesian tax payable on the foreign income.
Indonesia has entered into double tax treaties with 66 countries.
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