IndonesiaTax Obligations Detailed

In Indonesia, employers have various tax obligations related to payroll, corporate income tax, and value-added tax (VAT).

Employer Taxes

• Corporate Income Tax (CIT): The CIT rate in Indonesia is currently 22%. This rate is projected to remain at 22% through 2026.
• Value Added Tax (VAT): As of January 1, 2025, the standard VAT rate is 12%, increased from the previous 11%. A 0% VAT rate applies to exports of goods and services. VAT is applicable to most sales of goods and services within Indonesia.
• Employee Income Tax (Article 21/PPh Pasal 21): Employers must withhold income tax from employee salaries. The tax rate is progressive, based on the employee's annual income. Payment is due by the 10th of the following month, and reporting is due by the 20th of the following month. The annual income tax return (1721) is due January 20th of the following year.
• Social Security (BPJS Ketenagakerjaan): Employers contribute to several programs covering work accidents, death, old age, and pensions. The contribution rates and salary caps vary by program.
• Health Insurance (BPJS Kesehatan): Employers contribute 4% of the employee's salary towards national health insurance, with a maximum contribution based on the current salary cap. Payment is due by the 10th of the current month.

Global Minimum Tax

• Indonesia has implemented rules in line with the OECD's global minimum tax of 15%, impacting multinational enterprises (MNEs) with annual consolidated revenue of €750 million or more. These include the Income Inclusion Rule (IIR), the Domestic Minimum Top-up Tax (DMTT), and the Undertaxed Payment Rule (UTPR). Filings related to the global minimum tax are due within 15 months of the end of the fiscal year, with an extension to 18 months for the first year.

Tax Amnesty Program

• A tax amnesty program allows businesses to disclose previously undeclared income or assets with reduced penalties.

Other Taxes

• Withholding Tax: Employers must withhold tax on certain payments made to residents and non-residents, such as dividends, interest, and royalties. Rates vary depending on the recipient's residency status (resident or non-resident).

This information is current as of February 5, 2025, and may be subject to change. It's essential to consult with a tax professional for the most up-to-date information and specific guidance for your situation.

Indonesian employee tax deductions encompass various factors like income, marital status, and dependents.

Income Tax (PPh 21)

Individual income tax, known as PPh 21, is a progressive tax, meaning higher earners pay higher percentages. As of 2025, the rates are as follows:

• Up to IDR 50 million: 5%
• IDR 50 million - IDR 250 million: 15%
• IDR 250 million - IDR 500 million: 25%
• Over IDR 500 million: 30%

Non-Taxable Income (PTKP)

This is the income threshold below which no tax is due. As of the available data from previous years (2024 and earlier), the PTKP is:

• Single Individual: IDR 54,000,000 annually
• Married Individual: IDR 58,500,000 annually (additional IDR 4,500,000 for the spouse)
• Each Dependent Child (up to 3): Additional IDR 4,500,000 annually per child

Please note that these figures are based on the most recent available data, and it is recommended to check with official Indonesian tax authorities for the most up-to-date PTKP amounts for 2025.

Deductions

Several deductions can reduce the taxable income:

• Occupational Expenses: 5% of gross employment income, capped at IDR 6,000,000 per year. This covers work-related expenses.
• Pension Contributions: Information on specific employee pension contributions for 2025 is unavailable. However, previous information suggests a possible deduction of 1% of gross income, capped at IDR 90,776 per month. It's essential to verify current regulations for accurate deduction amounts.

Social Security Contributions

Employers are responsible for contributing to several social security programs:

• Health Insurance (BPJS Kesehatan): The employer's contribution is around 4% of the employee's salary, up to a maximum limit (previously IDR 480,000, exact amount for 2025 unconfirmed).
• Work Accident Insurance (JKK): Rates vary based on risk level.
• Death Insurance (JKM): A small percentage of the employee's salary.
• Old-Age Pension (JHT): 2% of the employee's salary (employee's portion). The employer contributes an additional percentage. The total employer contributions are generally estimated at an additional 10.24% - 11.74%.

It's important to note that employer social security contributions form part of employee compensation but are not included in their take-home pay.

Tax Administration

• Taxpayer Identification Number (NPWP): All taxpayers, including employees, need an NPWP to file returns.
• Withholding: Employers withhold income tax monthly and remit it to the tax office.
• Annual Tax Return: Resident employees must file an annual tax return by March 31st of the following year.

Benefits in Kind (BIK)

Previously non-taxable, many benefits-in-kind are now included in taxable income. There are exceptions, including:

• Food and beverages provided to all employees
• Benefits for employees in remote areas
• Benefits for employee safety, health, and security (e.g., uniforms, safety equipment)
• Benefits funded by the government

Other Considerations

• Tax Treaties: Indonesia has tax treaties with various countries, impacting tax obligations for foreign employees.
• Non-Residents: Non-resident employees are taxed at a flat rate of 20% on Indonesian-sourced income. They are not required to register for NPWP or file an annual return, as the tax is finalized via withholding.

This information reflects the situation as of February 5, 2025, and may be subject to change with updates in regulations. Consult the Indonesian Directorate General of Taxes or a tax professional for the most up-to-date details.

In Indonesia, the Value Added Tax (VAT) is a consumption tax applied to most goods and services.

VAT Rates

• Standard Rate: 12% (effective January 1, 2025). While the standard rate is 12%, an effective rate of 11% is applied to certain goods and services until February 1, 2025.
• Luxury Goods: 12%, applied to the full selling price from February 1, 2025. Examples include motor vehicles, residences priced at IDR 30 billion or more, private aircraft, and certain firearms.
• Exports: 0%
• Government Subsidized Goods (e.g., flour, cooking oil): 1% VAT subsidy may apply.

VAT Registration

• Mandatory Registration Threshold: IDR 4.8 billion in annual revenue.
• Voluntary Registration: Businesses below the threshold can register voluntarily.
• Non-Resident Businesses: Required to appoint a local tax representative.
• Small entrepreneurs (businesses with gross annual turnover from supplies of goods or services that does not exceed IDR 4.8 billion): Can register voluntarily, but are not required to.

VAT Filing and Payment

• Frequency: Monthly
• Deadline: End of the month following the taxable period.
• Method: Electronically via certified agents (e-Faktur). Paper filing is allowed for businesses with under 25 transactions or below IDR 400 million in monthly VAT liability.
• Payment: Due before VAT return submission.

VAT Exemptions

• Basic Goods and Services: Exempted goods include certain staple foods (rice, eggs, milk, fruit, meat, sugar, soybeans, salt), and some raw materials (natural gas, crude oil, coal, gold ore, iron ore, copper ore). Exempt services include religious services, entertainment, hotel accommodations, parking, catering, arts, education, medical and health, public transportation, and financial services.
• Other: Specific exemptions also apply for goods related to maritime activities, those used in projects financed by foreign aid, and those imported or delivered to Free Trade Zones, along with certain business activities in Free Trade Zones.

VAT Refund for Tourists

Tourists can claim VAT refunds on goods purchased from registered stores during their visit. Specific procedures apply.

Indonesia offers a range of tax incentives to attract investment and stimulate economic growth. These incentives target specific sectors, regions, and activities, providing opportunities for both domestic and foreign businesses.

Tax Incentives in Indonesia

As of February 5, 2025, several tax incentives are available in Indonesia. These incentives are subject to change and it is advisable to consult with tax professionals for the most up-to-date information.

Tax Holiday

• Full Exemption: A 100% Corporate Income Tax (CIT) exemption for 5-20 years, followed by a 50% reduction for two years, is available for large investments in strategic sectors. This includes investments of at least IDR 10 billion in designated business sectors, with the duration of the exemption varying by sector. Sectors eligible may include oil and gas, aerospace, pharmaceuticals, robotics, agriculture, and digital economy areas like hosting and data processing.
• Partial Exemption: Investments between IDR 100 billion and IDR 500 billion may qualify for a 50% tax holiday for five years, followed by a 25% reduction for two years.

Tax Allowance

• Income Reduction: Up to a 30% reduction in taxable income on total investment over six years, at 5% per year.
• Dividend Withholding Tax: A reduced rate of 10% on dividends paid to non-resident taxpayers, or lower based on tax treaties.
• Eligible Sectors: This applies to sectors like textiles and garments, pharmaceuticals, geothermal exploration, cooking palm oil, iron and steel, automotive, cosmetics, and coal gasification.

Investment Allowance

• A 60% reduction in taxable income on the invested amount over six years (10% annually) is available for domestic taxpayers and businesses meeting certain employment criteria.
• This incentive primarily supports the textile and garment industry.

Special Economic Zones (SEZs)

• 100% CIT reduction for investments exceeding IDR 100 billion for ten years, followed by a 50% reduction for two years. These may occur in designated zones such as Nusantara, Indonesia's new capital city.
• Exemption from withholding tax on eligible income during the concession period (like rental income).

Incentives for Nusantara (New Capital City)

• Up to 100% CIT exemption for 10-30 years for investments of at least IDR 10 billion. The duration depends on the specific sector. Financial institutions investing before 2035 can enjoy up to 25 years of exemption, while those investing before 2045 may receive up to 20 years.
• Additional incentives are detailed in Minister of Finance Regulation Number 28 of 2024 (PMK-28). This may include a super tax deduction for certain activities and government-borne employee income tax.

Marine and Fisheries Industries

• 30% deduction of net income based on the total investment value.
• Accelerated depreciation for tangible assets and amortization for intangible assets.
• 10% income tax reduction on dividends (potentially lower with a tax treaty).

Priority Sectors

• 50% CIT reduction for investments between IDR 100 billion and IDR 500 billion for five years.
• 100% CIT reduction for investments over IDR 500 billion for 5-20 years.
• Eligibility criteria: labor or capital intensive, part of a national project, export-oriented, involves pioneer industries, utilizes advanced technology, or implements R&D activities.

Application Procedures

Incentive applications are generally submitted through the Online Single Submission (OSS) system. Details regarding eligibility, required documents, and approval processes may be sector-specific and should be researched on a case by case basis. Specific regulations such as PMK-28 for Nusantara provide further guidance related to applications and reporting requirements. Consulting tax and legal professionals for specific industry requirements is crucial.

General Tax Information for Individuals

Indonesia levies individual income tax on residents based on a progressive rate structure. Tax residents can claim certain deductions and credits, including those for dependents, occupational support, and pension contributions. Foreign tax credits are also available. Indonesia does not have a wealth tax, though individuals are required to report their assets and liabilities. Specific exemptions may exist, like those applying to certain foreign diplomats, military personnel, and representatives of international organizations.

Value Added Tax (VAT)

As of 2025, the standard VAT rate is 12%. Certain goods and services remain exempt, such as basic food staples like rice, meat, fish, eggs, vegetables, and milk. However, premium goods and luxury services are subject to VAT. MSMEs and specific sectors such as education and healthcare may also be eligible for VAT incentives.