Accounting and tax reporting in Indonesia

While it is possible to get an audit exemption, companies in Indonesia are required to submit annual audited financial statements and corporate income tax returns to the country’s Taxation Office. Companies should also submit a monthly tax statement even if no business activities or tax liabilities have been recorded. Taxation in Indonesia is determined on the basis of residency. Apart from other taxes, the country also has a Value Added Tax (VAT) based on the Input and Output mechanism and currently stands at 10 percent.

Indonesia Corporate Income Tax:

A corporate income tax rate of 25 percent applies in Indonesia for both domestic and international incomes. A 5 percent lower than normal rate is applied to a company of which at least 40 percent of shares are traded on the stock exchange (IDX). Also, a 50 percent deduction from the normal rate is applied to companies with a gross turnover up to IDR 50 billion.

Do note that a foreign company that has a permanent establishment in Indonesia – and carries out business activities through this local entity – falls under the Indonesian tax regime. If the foreign company does not have a permanent establishment in Indonesia but does generate income through business activities in Indonesia, then it needs to settle its tax liabilities through the withholding of the tax by the Indonesian party paying the income. This is 20 percent but can be reduced by using tax treaty provisions, or exempt for services that qualify as business profits. Companies can also carry forward their losses for five years.

Indonesia Personal Income Tax:

Meanwhile, individuals who have resided in the country for at least 183 days per year, are taxed at progressive rates ranging from 5 to over 30 percent. A large part of individual income tax is collected through withholding by employers who are then obligated to pay this on to the Indonesian government. This withholding of income tax is done on a monthly basis from salaries and other compensation paid to the employees.

• up to IDR 50 million, tax rate is 5 percent
• over IDR 50 million to IDR 250 million, tax rate is 15 percent
• over IDR 250 million to IDR 500 million, tax rate is 25 percent
• over IDR 500 million, tax rate is 30 percent

Worthy to mention that Indonesian tax residents are taxed on their worldwide income, though foreign tax credits are available on foreign income of residents under certain conditions.

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