Taxation



Under the prevailing Indonesian tax law, a company is treated as a resident of Indonesia for tax purposes by virtue of having its establishment or its place of management in Indonesia. A foreign company carrying out business activities through a permanent establishment (PE) in Indonesia will generally have to assume the same tax obligations as a resident taxpayer

Regulation of the Minister of Finance of the Republic of Indonesia Number 159/PMK.010/2015

Facility
  • Granted on the condition of which the company generates income out of its principal business activities listed on its principal and/or business license as applied on its income tax facility, including the expansion or changes in investment.
  • Granted of at least 10% to the maximum of 100% of the corporate income tax payable.
  • Granted for at least 5 Fiscal Year to the maximum of 15 Fiscal Year, starting from the fiscal year of the commencement of the commercial production.
  • In the event of maintaining the competitiveness in national industry and the strategic value of certain industry, the Minister of Finance may extend the reduction of income tax facility for up to 20 years.

Criteria
  • Listed as pioneer industries, which are defined as industries with extensive interconnection that provide added value and high externality, introduce new technology, and have strategic value for national economy, including: base metals industries; natural oil refining industries; basic organic chemical industries derived from oil and natural gas; machinery industries that produce industrial machines; manufacturing industries based on agriculture, forestry and fishery; telecommunication, information and communication industries; marine transportation industries; manufacturing industries as part of main industry in Special Economic Zones (SEZ); and or economic infrastructure outside of a Government and Business Entity Scheme.
  • Listed as a new taxpayer.
  • Must invest at least IDR 1 trillion (USD 100 million).
  • Fulfil the debt to equity ratio.
  • Must deposit at least 10% of the total investment plan in domestic banks which must not be withdrawn before the investment realization.
  • Must be in a status of Indonesian legal entity established since or after August 15, 2011.

Download documents:

Peraturan Menteri Keuangan No.159/PMK.010/2015

Peraturan Kepala BKPM Nomor 18 Tahun 2015 (Perubahan Perka BKPM No. 8 tahun 2015 tentang Tata Cara Permohonan Fasilitas Pajak Penghasilan untuk Penanam Modal di Bidang Tertentu dan/ataudi Daerah-Daerah Tertentu

Income tax in Indonesia is progressive and applied to both individual (s) and enterprises. A self-assessment method is used to calculate the tax.

The Tax Rate For Individual(s)

Taxable annual income Income Tax Rate

Up to Rp 50 million 5%

Over Rp 50 million to Rp 250 million 15%

Over Rp 250 million to Rp 500 million 25%

Over Rp 500 million 30%

The Tax Rate For Corporate(s)

Year Income Tax Rate

2010 and onwards 25 %

Limited Company which 40% of their shares trade in stock exchange market 5 % Lower than normal rate

Gross turnover up to Rp.50.000.000.000 50 % deduction from normal rate

The normal tax period is January to December. If corporate taxpayers would like to use a different tax period, e.g. July to June, they would have to obtain an approval from the Director General of Tax (DGT) and then maintain the approved tax period consistently.

Land and building tax (PBB) is a type of property tax chargeable on all land and buildings, which is due annually at 0.5% of the government-determined sales value. In land and building transfer, the acquirer is liable for duty on the acquisition of land and buildings rights (BHPHTB) at 5% of the greater of the transaction value or government-determined value.

Stamp duty is nominal only at either Rp. 3,000 or Rp. 6,000 on certain documents. The rate of Rp. 6,000 is applicable for letters of agreement and other letters, Notary Deed and Land Deed including its copies. For all documents bearing a sum of money, the rate is Rp. 6,000 when the value stated in the document is more than Rp. 1 million, and Rp. 3,000 when the value is between Rp. 500,000 and Rp. 1 million. Below Rp. 500,000 is not subject to stamp duty. For cheques, the rate is Rp. 3,000 regardless of money value stated.

To avoid incidental double taxation on certain income such as profits, dividends, interests, fees, and royalties, Indonesia has signed agreements (tax treaties) with the 59 countries as follows:

Algeria

Hungary

Pakistan

Swedia

Australia

India

Qatar

Swiss

Austria

Italy

Philippine

Syiria

Belgium

Japan

Poland

Taipei

Bulgary

Jordan

Portugal

Thailand

Brunei Darussalam

Korea, Republic of

Romania

Tunisia

Bangladesh

Korea, Democratic Peoples Republic of

Russia

Turki

Canada

Kuwait

Saudi Arabia

Ukraine

Czech

Luxembourg

Seychelles

Uni Arab Emirate

China

Malaysia

Singapore

United Kingdom

Denmark

Mexico

Slovakia

United States of America

Finland

Mongolia

South Africa

Uzbekistan

Egypt

Netherland

Spain

Venezuela

France

New Zealand

Srilanka

Vietnam

German

Norwegia

Sudan

Withholding tax rates applied to residents of these countries signing tax treaty with Indonesia, may be reduced based on the provisions of the particular tax treaty.

Basically the government provides loss carry forward facility for a period of 5 (five) years and addtional 5 (five) years if fullfill certain conditions (Government Regulation No. 1/2007 jo. No. 62/2008)

Depreciation

(Government Regulation No. 1/2007 jo. No. 62/2008 and other tax implementation regulations)

Depreciation cost on assets is deductible from the income before tax. Depreciable assets are grouped into four categories depending on the useful life of the assets.

Investors may choose either the straight line method (for periods of less than 20 years) or the fast declining balance method (except for buildings)

Depreciation rate is determined according to the useful life and utilization such as :

Physical (Tangible) Asset Useful Life (years) Method of Calculation

Straight Line (%) Double Declining Balance (%)

l. Non Building

Group 1 4 25 50

Group 2 8 12.5 25

Group 3 16 6.26 12.5

Group 4 20 5 10

ll. Building

Permanent 20 5

Non Permanent 10 10

Amortization

Non-Physical Asset Useful Life (years) Method of Calculation

Straight Line (%) Declining Balance (%)

Group 1 4 25 50

Group 2 8 12.5 25

Group 3 16 6.25 12.5

Group 4 20 5 10

In normal cases, 10% Value Added Tax (VAT) is applied to imports, manufactured goods and most services. In addition, there is also sales tax on luxury goods ranging from 10% to 75% (See Government Regulation No. 12/2001 jo. No. 43/2002 jo. 46/2003 and other related tax implementation regulations).

According to the government regulation No. 7 Year 2007;

1. Value Added Tax (VAT)

Free Charge of Value Added Tax (VAT) to the importation of certain VAT charged goods having the strategic term,

consist of;

a. Capital Goods in the form of machineries and factory equipments, either in installed or separated, including spare parts

b. Feed of poultry and fish and raw materials to make feed

c. Seed and or seeding of agricultural material, plantation, forestry, livestock, aquaculture, or fishery

d. Agricultural products;

2. Free Charge of Value Added Tax Imposition (VAT)

Free charge of Value Added Tax (VAT) to the delivery of certain VAT charge goods having the strategic term, consist of;

a. Capital goods in the form of machineries and factory equipment, either in installed or separated, excluding spare parts, which is directly needed to produce VAT charge products

b. Feed of poultry and fish and or raw material to make the feed

c. Seed and or seeding of agricultural material plantation, forestry, livestock, aquaculture, or fishery

d. Agriculture products.

Import Duties
All investment projects of PMA as well as PMDN projects which are approved by the Investment Coordinating Board or by the Office of Investment in the respective districts, including existing PMA and PMDN companies expanding their projects to produce similar product(s) in excess of 30% of installed capacities or diversifying their products, will be granted the following facilities:
  • Relief from import duty so that the final tariffs become 0 %. Import duty which are mentioned in the Indonesian Customs Tariff Book. (BTBMI). This is stipulated in the Ministry of Finance’s Decree No. 176/PMK.011/2009 dated November 16, 2009 which is effective from December 2009.
    • On the importation of capital goods namely machinery, equipments, spare parts and auxiliary equipments for an import period of 2 (two) years, started from the date of stipulation of decisions on import duty relief.
    • On the importation of goods and materials or raw materials regardless of their types and composition, which are used as materials or components to produce finished goods or to produce services for the purpose of two years full production (accumulated production time).
    • However, the decree as above mentioned is not applied to the assembling of cars and motor bikes except for its component industries.

  • Exemption from Transfer of Ownership Fee for ship registration deed / certificate made for the first time in Indonesia.

Tax Facilities
  • The government has introduced a Tax Bill No’s 16, 17, 18, 19 and 20 of 2000 and applied since January 1, 2001. Based on this tax law, the domestic and foreign investors will be granted tax allowances in certain sector and/or area as follows :
    • An Investment Tax Allowance in the form of taxable income reduction as much as 30 % of the realized investment spread in 6 (six) years.
    • Accelerated depreciation and amortization.
    • A Loss carried forward facility for period of no more than 10 (ten) years.
    • A 10 % income tax on dividends, and possibly being lower if stipulated in the provisions of an existing particular tax treaty.

  • The government has also introduced provisions No’s 146 of 2000 of 2000 and 12 of 2001 on the importation and/or delivery of Selected Taxable Goods, and or the provision of Selected Taxable Services as well as the importation and or delivery of Selected Strategic Goods which are exempted from Value Added Tax.

Export Manufacturing
There are many incentives provided for exporting manufacture products. Some of these incentives are as follows;
  • Restitution (drawback) of import on the importation of goods and materials needed to manufacture the exported finished products.
  • Exemption from Value Added Tax and Sales Tax on Luxury goods and materials purchased domestically, to be used in the manufacturing of the exported products.
  • The company can import raw materials required regardless of the availability of comparable domestic products.

Bonded Zones
  • The industrial companies which are located in the bonded areas are provided with many incentives as follows;
    • Exemption from import duty, excise, income tax of Article 22, Value Added Tax on Luxury Goods on the importation of capital goods and equipment including raw materials for the production process.
    • Allowed to divert their products amounted to 50% of their export (in term of value) for the final products, and 100% of their exports (in term of value) for other than final products to the Indonesian customs area, through normal import procedure including payment of customs duties.
    • Allowed to sell scrap or waste to Indonesian custom area as long as it contains at the highest tolerance of 5% of the amount of the material used in the production process.
    • Allowed to lend their own machineries and equipments to their subcontractors located outside bonded zones for no longer than 2 (two) years in order to further process their own products.

  • Exemption of Value Added Tax and Sales Tax on Luxury Goods on the delivery of products for further processing from bonded zones to their subcontractors outside the bonded zones or the other way around as well as among companies in these areas.