Tax in Indonesia can be unfamiliar ground for foreign entrepreneurs starting a business in Indonesia. It is well known that a tax system in a country relates to the company establishment and regulation system. The same case applies to Indonesia. The 270 million populated countries survived 300 years of Dutch colonization. Hence, they still adopt the Dutch legal system today.
The most apparent difference between a Dutch system and any other international legal system is the use of a notary. A notary is essential in company establishments and other official document signings. On the other hand, the widely known international system relies on lawyers to help with company setup. In Indonesia, a lawyer is responsible for court-related cases.
Tax in Indonesia
Tax in Indonesia usually comprises income tax and value-added tax. The amount of tax also varies according to the size of the company and its annual income. For the income tax of companies that registers as micro-sized companies, they are liable to a final annual income tax of 0.5%. The amount of tax is taken from the total revenue rather than the profit. In this calculation, the government does not bring into consideration the number of expenses that may incur.
On the other hand, if the micro-sized company has an annual revenue of more than IDR 4,800,000,000,- (four billion and eight hundred million rupiah), then it must pay the tax as a non-macro company. The amount of tax for a non-micro company is 25% of the profit. The definition of profit is revenue deducted from the cost of goods sold and expenses. In certain conditions, companies may prefer to pay the 25% tax over the 0.5% due to the nature of their business. Aside from the final income tax, other taxes are subject to the type of industries the company is doing.
There is also a value-added tax that applies to taxable companies and companies with annual revenue of more than IDR 4,800,000,000,- (four billion and eight hundred million rupiah). The amount of tax is 11% of the value of the invoice. Companies that have taxable companies as their business counterpart must also register themselves as a taxable company. This case disregards the company’s annual revenue of less than IDR 4.8 billion or the company is a micro-sized company.
Foreign Owned Companies and Obligations
For foreign companies, PT PMA must produce proof of capital ownership of IDR 11,000,000,000,- (11 billion rupiahs). This amount puts PT PMA in the category of large-scale business. As a large-scale businesses, foreign-owned companies are liable to the value-added tax of 11%. There is also an income tax of 25% monthly or annually.
As mentioned before, there are other taxes that foreign companies may be liable for depending on the industry. If the company is operating in a service industry, then the company must pay an income tax of 2%. The amount of 2% is taken from the value of the invoice. This income tax is separate from the final annual income tax.
On the other hand, if the company is doing imports then they are liable for an import tax. The value of this tax is 1,5% from the invoice of the item. Again, this tax is separate from the final annual income tax. Foreign-owned companies need to have a taxpayer identification number (NPWP) to avoid penalties. This penalty is usually in the form of a more expensive tax rate.
For further information on taxation, business address rental (virtual office), ready-to-use office suite, and PT PMA establishment, visit www.meso.co.id. We are also available on Whatsapp at +62812 1315 4189.