DOING BUSINESS IN INDONESIA 2018
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DOING BUSINESS IN INDONESIA 2018
Editors: Africa: Ridha Hamzaoui, Emily Muyaa Asia-Pacific: Mei-June Soo, Nina Umar Caribbean: Priscilla Lachman, Sandy van Thol Europe: Larisa Gerzova, Adrián Grant Hap, Ivana Kireta, Magdalena Olejnicka, Andreas Perdelwitz, Marnix Schellekens, Kristina Trouch, Ruxandra Vlasceanu Middle East: Ridha Hamzaoui Latin America: Vanessa Arruda Ferreira, Maria Bocachica, Diana Calderón Manrique, Lydia Ogazón Juárez North America: John Rienstra, Julie Rogers-Glabush IBFD Visitors’ address: Rietlandpark 301 1019 DW Amsterdam The Netherlands Postal address: P.O. Box 20237 1000 HE Amsterdam The Netherlands Tel.: 31-20-554 0100 www.ibfd.org © 2018 IBFD All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or trans- mitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the written prior permission of the publisher. Applications for permission to reproduce all or part of this publication should be directed to: permissions@ibfd.org. Disclaimer This publication has been carefully compiled by IBFD and/or its author, but no representation is made or warranty given (either express or implied) as to the completeness or accuracy of the information it contains. IBFD and/or the author are not liable for the information in this publication or any decision or consequence based on the use of it. IBFD and/or the author will not be liable for any direct or conse- quential damages arising from the use of the information contained in this publication. However, IBFD will be liable for damages that are the result of an intentional act (opzet) or gross negligence (grove schuld) on IBFD’s part. In no event shall IBFD’s total liability exceed the price of the ordered product. The information contained in this publication is not intended to be an advice on any particular matter. No subscriber or other reader should act on the basis of any matter contained in this publication without considering appropriate professional advice. Where photocopying of parts of this publication is permitted under article 16B of the 1912 Copyright Act jo. the Decree of 20 June 1974, Stb. 351, as amended by the Decree of 23 August 1985, Stb. 471, and article 17 of the 1912 Copyright Act, legally due fees must be paid to Stichting Reprorecht (P.O. Box 882, 1180 AW Amstelveen). Where the use of parts of this publication for the purpose of anthologies, readers and other compilations (article 16 of the 1912 Copyright Act) is concerned, one should address the publisher.
DOING BUSINESS IN
INDONESIA
ARGENTINA
JANUARY 2018
2013DOING BUSINESS IN INDONESIA 2018
INTRODUCTION
This publication has been prepared by the International Bureau of Fiscal Documen-
tation (IBFD) on behalf of BDO, its clients and prospective clients. Its aim is to
provide the essential background information on the taxation aspects of setting up
and running a business in this country. It is of use to anyone who is thinking of estab-
lishing a business in this country as a separate entity, as a branch of a foreign
company or as a subsidiary of an existing foreign company. It also covers the essen-
tial background tax information for individuals considering coming to work or live
permanently in this country.
This publication covers the most common forms of business entity and the taxation
aspects of running or working for such a business. For individual taxpayers, the
important taxes to which individuals are likely to be subject are dealt with in some
detail. We have endeavoured to include the most important issues, but it is not fea-
sible to discuss every subject in comprehensive detail within this format. If you
would like to know more, please contact the BDO firm(s) with which you normally
deal. Your adviser will be able to provide you with information on any further issues
and on the impact of any legislation and developments subsequent to the date men-
tioned at the heading of each chapter.
About BDO
BDO is an international network of public accounting, tax and advisory firms
which perform professional services under the name of BDO. The global fee
income of BDO firms, including the members of their exclusive alliances, was
US$8.1 billion in 2017. These firms have representation in 162 countries and ter-
ritories, with over 73,800 people working out of 1,500 offices worldwide.
BDO’s brand promise is to be the leader for exceptional client service - always,
and everywhere. When you choose to work with BDO you quickly discover why
we’re different from the rest. BDO offers a comprehensive collection of high
quality tax services and assets designed to support exceptional performance, and
all our tax engagements benefit from the hands-on involvement of experienced
professionals, backed by world-class resources. We are agile enough to handle
the biggest and the smallest names in the industries we serve, and our relation-
ship-driven culture means that we can provide responsive and personalised
advice to all our clients.
We work hard to understand our clients’ businesses and ensure that we match
both our service offering and our people to their complex individual needs. We
believe that providing our clients with access to experienced professionals who
are actively engaged in addressing their tax and business issues is the most reli-
able way to provide exceptional service, always with a strong focus on trust and
transparency.
Regardless of your location, size or international ambitions we can provide effec-
tive support as you expand into new areas of the world. In an ever-evolving eco-
nomic environment, businesses need a global organisation that provides
exceptional, bespoke service combined with local knowledge and expertise. BDO
is uniquely positioned to serve this demand, providing effective support and a
truly global integrated global footprint.
3DOING BUSINESS IN INDONESIA 2018
TABLE OF CONTENTS
CORPORATE TAXATION .......................................................................... 9
INTRODUCTION ...................................................................................... 9
1. CORPORATE INCOME TAX ..................................................................... 9
1.1. TYPE OF TAX SYSTEM ....................................................................... 9
1.2. TAXABLE PERSONS .......................................................................... 9
1.2.1. Residence .......................................................................... 9
1.3. TAXABLE INCOME ............................................................................ 10
1.3.1. General ............................................................................ 10
1.3.2. Exempt income ................................................................... 10
1.3.3. Deductions ......................................................................... 10
1.3.4. Depreciation and amortization ................................................ 11
1.3.5. Reserves and provisions ......................................................... 12
1.4. CAPITAL GAINS .............................................................................. 12
1.5. LOSSES ..................................................................................... 12
1.5.1. Ordinary losses ................................................................... 12
1.5.2. Capital losses ..................................................................... 12
1.6. RATES ...................................................................................... 13
1.6.1. Income and capital gains ........................................................ 13
1.6.2. Withholding taxes on domestic payments .................................... 13
1.7. INCENTIVES ................................................................................. 14
1.8. ADMINISTRATION ............................................................................ 14
1.8.1. Taxable period .................................................................... 14
1.8.2. Tax returns and assessment .................................................... 15
1.8.3. Payment of tax ................................................................... 15
1.8.4. Rulings ............................................................................. 15
2. TRANSACTIONS BETWEEN RESIDENT COMPANIES ......................................... 15
2.1. GROUP TREATMENT ......................................................................... 15
2.2. INTERCOMPANY DIVIDENDS ................................................................... 15
3. OTHER TAXES ON INCOME .................................................................... 15
3.1. REGIONAL AND LOCAL TAXES ................................................................ 15
3.2. TAX ON OIL AND GAS CONTRACTS ........................................................... 16
3.3. TAX ON MINING CONTRACTS ................................................................. 16
3.4. BRANCH PROFITS TAX ....................................................................... 16
3.5. OTHERS ..................................................................................... 16
4. TAXES ON PAYROLL ............................................................................ 16
4.1. PAYROLL TAX ............................................................................... 16
4.2. SOCIAL SECURITY CONTRIBUTIONS ........................................................... 16
5. TAXES ON CAPITAL ............................................................................. 17
5.1. NET WORTH TAX ............................................................................ 17
5.2. REAL ESTATE TAX ........................................................................... 17
5.2.1. Land and building tax ........................................................... 17
5.2.2. Transfer of land and buildings ................................................. 17
5.3. OTHER TAXES ............................................................................... 18
6. INTERNATIONAL ASPECTS ..................................................................... 18
6.1. RESIDENT COMPANIES ....................................................................... 18
6.1.1. Foreign income and capital gains .............................................. 18
6.1.2. Foreign losses ..................................................................... 18
6.1.3. Foreign capital .................................................................... 19
6.1.4. Double taxation relief ........................................................... 19
6.2. NON-RESIDENT COMPANIES .................................................................. 19
6.2.1. Taxes on income and capital gains ............................................ 19
5DOING BUSINESS IN INDONESIA 2018 TABLE OF CONTENTS
6.2.2. Taxes on capital .................................................................. 19
6.2.3. Administration .................................................................... 20
6.3. WITHHOLDING TAXES ON PAYMENTS TO NON-RESIDENT COMPANIES ........................... 20
6.3.1. Dividends .......................................................................... 20
6.3.2. Interest ............................................................................ 20
6.3.3. Royalties ........................................................................... 20
6.3.4. Other ............................................................................... 20
6.3.5. Withholding tax rates chart .................................................... 20
7. ANTI-AVOIDANCE ............................................................................... 23
7.1. GENERAL ................................................................................... 23
7.2. TRANSFER PRICING .......................................................................... 23
7.3. THIN CAPITALIZATION ....................................................................... 24
7.4. CONTROLLED FOREIGN COMPANY ............................................................ 25
8. VALUE ADDED TAX ............................................................................. 25
8.1. GENERAL ................................................................................... 25
8.2. TAXABLE PERSONS .......................................................................... 25
8.3. TAXABLE EVENTS ............................................................................ 25
8.4. TAXABLE AMOUNT ........................................................................... 26
8.5. RATES ...................................................................................... 26
8.6. EXEMPTIONS ................................................................................ 26
8.7. NON-RESIDENTS ............................................................................. 27
8.8. OTHER ...................................................................................... 27
9. MISCELLANEOUS TAXES ....................................................................... 27
9.1. CAPITAL DUTY .............................................................................. 27
9.2. TRANSFER TAX .............................................................................. 27
9.2.1. Immovable property ............................................................. 27
9.2.2. Shares, bonds and other securities ............................................ 27
9.3. STAMP DUTY ................................................................................ 27
9.4. CUSTOMS DUTY ............................................................................. 28
9.5. EXCISE DUTY ................................................................................ 28
9.6. OTHER TAXES ............................................................................... 28
9.6.1. Tax on luxury goods .............................................................. 28
INDIVIDUAL TAXATION ........................................................................... 29
INTRODUCTION ...................................................................................... 29
1. INDIVIDUAL INCOME TAX ...................................................................... 29
1.1. TAXABLE PERSONS .......................................................................... 29
1.2. TAXABLE INCOME ............................................................................ 29
1.2.1. General ............................................................................ 29
1.2.2. Exempt income ................................................................... 30
1.3. EMPLOYMENT INCOME ....................................................................... 30
1.3.1. Salary ............................................................................... 30
1.3.2. Benefits in kind ................................................................... 31
1.3.3. Pension income ................................................................... 31
1.3.4. Directors’ remuneration ........................................................ 31
1.4. BUSINESS AND PROFESSIONAL INCOME ....................................................... 31
1.5. INVESTMENT INCOME ........................................................................ 31
1.6. CAPITAL GAINS .............................................................................. 31
1.7. PERSONAL DEDUCTIONS, ALLOWANCES AND CREDITS ......................................... 32
1.7.1. Deductions ......................................................................... 32
1.7.2. Allowances ........................................................................ 32
1.7.3. Credits ............................................................................. 32
1.8. LOSSES ..................................................................................... 32
6TABLE OF CONTENTS DOING BUSINESS IN INDONESIA 2018
1.9. RATES ...................................................................................... 33
1.9.1. Income and capital gains ........................................................ 33
1.9.2. Withholding taxes ................................................................ 33
1.9.2.1. Dividends ............................................................. 34
1.9.2.2. Interest ............................................................... 34
1.9.2.3. Royalties .............................................................. 34
1.9.2.4. Others ................................................................. 34
1.10. ADMINISTRATION ............................................................................ 35
1.10.1. Taxable period .................................................................... 35
1.10.2. Tax returns and assessment .................................................... 35
1.10.3. Payment of tax ................................................................... 35
1.10.4. Rulings ............................................................................. 35
2. OTHER TAXES ON INCOME .................................................................... 35
2.1. REGIONAL AND LOCAL TAXES ................................................................ 35
2.2. OTHERS ..................................................................................... 36
3. SOCIAL SECURITY CONTRIBUTIONS .......................................................... 36
4. TAXES ON CAPITAL ............................................................................. 37
4.1. NET WEALTH TAX ........................................................................... 37
4.2. REAL ESTATE TAX ........................................................................... 37
4.2.1. Land and building tax ........................................................... 37
4.2.2. Transfer of land and buildings ................................................. 37
5. INHERITANCE AND GIFT TAXES ............................................................... 37
5.1. TAXABLE PERSONS .......................................................................... 37
5.2. TAXABLE BASE .............................................................................. 37
5.3. PERSONAL ALLOWANCES ..................................................................... 37
5.4. RATES ...................................................................................... 37
5.5. DOUBLE TAXATION RELIEF ................................................................... 37
6. INTERNATIONAL ASPECTS ..................................................................... 38
6.1. RESIDENT INDIVIDUALS ...................................................................... 38
6.1.1. Foreign income and capital gains .............................................. 38
6.1.2. Foreign capital .................................................................... 38
6.1.3. Double taxation relief ........................................................... 38
6.2. EXPATRIATE INDIVIDUALS .................................................................... 38
6.3. NON-RESIDENT INDIVIDUALS ................................................................. 39
6.3.1. Taxes on income and capital gains ............................................ 39
6.3.2. Taxes on capital .................................................................. 39
6.3.3. Inheritance and gift taxes ...................................................... 39
6.3.4. Administration .................................................................... 40
KEY FEATURES ..................................................................................... 41
7CORPORATE TAXATION DOING BUSINESS IN INDONESIA 2018
INDONESIA
This chapter is based on information available up to 1 January 2018
Introduction
Indonesia is a republic and includes 34 provinces, 1 special region and 1 special capital
city region.
Companies are subject to income tax, which is levied on corporate profits as well as
capital gains; there is no separate capital gains tax. Value added tax (VAT) and a sales
tax on luxury goods are also imposed.
The main tax legislations on income tax and indirect tax are the Income Tax Law and
the Law on Value Added Tax and Luxury Goods Sales Tax. The tax administration agency
is the Direktorat Jenderal Pajak or the Directorate General of Tax (DGT).
Social security contributions are required to be made by employers and their employ-
ees.
The currency is the Indonesian rupiah (IDR).
1. Corporate Income Tax
1.1. Type of tax system
Indonesia operates a classical system of taxation, whereby dividends are first taxed at
the corporate level, and again in the hands of the shareholders.
Intercorporate dividends may be exempt, subject to conditions.
1.2. Taxable persons
Corporate income tax is levied on all legal entities resident in or having a permanent
establishment in Indonesia. Legal entities include limited liability companies (PT),
partnerships, foundations, representative offices, pension funds and cooperatives.
Specified international organizations and their representatives are exempt from tax.
Foreign direct investors must use a foreign direct investment company (Penanaman
Modal Asing or PMA) for the conduct of business in Indonesia, or appoint an agent or
distributor to engage in trading activities. Foreign companies generally cannot
conduct operations through a branch office, except in permitted sectors. This chapter
is largely restricted to limited liability companies (PTs) with domestic as well as
foreign capital. These entities will be referred to as companies.
Partnerships are separate taxable persons, i.e. profits are taxed at the partnership
level, and exempt in the hands of the partners.
1.2.1. Residence
A company is resident in Indonesia if:
– it is stated in the articles of incorporation that its domicile is in Indonesia;
– its head office, central administration or central financial office is in Indonesia;
– it has a controlling office in Indonesia that undertakes management activities;
– its board meetings, at which strategic decisions are made, are held in Indonesia; or
– its management members reside or are domiciled in Indonesia.
9DOING BUSINESS IN INDONESIA 2018 CORPORATE TAXATION
1.3. Taxable income
1.3.1. General
Resident companies are subject to income tax on their worldwide income, including
capital gains.
Income is any increase in economic capability of a taxpayer which is used for consump-
tion or which increases his wealth, and includes business profits and capital gains from
the sale/transfer of assets obtained during the tax year.
Taxable income is determined after subtracting allowable deductions.
Taxpayers may elect to adopt either the accrual or cash basis of accounting, as long as
it is consistently applied.
1.3.2. Exempt income
The following types of income are exempt from income tax:
– donations (including zakat) received by charitable organizations;
– grants of assets received by family members, religious, small-scale, educational or
social organizations, and approved cooperatives;
– inheritances;
– assets including cash payments as compensation for shares or investment;
– compensation for work or services received in kind and/or in the form of privileges;
– certain dividends or share of profits received by limited companies, cooperatives,
state-owned enterprises and regional government-owned enterprises from invest-
ment in business entities established and domiciled in Indonesia, subject to certain
conditions;
– fees received or earned by approved pension funds;
– income from capital invested by pension funds;
– share of profits received or earned by members of limited partnerships;
– income received or earned by venture capital firms;
– education scholarships received by Indonesian citizens;
– surplus earned by non-profit entities engaged in education and research and devel-
opment sectors, provided certain conditions are met; and
– aid or assistance provided by the Social Security Operating Board to certain tax-
payers.
1.3.3. Deductions
An expense is allowed as a deduction if it is incurred for the purposes of earning,
recovering or securing income. Deductible expenses include business expenses, depre-
ciation and amortization, contributions to an approved pension fund, social security
contributions, losses from the sale or transfer of assets, foreign exchange losses, costs
relating to research and development, and bad debts. Taxes other than income tax are
deductible.
Non-deductible items include distribution of profits such as dividends, expenses
incurred for the personal needs of shareholders, and the accumulation of reserves and
amounts beyond a reasonable limit paid to shareholders or related parties for work.
10CORPORATE TAXATION DOING BUSINESS IN INDONESIA 2018
Interest is generally deductible. However, if the debt-to-equity ratio exceeds reason-
able limits, the law assumes the existence of disguised capital and the interest may be
disallowed. The Director General of Taxes is also authorized to recharacterize debt as
equity in related-party transactions. A deduction may also not be allowed for interest
paid on loans the funds from which are placed in interest-earning deposits/savings, or
loans used to purchase shares if the dividends from the shares are exempt.
Royalty payments are deductible, with the exception of royalty paid by a permanent
establishment to its head office.
Valuation of inventory
Inventory may be valued at acquisition or manufactured cost using either the average
cost or FIFO method. Once a system is applied, it must be used consistently and con-
tinuously. A change in method is allowed under limited circumstances.
The LIFO method is not allowed.
1.3.4. Depreciation and amortization
Expenditure incurred on assets or intangible property with a useful life of more than 1
year must be amortized or depreciated. The taxpayer may opt to depreciate or amor-
tize such assets using either the straight-line or declining-balance methods. Buildings
must be depreciated under the straight-line method. Land cannot be depreciated in
general.
All depreciable property is categorized into four groups according to useful economic
life:
– Group 1: furniture constructed of wood or rattan, office equipment, computers and
related equipment in the agriculture, farming, forestry and fishery industries, light
machinery for the food and beverage industries, motorcars, motorcycles, bicycles,
forklifts and light truck pallets, dyes, jigs and moulds;
– Group 2: furniture and metal ware, air conditioners, cars, buses, trucks, speed-
boats, containers, agriculture-related machinery, plantation, forestry, fishery,
food and beverage industries, logging and construction equipment, vehicles for
transportation, warehousing and communication including trucks, buses, passen-
ger and freight ships, telecommunication equipment and equipment for the semi-
conductor industry;
– Group 3: machinery for general mining other than oil and natural gas, textile-
related machinery, timber and chemical industries, heavy equipment, floating
docks and vessels for transportation and communication, and assets not included in
the other groups; and
– Group 4: construction heavy machinery, locomotives, railway coaches, heavy
vessels and floating docks.
The depreciation rates and useful lives are as follows:
Group Declining-balance (%) Straight-line (%) Useful life (years)
1 50 25 4
2 25 12.5 8
3 12.5 6.25 16
4 10 5 20
11DOING BUSINESS IN INDONESIA 2018 CORPORATE TAXATION Group Declining-balance (%) Straight-line (%) Useful life (years) Buildings: – permanent – 5 20 – non-permanent – 10 10 Depreciation should commence in the month expenditure is incurred or when the prop- erty starts to yield income (subject to approval from the tax authorities). 1.3.5. Reserves and provisions Reserves and provisions for anticipated but unrealized losses are not permitted. Amounts used to create or increase reserves are not deductible, except loan loss pro- visions by banks, finance lease companies, consumer financing activities and factoring businesses, reserves for insurance enterprises, guarantee reserves for deposit under- writing institutions and reserves for reclamation costs of mining, forestry and waste treatment enterprises. A business must deduct bad debts directly from taxable profits and is not allowed to create a reserve for doubtful debts. 1.4. Capital gains There is no separate tax on capital gains, which are included in ordinary taxable income and calculated under normal income taxation rules. Transactions subject to tax include a transfer of land and buildings, gains accruing to a corporation from distributions on liquidation or corporate restructuring, disposal of shares, sale/transfer of intangible property or rights, and sale/transfer of mining con- cessions or participation rights. See section 6.3.4. for the disposal of shares by a non-resident in an Indonesian limited liability company. 1.5. Losses 1.5.1. Ordinary losses Net losses are the amount by which allowable deductions exceed gross income. In gen- eral, net losses include operating losses as well as capital losses, unless the latter are expressly disallowed. Losses can be carried forward for 5 years without any restriction, and deducted against future profits. In the case of certain industries specified by the Ministry of Finance, losses may be carried forward up to 10 years. In the case of a merger, net losses can be transferred to the surviving company, subject to certain conditions. Losses may not be carried back. 1.5.2. Capital losses Since there is no separate tax on capital gains, there is no distinction between ordinary losses and capital losses. Losses from the sale or transfer of property or rights used in a business or to earn income are deductible. A capital loss incurred in the disposal of shares is also deduct- ible. 12
CORPORATE TAXATION DOING BUSINESS IN INDONESIA 2018
1.6. Rates
1.6.1. Income and capital gains
Resident companies are taxed at a flat rate of 25% from the fiscal year 2010 (previ-
ously, 28% for the fiscal year 2009).
The tax rate for listed entities can be reduced by 5% where at least 40% of the issued
and paid-up share capital is held by 300 or more public shareholders, each of whom
owns less than 5%, for a period of more than 183 days.
Businesses with gross income (turnover) below IDR 4.8 billion enjoy a 50% reduction in
tax rates, provided they are not subject to the final income tax rate for small or
medium enterprises or other types of income. For businesses earning gross income
between IDR 4.8 billion and IDR 50 billion, the 50% reduced tax rate is applied to a pro-
portion of taxable profit equal to the IDR 4.8 billion threshold divided by total gross
income.
Companies classified as small or medium-sized enterprises, whose gross income does
not exceed IDR 4.8 billion in one fiscal year, are subject to a final income tax rate of 1%
on gross income. The rate does not apply to a permanent establishment and any losses
suffered cannot be set off against future profits.
Capital gains from the disposal of shares listed on the stock exchange are subject to
final tax at 0.1% on the gross value of the transaction. The disposal of founders’ shares,
except those of business partnership companies owned by venture capital companies,
are subject to tax at 0.1% plus 5% of the gross value of the transaction. Gains derived
by venture capital companies from the sale of shares or investments in domestic com-
panies engaged in certain priority business areas are also subject to final tax of 0.1%.
Income from the transfer or disposal of land and buildings is subject to a final income
tax rate of 2.5% (5% prior to 7 September 2016) of the selling price. A reduced rate of
1% applies to corporate taxpayers whose main business is the transfer of modest
houses or modest flats.
There are no surtaxes or surcharges.
1.6.2. Withholding taxes on domestic payments
Dividends, interest, rent and royalties are generally subject to a creditable withhold-
ing tax at 15%.
From 28 December 2015, a lower final withholding tax is levied on interest from time
deposits, savings or Bank Indonesia Certificate discounts where the funds are sourced
from export proceeds (devisa hasil ekspor) and are placed in Indonesian banks (includ-
ing Indonesian branches of overseas banks). The withholding tax rate for qualifying
deposits in US dollars ranges from 10% (1 month’s deposit) to 0% (deposit of 6 months
or more). Qualifying deposits in Indonesian rupiah are subject to withholding tax rates
ranging from 7.5% (1 month’s deposit) to 0% (deposit of 6 months or more). Interest
from all other deposits, savings and Bank Indonesia Certificate discounts is subject to
a final withholding tax of 20%.
A withholding tax of 2% is imposed on all types of services including the rental of prop-
erty (other than land and buildings, which is subject to a final withholding tax of 10%),
technical, management, construction, consultancy and other services, regardless of
the place of performance. With effect from 9 April 2007, interconnection services
including non-public telecommunication services are not subject to withholding tax.
13DOING BUSINESS IN INDONESIA 2018 CORPORATE TAXATION
Construction execution services are subject to a final withholding tax ranging from 2%
to 6% on gross income. The transfer of land and buildings is subject to a withholding tax
of 5% on the selling price. A tax rate of 1% applies to corporate taxpayers whose main
business is the transfer of modest houses or modest flats.
Certain taxpayers can apply for an exemption from withholding tax by obtaining an
exemption letter or Surat Keterangan Bebas (SKB). These taxpayers include:
– taxpayers that suffer fiscal losses such as a newly established company that is still
in the investment rather than production phase or has experienced force majeure;
– taxpayers that can prove that they will not have any tax payable as a result of the
offsetting of fiscal losses;
– taxpayers that can prove that the income tax paid and/or to be paid will exceed
the income tax payable; and
– taxpayers that will be subject to final tax on their entire income.
If a taxpayer does not have a tax identification number (NPWP), the withholding taxes
on dividend, interest, royalty, technical fees and certain rents are increased by 100%.
See section 6.3. for withholding rates on payments to non-residents.
1.7. Incentives
Companies operating in pioneer industries are entitled to income tax holidays for 5 to
15 years. Companies that invest capital in certain sectors and/or in certain regions
may be granted the following tax incentives:
– a reduction of net taxable income of up to 30%, depending on the amount invested;
– accelerated depreciation which may be carried forward for up to 10 years if not uti-
lized;
– extended loss carry-forward of up to 10 years; and
– a reduction of withholding tax on dividends to 10%, unless a lower rate applies (e.g.
under a tax treaty).
Companies located in special economic zones are entitled to an exemption of VAT and
import duties on the import of capital goods, raw materials and other equipment
directly connected with the production activity, the option to use accelerated depre-
ciation rates on buildings and other tangible or intangible assets, utilization of prior
year losses for an extended period of 8 or 10 consecutive years.
Companies engaged in the export of manufactured products are eligible for exemp-
tions from import duty, excise duty, value added tax, sales tax on luxury goods and the
advance withholding income tax on the import of raw materials, machinery parts and
other goods for the purposes of processing into goods for export. Industrial companies
located in bonded zones are also accorded similar investment incentives.
1.8. Administration
1.8.1. Taxable period
The tax year is the calendar year, but persons carrying on a business may substitute
their financial year, provided it is a 12-month period. If a business makes up its
accounts for years other than the calendar year, it is assessed for each calendar year
on the basis of its accounting period.
14CORPORATE TAXATION DOING BUSINESS IN INDONESIA 2018
1.8.2. Tax returns and assessment
Indonesia operates a self-assessment system whereby all companies are required to
complete a tax return and compute tax liability not later than 4 months after the end
of the calendar year or tax year.
An annual income tax return that is incomplete will be deemed not to have been sub-
mitted.
1.8.3. Payment of tax
Companies are required to pay monthly tax instalments during the year, based on the
preceding year’s tax return.
The prepayments and any taxes withheld during the tax year will be credited against
the final income tax liability. The balance of tax due for a tax year must be paid before
the tax return is lodged.
If the tax liability is less than the total tax credits available, the excess tax payments
are refunded.
1.8.4. Rulings
There are no provisions for advance rulings.
2. Transactions between Resident Companies
2.1. Group treatment
There are no specific provisions for group taxation of affiliated enterprises.
2.2. Intercompany dividends
An exemption from income tax is granted on dividends received or derived by a resi-
dent company, cooperative or state-owned enterprise from participation in another
company established in Indonesia, subject to the following conditions:
– the dividends are from retained earnings; and
– the recipient company has at least 25% shareholding in the company distributing
the dividends.
3. Other Taxes on Income
3.1. Regional and local taxes
Pursuant to Regional Tax Law 28/2009, local governments collect regional and local
taxes, and the proceeds are used to finance expenditures of the province, regency or
municipality. These taxes vary from region to region. The main taxes levied by regional
and local authorities are:
– provincial taxes: motor vehicle tax, duty on transfer of motor vehicles, motor
vehicle fuel tax, surface water tax, cigarette tax; and
– municipal/city taxes: entertainment tax, hotel tax, restaurant tax, advertisement
tax, mineral tax (non-metal and stone), groundwater tax, parking tax, street lights
tax, swallows’ nest tax, land and building tax (see section 5.2.1.), land and building
title acquisition duty (see section 9.2.).
Based on the law, a regional government can determine its own tax rate for certain
regional taxes, provided it is not higher than the maximum rate stipulated by the law.
15DOING BUSINESS IN INDONESIA 2018 CORPORATE TAXATION
3.2. Tax on oil and gas contracts
Contractors in the oil and gas industry are generally subject to the 2001 Oil and Gas
Law, which stipulates that:
– contractors are subject to all applicable taxes, import levies and regional taxes;
and
– tax obligations will depend on the prevailing tax law, although tax rates are nor-
mally fixed for the duration of the contract (in practice, production sharing con-
tracts have fixed tax rates on profits).
VAT is payable on the import of goods and equipment used in contract activities. No
import duty or income tax prepayment is imposed (with limited exceptions) on the
import of goods and equipment used directly in contract activities, whether for per-
manent or temporary import.
3.3. Tax on mining contracts
Only the government and state enterprises may hold mining rights and contractors nor-
mally enter into a contract of work or Coal Cooperation Agreement. The contract or
agreement may set out the income tax rates that will be applicable for the entire dura-
tion of the contract or agreement, which is normally 30 years from the commencement
of commercial operations.
3.4. Branch profits tax
Permanent establishments are generally subject to branch profits tax at 20% on direct
and indirect remittances to the overseas parent company, unless all of its after-tax
profits are reinvested in Indonesia and certain other conditions are met, in which case
no tax is levied.
3.5. Others
Other taxes and charges include charges on exploitation of forests and tax on revalued
assets.
4. Taxes on Payroll
4.1. Payroll tax
Employment income, pensions and other similar kinds of periodical payments are
subject to withholding tax on a monthly basis. Persons who are liable to withhold tax
(e.g. employers, government treasurer, pension funds) must pay the monthly taxes
withheld within 10 days from the end of a taxable month. The withholding tax is not
final.
4.2. Social security contributions
From 1 January 2014, the National Social Security System (Sistem Jaminan Sosial Nasi-
onal, or SJSN) is administered by Badan Penyelenggara Jaminan Sosial (BPJS). BPJS
will basically be divided into BPJS Healthcare (BPJS Kesehatan) for health insurance
and BPJS Employment (BPJS Ketenagakerjaan) for employment benefits, i.e. work
accident compensation, old age compensation and death compensation. Effective
from 1 July 2015, a new pension insurance was introduced under BPJS Ketenagaker-
jaan.
The SJSN covers all Indonesian citizens, including expatriates who stay in Indonesia for
more than 6 months who will be required to join the new social security programme for
health care.
16CORPORATE TAXATION DOING BUSINESS IN INDONESIA 2018
The previous general social security programme, Jaminan Sosial Tenaga Kerja (Jam-
sostek), will be continued by BPJS as the social security provider from 1 January 2014.
Existing employment benefits coverage under Jamsostek will be transferred to BPJS
Employment by 1 July 2015.
The monthly health care premium under BPJS Healthcare (from 1 July 2015) is 5% of
monthly income, of which 4% is borne by the employer and 1% by the employee. Effec-
tive from 1 April 2016, premium contributions are calculated based on a maximum
monthly income of IDR 8 million. Prior to 1 April 2016, the maximum monthly wage
threshold was IDR 4,725,000. Employees who have been registered under the workers’
health compensation programme (Jaminan Pemeliharaan Kesehatan) of Jamsostek
will already be registered under BPJS, starting from 1 January 2014.
Under BPJS K etenagakerjaan, employers’ contribution rates for employment benefits
are (% of salary):
– workers’ accident compensation: 0.24%-1.74%;
– workers’ old-age compensation: 3.7%;
– workers’ death compensation: 0.3%; and
– worker’s pension compensation: 2% (subject to a maximum salary base of IDR
7,335,300 per month, thus a maximum contribution of IDR 146,706 per month).
Daily workers and persons temporarily employed by contractors are covered by other
social security regulations. Contributions depend on industry groups and the type of
compensation (i.e. accident, old age, health or death).
5. Taxes on Capital
5.1. Net worth tax
Information on the assets and liabilities of a resident company must be disclosed in the
tax return so that the DGT can keep track of its net worth. If the net wealth exceeds a
prescribed threshold, the excess is taxable income.
5.2. Real estate tax
5.2.1. Land and building tax
The land and building tax is an annual property tax levied on land and buildings situ-
ated in Indonesia, at 0.5% of the assessment value. The assessment value of the
taxable property is determined as a percentage of the deemed fair market value.
From 1 January 2014, a deemed fair market sales value of up to IDR 12 million is
excluded from the taxable base of the land and building tax (previously, the non-
taxable threshold was IDR 24 million).
The land and building tax for rural and urban areas is administered by the regional gov-
ernments, while land and building tax for other sectors, e.g. mining and forestry, is
administered by the central government through the DGT.
5.2.2. Transfer of land and buildings
See section 9.2.
17DOING BUSINESS IN INDONESIA 2018 CORPORATE TAXATION 5.3. Other taxes Business tax on capital The government periodically issues regulations on the non-tax levies charged on reg- istration procedures, documents and services by respective ministries, agencies and departments. Regional governments also charge standard levies and fees. The following are examples of non-tax levies that businesses are normally subject to, in order to establish a business presence in Indonesia. Business registration fee All businesses operating in Indonesia must be registered with the Registrar’s Office at the location in which the business is carried on (Law 3 of 1 February 1982). The fees for registration range from IDR 100,000 to IDR 500,000 (Minister of Industry and Trade Decree 597/MPP/Kep/9/2004 of 23 September 2004). A business registration certifi- cate is valid for 5 years. Administration fee An administration fee is payable by any enterprise that has received approval to acquire a business permit. For example, a representative office licensed by the Ministry of Public Works is subject to a fee of USD 5,000 for the employment of a construction consultant and USD 10,000 for a contractor (Decree 50/PRT.1991 of 7 February 1991). The fee is also payable upon licence renewals and is not refundable if the representative office ceases operations. Guarantee fee Certain commercial enterprises are required to pay a guarantee fee on receipt of an approval to acquire a business permit. The guarantee fee for domestic enterprises varies according to the area and the field of operations. The guarantee fee for foreign enterprises is IDR 50,000 (Decree 03/KP/1/74 of 8 January 1974). For example, the guarantee fee paid to the Ministry of Trade for the establishment of a representative office is IDR 1 million or IDR 5 million, depending on whether the chief representative is Indonesian or a foreigner. 6. International Aspects 6.1. Resident companies See section 1.2.1. for residence rules. 6.1.1. Foreign income and capital gains Resident companies are generally subject to income tax on their worldwide income, including capital gains. The tax treatment for foreign income is generally the same as for Indonesia-sourced income (see sections 1.3. to 1.8.). In relation to dividends received from foreign entities, the Ministry of Finance may stipulate the period during which the dividends are deemed to be received and are taxable. This authority arises where the recipient of the dividend has capital partici- pation of more than 50% in the paying entity, and is not engaged in the trading of shares on an organized exchange as a business activity. 6.1.2. Foreign losses Foreign losses are not deductible. 18
CORPORATE TAXATION DOING BUSINESS IN INDONESIA 2018
6.1.3. Foreign capital
Property located abroad is not subject to property tax in Indonesia (see section 5.1. on
net wealth tax).
6.1.4. Double taxation relief
An ordinary tax credit is granted, both unilaterally and under tax treaties, in respect of
foreign tax paid on income derived from foreign sources. The amount of the credit is
limited to the amount of Indonesian tax otherwise payable on the foreign income. A
country-by-country limitation applies, in that the credit for foreign tax paid on income
from one country is limited to the amount of Indonesian tax otherwise payable on the
income from the same country.
Credit for underlying tax is not granted.
Foreign losses are not taken into account in the computation of the credit.
Under the tax treaties concluded by Indonesia, treaty benefits are available where the
recipient of income is the beneficial owner of such income, which is defined as the
actual owner of the income in the form of dividends, interest and/or royalties,
whether an individual or corporate taxpayer, who is fully entitled to directly enjoy the
benefits of such income.
Although not stated in the law, it is generally accepted that tax treaties take prece-
dence over national law. See section 6.3.5. for a list of tax treaties in force.
6.2. Non-resident companies
A non-resident company is defined as an entity established or incorporated overseas
that does not meet the criteria of a tax resident (see section 1.2.1.).
6.2.1. Taxes on income and capital gains
Non-residents are assessed only on income derived or received from Indonesia, includ-
ing capital gains. A final withholding tax is imposed on gross income (see section 6.3.).
The legislation does not address the question of where dividends, interest and royal-
ties are considered to have their source.
Permanent establishments of foreign organizations are deemed to be resident in Indo-
nesia and are subject to tax on the following income:
– income from its business activities, property controlled or owned by it or a share
participation which it administers; and
– income of the head office from the business or activities, sales of goods, or services
rendered in Indonesia which are similar to that conducted by the permanent estab-
lishment in Indonesia (force-of-attraction principle).
The taxable income of permanent establishments is generally subject to tax under the
normal income taxation rules for residents, including allowable deductions and tax
rates (see sections 1.3. to 1.7.).
6.2.2. Taxes on capital
There is no net worth tax. Non-resident companies are subject to land and building tax
on property owned in Indonesia, and land and building acquisition duty in relation to
the transfer of buildings in Indonesia (see section 5.2.).
19DOING BUSINESS IN INDONESIA 2018 CORPORATE TAXATION 6.2.3. Administration If income received is subject to final withholding tax and the tax is properly withheld, there should be no filing requirements (see section 6.3.). Otherwise, the requirements for non-residents to file tax returns are the same as for residents. See section 1.8. for tax compliance and administration. Non-residents may request a tax refund arising from incorrect withholding on non-tax objects, or withholding or collection of tax which is higher than that provided under a tax treaty. 6.3. Withholding taxes on payments to non-resident companies 6.3.1. Dividends Dividends paid to non-residents are subject to a final withholding tax of 20% on the gross amount. 6.3.2. Interest Interest paid to non-residents is subject to a final withholding tax of 20% on the gross amount. 6.3.3. Royalties Royalties paid to non-residents are subject to a final withholding tax of 20% on the gross amount. 6.3.4. Other Rental income and technical and management fees paid to non-residents are subject to a final withholding tax of 20% on the gross amount. A final withholding tax is imposed on all types of services, regardless of the place of performance, at rates ranging from 0% to 15%. Capital gains derived by non-residents from the sale of shares in an unlisted Indonesian limited liability company are subject to a final withholding tax of 20%. The estimated net income is 25% of the sale proceeds, resulting in an effective tax rate of 5% (subject to the provisions of the applicable tax treaties). The withholding tax will not be imposed if the value of the unlisted shares for each sale transaction is not more than IDR 10 million. The 5% tax also applies to a “deemed gain” that arises upon the disposal of shares in a foreign company established or resident in a foreign country that acts as a conduit to hold shares in an unlisted Indonesian company. The effective final withholding tax of 5% also applies on the sale of grand decorative items, jewellery, antiques, paintings and vehicles valued at more than IDR 10 million. 6.3.5. Withholding tax rates chart The following chart contains the withholding tax rates that are applicable to dividend, interest and royalty payments from Indonesia to non-residents under the tax treaties in force as at the date of review. Where, in a particular case, a treaty rate is higher than the domestic rate, the latter is applicable. If the treaty provides for a rate lower than the domestic rate, the reduced treaty rate may be applied at source if the appro- priate residence certificate has been presented to the withholding agent making the payment. 20
CORPORATE TAXATION DOING BUSINESS IN INDONESIA 2018
Dividends Interest1 Royalties
Individuals, Qualifying
companies companies2
(%) (%) (%) (%)
Domestic Rates
Companies: 20 20 20 20
Individuals: 20 n/a 20 20
Treaty Rates
Treaty With:
Algeria 15 15 15 153
Armenia 15 10 10 10
Australia 15 15 10 104/15
Austria 15 10 10 10
Bangladesh 15 10 10 10
Belgium 15 10 10 10
Brunei 15 15 15 15
Bulgaria 15 15 10 10
Canada 15 10 10 105
China (People’s Rep.) 10 10 10 103
Croatia 10 10 10 10
Czech Republic 15 106 12.5 12.5
Denmark 20 10 10 15
Egypt 15 15 15 153
Finland 15 10 10 107/15
France 15 10 108/15 10
Germany 15 10 10 104/15
Hong Kong 10 5 10 5
Hungary 15 15 15 15
India 10 10 10 10
Iran 7 7 10 12
Italy 15 10 10 104/15
Japan 15 10 10 10
Jordan 10 10 10 10
Korea (Rep.) 15 10 10 15
Korea (Dem. People’s
Rep.) 10 10 10 10
Kuwait 10 10 5 20
Laos 15 109 10 10
Luxembourg 15 10 10 12.5
Malaysia 10 10 10 10
Mexico 10 10 10 103
Mongolia 10 10 10 10
Morocco 10 10 10 10
Netherlands 10/1510 5 5/1011 10
New Zealand 15 15 10 15
Norway 15 15 10 1012/15
21DOING BUSINESS IN INDONESIA 2018 CORPORATE TAXATION
Dividends Interest1 Royalties
Individuals, Qualifying
companies companies2
(%) (%) (%) (%)
Pakistan 15 10 15 15
Papua New Guinea 15 15 10 10
Philippines 20 15 15 15
Poland 15 106 10 153
Portugal 10 10 10 10
Qatar 10 10 10 5
Romania 15 12.5 12.5 12.512/15
Russia 15 15 15 153
Seychelles 10 10 10 10
Singapore 15 10 10 15
Slovak Republic 10 10 10 1013/15
South Africa 15 109 10 103
Spain 15 10 10 10
Sri Lanka 15 15 15 15
Sudan 10 10 15 10
Suriname 15 15 15 15
Sweden 15 10 10 104/15
Switzerland 1514 1014 10 10
Syria 10 10 10 157/20
Taiwan 10 10 10 10
15
Thailand 15 /20 1515/20 15 1516
Tunisia 12 12 12 15
Turkey 15 10 10 10
Ukraine 15 106 10 10
United Arab Emirates 1017 1017 517 5
United Kingdom 15 1018 10 104/15
United States 15 10 10 1019
Uzbekistan 10 10 10 10
Venezuela 15 109 10 20
Vietnam 15 15 15 153
1. Many of the treaties provide for an exemption for certain types of interest, e.g. interest paid to public
bodies and institutions, or in relation to sales on credit or for a specified period. Such exemptions are
not considered in this column.
2. The rate generally applies with respect to participations of at least 25% of capital or voting stock, as
the case may be, unless otherwise indicated.
3. The definition of royalty includes payments for total or partial forbearance in respect of the use or
supply of property or rights as referred to.
4. The lower rate applies to supply of commercial, industrial or scientific equipment or information. The
lower rate applies to payments for the use of, or the right to use or forbearance of the rights to use,
any industrial, commercial or scientific equipment, for the supply of scientific, technical, industrial or
commercial knowledge or information, and ancillary assistance fees.
5. The definition of royalty does not include payments relating to technical services such as studies of a
scientific, geological or technical nature, engineering contracts, consultancy and supervisory ser-
vices.
22CORPORATE TAXATION DOING BUSINESS IN INDONESIA 2018
6. The rate generally applies to participations of at least 20% of capital.
7. The lower rate applies to copyright of literary, artistic or scientific work including cinematograph
films, and films or tapes for television or radio broadcasting.
8. The lower rate applies to interest paid by a bank or financial institution and enterprises involved in
agriculture, plantation, forestry, fishery, mining, manufacturing, industries, transportation, low-cost
housing projects, tourism and infrastructure, and for interest paid to a bank or to another enterprise.
9. The rate generally applies to participations of at least 10% of capital.
10. 10% applies to dividends paid to a recognized pension fund whose income is generally exempt; and 15%
applies in all other cases.
11. 5% applies to interest paid on a loan made for a period of more than 2 years or is paid in connection
with the sale on credit of any industrial, commercial or scientific equipment.
12. The lower rate applies for the use of any patent, trademark, design or model, plan, secret formula or
process, and for the supply of commercial, industrial or scientific equipment or information.
13. The lower rate applies to the use of copyright for motion picture films, films or videos used in tele-
vision and tapes used in radio broadcasting or partial forbearance in respect of the use or supply of any
property right considered as royalties in the treaty.
14. A most favoured nation clause (introduced by the 2007 protocol) may be applicable with respect to
branch profits.
15. The lower rate applies if the dividend-paying company engages in an industrial undertaking.
16. The definition of royalty includes the right to receive payment in connection with the exploitation of
minerals, oil or gas deposits, quarries or other places of extraction or exploitation of natural
resources.
17. A most favoured nation clause may be applicable with respect to dividends and interest.
18. The rate applies to dividends paid to a company that controls directly or indirectly at least 15% of the
voting shares of the payer.
19. The definition of royalty includes gains derived from the sale, exchange or other dispositions of prop-
erty. It does not include payments for the use of ships, aircraft or containers.
7. Anti-Avoidance
7.1. General
The Indonesian domestic law includes anti-avoidance provisions on “special relation-
ships”, particularly under transfer pricing and thin capitalization rules.
7.2. Transfer pricing
Under article 18 of the ITL, the tax authorities are authorized to reallocate the amount
of income and deductions between related parties and to characterize debt as equity
to calculate the amount of taxable income of other taxpayers in accordance with the
arm’s length principle. Indonesia’s transfer pricing rules apply to both domestic and
cross-border transactions between parties that have a “special relationship”. A special
relationship is deemed to exist if:
– two or more taxpayers are under common ownership or control, whether directly
or indirectly;
– a taxpayer owns directly or indirectly at least 25% of the capital of another party;
– a taxpayer owns at least 25% of two or more parties; or
– there is a direct or first-degree family relationship, either by blood or by marriage.
The DGT introduced the formal transfer pricing regulations, PER-43/PJ/2010 of 6 Sep-
tember 2010, as most recently amended by Regulation PER-32/PJ/2011 of 11 Novem-
ber 2011. Pursuant to the regulations, a taxpayer must apply the arm’s length principle
in its transactions with related parties, as follows:
– perform a comparability analysis;
– determine the most appropriate transfer pricing method;
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