By Terje. H. Nilsen, Seven Stones Indonesia
Indonesia has several types of tax obligations if you’re a tax resident; both corporate and personal. But compliance can be somewhat overwhelming at times, so using outsourced expertise might be a better option.
One of the most important things in doing business in Indonesia is to stay in full compliance, regardless of where your company is established. The Indonesian tax authority is highly advanced and skilled to detect any kind of non-compliance for whatever reason. The various tax obligations include proper registration, reporting, which is mandatory and of course payments of relevant taxes. All of which are necessary to prevent any issues and keep your business running.
As an expat and foreign investor there are many types of tax obligations to follow and it may be challenging to understand them one by one. It’s also worth remembering that tax regulations are often prone to changes so seeking advice and support from a qualified tax consultant is recommended regardless of the size of your business. It is often also cheaper to use an outsourced tax consultant rather than to hire a team in-house.
With this article we will highlight a few of the most important tax obligations in Indonesia that every business owner must be aware of, along with possible penalties and sanctions for non-compliance of taxes.
Compliance And Tax Obligations In Indonesia
Corporate Income Tax, referred to as CIT and Value Added Tax, referred to as VAT are the two most important tax obligations to be in compliance with for any business owner. Note that a director of a company is personally responsible and liable for any activity of a company set up under Indonesian law.
Tax obligations and requirements may differ depending on your business classification (KBLI), location and general activities. If you want to find out more about this please contact one of our tax consultants and experts.
Corporate Income Tax (CIT)
Generally speaking, a flat rate of 20-percent CIT applies. There are however, several exceptions.
Smaller companies with an annual turnover revenue of IDR 4.8-billion or less pay a final corporate tax of 0.5-percent from turnover.
Companies with revenues between IDR 4.8 billion and up to IDR 50 billion are taxed 11-percent from profits.
Companies with revenues of more than IDR 50-billion are taxed 22-percent from profits.
For public companies complying with the minimum requirement of having 40-percent of their shares on the Indonesian Stock Exchange (IDX) along with a few other conditions, may enjoy a 5-percent tax cut off the standard rate.
For some businesses such as oil and gas, geothermal, mining and construction special tax rates may also apply.
Payment of corporate taxes are done monthly before the 15th of the following month.
Annual filing should be done no later than April the following year.
Value Added Tax (VAT)
In general, a float rate of 11-percent applies, but there are several exceptions.
For the export of tangible and non-tangible goods a 0-percent VAT applies.
For the export of services, a 0-percent VAT applies.
Tax exemptions from VAT include F&B services in restaurants and hotels, medical and health care services, human resource services, as well as drilling and mining from direct extract sources.
Reporting and Payment
Payment before the VAT return deadline.
Reporting at the end of the following month.
Note that if you are considered a company with compulsory tax (PKP) with revenue beyond IDR 4.8-billion, the company must report VAT on related business activities. For a company having more than one location or multiple branches it is compulsory to register each branch with the local tax office at each location.
Penalties And Sanctions For Tax Obligations In Indonesia
The non-compliance of tax obligations anywhere in Indonesia may be classified as non-severe or severe, with possible penalties and sanctions incurred accordingly.
As an example, if a company for whatever reason, is late with its tax payments it will be subject to a 2-percent monthly surcharge of the total tax bill and a company that fails to report may get fined up to IDR 1,000,000.
For VAT, the late or incomplete issuance of the VAT factor is subject to a 1-percent surcharge.
More serious infringements of taxes in Indonesia include not providing tax returns or even the wrong information of tax returns, which may result in a 200-percent penalty/ fine or even between 3 to 12-months in jail.
Finally, tax fraud, or embezzlement and improper bookkeeping may result in up to 6-years in jail or a surcharge as high as 600-percent.
At Seven Stones Indonesia, we believe that compliance is better than defiance. That’s why we have a team of tax and accounting professionals who are here to help you with your taxes, so if you need a consultation or just want to clarify your position and tax obligations, make sure to reach out today at email@example.com