IndonesianTax system

Table of contents● Tax System● Tax Incentives● Individual Income Tax● Corporate Income Tax● Withholding Tax● Branch Profit Tax● Wage Tax● Double Taxation● VAT● Land and Building Tax● Capital Tax● Stamp Tax● Transfer Tax● Environmental Tax● Luxury-goods Sales Tax● Custom and Excise Tax

Tax System Tax Incentives

Tax System of IndonesiaThere is a wide variety of taxes in Indonesia that companies, investors, and individuals need to comply with.

This includes corporate income tax, individual income tax, withholding taxes, international tax agreements, value-added tax (VAT), luxury-goods sales tax, customs & excise, tax concessions, and land & building tax.

The presentation provides with detailed information about taxes that are in effect and should be considered when investing in Indonesia.

Tax Incentives

Import Duty Exemption

Tax Allowance

Tax Holiday

Tax IncentivesImport Duty Exemption - Regulation of Ministry of Finance No. 76/PMK.011/2012

● Exemption from import duty on the import of machines, goods & materials for production for a period of 2 years.

● Import duty exemption granted for 2 years based on the installed machine capacity for production purpose and available for 1 year extension.

● If the company uses at least 30% local machineries, import duty exemption is available for additional product for 4 years.

Requirements: Imported machine, goods and raw material are:

1. Not yet being locally produced 2. If the local machines are available, yet unable to fulfil criteria of required machines 3. If the local machines are available, yet unable to fulfil the total required machines

Tax IncentivesTax Allowance - Government Regulation No. 9 of 2016 Facilities

● Total net income reduction - 30% of investment, charged 5% per year in the 6 years period.

● Imposition of income tax on dividends paid to foreign tax subject of 10%, or a lower rate according to the avoidance of double taxation agreement

● Compensation losses longer than 5 years but not more than 10 years with the certain conditions for the companies that are:

1. Located in industrial or bonded zone,2. Developing infrastructure 3. Using at least 70% domestic raw material , 4. Absorbing 500 to 1000 labours 5. Having Research and Development (R&D) program , 6. Reinvesting capital7. Exporting at least 30% of selling product

Tax Holiday - Regulation of Ministry of Finance No. 159/PMK.010/2015

● Tax Holidays are available for 5 to 15 years and is possible for the extension up to 20 years .

● For Communication, Information and Telecommunication Industry, the value of Investment plan could be lowered from Rp500 billion to Rp1 trillion for exemption up to 50%.

● If the investment value exceeds Rp1 trillion, the exemption is available up to 100%.

The types of industries that are eligible for Tax Holiday:

1. Upstream metal,oil refinery, organic basic chemical industry based on oil/natural gas2. Machinery industry producing industrial machine,processing industry based on agriculture3. Telecommunication, information and communication industry, maritime transportation 4. Processing industry that are main industry in Special Economic Zone (SEZ) 5. Economic infrastructure not in the scheme of Government and Business project (KPBU)

Tax Incentives

Individual Income Tax

Individual Income Tax - ResidencyResident taxpayers are defined as individuals:

• domiciled in Indonesia

• stay in Indonesia for more than 183 days in any 12-month period

• are present in Indonesia during a tax year and intending to reside in Indonesia.

-a foreigner,qualifying to be a resident taxpayer becomes a tax resident from the date of arrival in Indonesia until the date of final departure from Indonesia.

-a Indonesian national is considered a tax resident from birth unless he or she leaves Indonesia permanently.

● The Indonesian tax regime adopts the worldwide income concept for resident taxpayers.

● Income is defined as any increase in economic prosperity received or accrued, originating within or outside Indonesia, used for consumption or to increase the wealth of the taxpayer, in whatever name or form.

● Indonesian tax resident companies and permanent establishments are required to withhold income tax from the salaries payable to employees on a monthly basis and pay the tax to the State Treasury on their behalf; and then report to the Tax Office.

● Employment income in Indonesia is subject to tax, regardless of where the income is paid.

● Taxable employment income includes bonuses, commissions, overseas allowances, and fixed allowances for education, housing, and medical care.

Worldwide Income

Resident Taxpayer

Taxable Income Rate

Up to Rp 50,000,000 5%

Over Rp 50,000,000 but not exceeding 250,000,000 15%

Over Rp 250,000,000 but not exceeding 500,000,000 25%

Over Rp 500,000,000 30%

Non - Resident Taxpayer

Single rate of 20% is imposed on gross income, except for income on sale of shares in Indonesian incorporated company and certain assets which is subject to 5% final tax on the sales proceeds.

Income Tax

Personal DeductionsBasis of Deduction Deductible Amount Annually

Taxpayer Rp 36,000,000

Spouse Rp 3,000,000 (additional Rp 36,000,000 for a wife whose income is combined with her husband’s)

Dependents Rp 3,000,000 each (up to a maximum of 3 individuals related by blood or marriage)

Occupational Support 5% of gross income up to a maximum of Rp 6,000,000

Pension Cost 5% of gross income up to a maximum of Rp 2,400,000

Contribution to Approved Pension Fund Amount of self-contribution

Religious Contributions Actual amount, provided that valid supporting evidence is available and certain requirements are met

● Cash and cash equivalents: cash on hand, savings, time deposits.

● Real property: house, apartment, factory, warehouse.

● Investments: shares, bonds, mutual funds, warrants.

● Means of transportation: bicycle, motorcycle, car.

● Movable property: precious metals,stones, art works, yacht, airplane, helicopter.

● Liabilities: loans from banks, credit cards.

Assets and Liabilities Reporting

Sanctions and Important DatesFailure to settle tax payment on time2% monthly interest charge on the tax payable.

Failure to file on timeAdministrative sanction for late filing:

• Monthly Return: IDR 100,000 per return

•Annual Return: IDR 100,000 per return

Failure to file a return due to tax criminal act such as negligence or fraudFine and imprisonment of up to 6 years (maximum).

1st JanuaryBeginning of the Indonesian fiscal year

15th of each following monthSettlement of the provisional monthly tax payable

31st March of the following yearNormal filing deadline of annual individual income tax return

31st May of the following yearExtended filing deadline of annual individual income tax return

31st DecemberEnd of the Indonesian Fiscal Year

Real Property Tax- Land and building tax is payable annually on land, buildings and permanent structures.

- Rate is 0.3% of the value of the property, higher rates apply to certain high-value housing

-The sale of land/or buildings by an individual is subject to a tax of 5% of the gross proceeds.

- Exemptions are granted for the transfer of land and/or buildings as a part of a grant or inheritance and the sale of land valued at less than IDR 60 million by an individual taxpayer whose annual income does not exceed the non taxable income threshold.

-A land and building acquisition duty of 5% is payable when a person obtains right to land or a building with a value greater than IDR 60 million.

-A taxpayer receiving such rights with inheritance is entitled to a nontaxable threshold of a minimum of IDR 300 million.

Corporate Profit Tax

Corporate Profit Tax

● Tax Rates and Possible Deductions

● Tax Residency

● Tax Assessment and Payments

● Tax Prepayments and Final Payments

● Taxable Base and Deductions

● Tax Losses

● Summary

Corporate Profit Tax Rates● The corporate tax rate is 25%

● Public companies that satisfy a minimum listing requirement of 40% and other conditions

are entitled to a tax cut of 5%, giving them an effective tax rate of 20%

● Small enterprises with an annual turnover not more than Rp50bln are entitled to 50%

discount of the standard tax rate which is imposed proportionally on taxable income of the

part of gross turnover up to Rp4.8bln

● Certain enterprises with gross turnover of not more that Rp4.8bln are subject to Final Tax

at 1% of turnover

Corporate Profit Tax - Residency● A company is treated as a resident of Indonesia for tax purposes by virtue of having its

incorporation or its domicile is in Indonesia

● Non-resident companies are those which are incorporated overseas, but receive or accrue income from Indonesia

● Non-residents are obliged to register for tax purposes if they have a permanent establishment (PE) in Indonesia

● A foreign company carrying out activities through PE in Indonesia will generally have to assume the same tax obligations as a resident taxpayer

● Representative Offices of foreign companies are also required to register as taxpayers because of the possible necessity to withhold tax on payments to employees and third parties and lodge relevant tax returns

Corporate Profit: Residents VS Non-Residents

IMPORTANT NOTE: INDONESIAN RESIDENT COMPANIES ARE TAXED ON THEIR WORLDWIDE INCOME. NON-RESIDENT COMPANIES ARE TAXED ONLY ON THEIR INDONESIAN-SOURCE INCOME, INCLUDING INCOME ATTRIBUTABLE TO THE PE IN INDONESIA.

Corporate Profit Tax Assessment and Payments● Companies are required to self-assess and lodge annual corporate income tax returns

● The annual corporate tax returns must be lodged with the relevant Tax Office within four months after the end of the calendar or tax year (deadline can be extended by two months by notifying the Director General of Taxation)

● Resident taxpayers and PEs have to settle their tax liabilities either by direct payments, third party withholdings, or a combination of both

● Foreign, non-PE companies in Indonesia have to settle their tax liabilities for their Indonesian-sourced income through withholding of the tax pay Indonesian party paying the income

Corporate Profit Tax Prepayments and Final Payments● Monthly tax installments constitute the first part of tax payments to be made by resident

taxpayers and PEs as a prepayment of their current year Corporate Income Tax (CIT) liability

● The above-mentioned monthly tax installments are calculated according to the most recent CIT return

● The tax withheld by third parties on certain income or tax to be paid in advance on certain transactions also constitute prepayments for the current year CIT liability

● If prepayments and tax paid abroad are less than the the total CIT due, the taxpayer has to settle the shortfall before filling its CITR.

● For foreign non-PE companies the tax withheld from their Indonesia-sourced income by the indonesian party paying the income constitute the final settlement of CIT due.

Taxable Income Definition

TAXABLE INCOME IS DEFINED AS ASSESSABLE INCOME LESS TAX-DEDUCTIBLE EXPENSES. EXEMPT INCOME INCLUDES

CONTRIBUTIONS TO CAPITAL, DIVIDENDS FROM DOMESTIC COMPANIES AND CERTAIN INCOME FROM INVESTMENT FUNDS AND VENTURE

CAPITAL COMPANIES.

Corporate Profit Tax Base● Taxable business profits are calculated on the basis of normal accounting principles as

modified by certain tax adjustments

● A deduction is allowed for all expenditure incurred to obtain, collect and maintain taxable business profits

● A timing difference may arise if an expenditure recorded as an expense for accounting cannot be immediately claimed as a deduction for tax

● Disallowed deductions include: Benefits-in-kind, private expenses, non-business gifts and aid, income tax payments, tax penalties, profit distributions and etc.

Tax Losses● Tax losses can be carried forward for a period of five years

● Under special circumstances the period can be extended to ten years

● No foreign losses can be included in the tax computation

● There are no loss carry back provisions in Indonesian tax law

● Tax consolidation and group relief is not available

Withholding Tax

Withholding Tax

● Residents are subject to a creditable withholding tax of 15% with any balance being payable or refundable

● Non-residents are subject to a final withholding tax of 20%

Withholding taxes are collected when the taxable transaction takes place or payment becomes due.

Residents (%)(1) Non-Residents (%) (1)

Dividends (2) 15 20

Interest 15 20

Royalties 15 20

Prizes and awards 15 20

Rental and other income related to the use of property, other than land/space rental

2 20

Technical, management, consulting, and other services

2 20

The Rates of Withholding Taxes

Notes1. All percentage rates are on gross amounts unless otherwise noted.

2. Withholding tax on dividends paid to Indonesian corporate shareholders will be exempt

only if the following conditions are met:

a. The dividend is sourced from retained earnings;

b. The recipient holds 25% share or more in the payer.

3. A 100% withholding tax is imposed, in addition to the applicable tax rate, on individuals

and corporations, other than non-tax residents, who do not possess a tax identification

number.

Sale of listed shares(1) 0.1% of the gross proceeds

Additional tax on sale of listed Founder shares; by a founder shareholder(1)

0.5% of the IPO price

Sale of land or buildings(1) 5% of the sales value (final tax for individuals, foundations and corporations). An extra 5% stamp duty for the land and/or building acquisition rights is payable by the purchaser

Interest or discount on Government CDs and savings deposits and interest or discount on bonds

20% (except for banks and certain approved pension and mutual funds; and loan interest on simple houses)

Asset revaluation approved by the Tax Office 10% of the difference between the book value and the revalued amount of the assets (unless current year tax losses, which will firstly be applied against the revaluation difference)

Prizes from lotteries 25% of gross proceeds

Land and/or building rental (include service charge) 10% of gross proceeds

Final Withholding Taxes

Notes1. These rates also apply to non-residents (subject to the application of a double tax treaty). 2. No withholding tax is payable in respect of savings, deposits or Government CDs with a

principal amount up to IDR 7,500,000.

Construction Services are subject to final tax with the following tax rates:

● 2% on construction services provided by qualified small enterprises; ● 4% on construction services provided by non-qualified enterprises; ● 3% on construction services provided by enterprises other than those mentioned in (a) and

(b) above; ● 4% on construction planning and supervisory services provided by qualified enterprises;

and, ● 6% on construction planning and supervisory services provided by non-qualified enterprises.

Withholding TaxTypes of payment made to Indonesian tax residents and non-residents with permanent establishment along with their rates:

Withholding Tax

Withholding Tax

Branch Profit Tax ● Permanent Establishment’s of foreign enterprises are subject to

an additional 20% Branch Profits tax on their after-tax income, unless eligible for a reduced rate by virtue of a tax treaty.

● The 20% is applied to the PE’s net profit after all types of taxes.

● Branch profit tax base = taxable income - amount of final income tax

● 20% rate may be reduced depending on the respective tax treaty

Branch Profit Tax ExemptionsAn exemption from branch profit tax applies is all the net profit after tax of a PE is reinvested in Indonesia in the form of:

● Contribution in a newly established company domiciled in Indonesia as a founder or a member of the founders

● Capital contribution in an existing company established and domiciled in Indonesia

● Fixed assets to be used by the PE to do business or conduct activities of the PE in Indonesia

● Investment in intangible goods to be used by the PE to do business or conduct activities of the PE in Indonesia

Wage Tax

Wage Tax ● The employer is responsible for calculating, deducting and

remitting tax due on employees’ salaries and other

remuneration. The employer must file an employment

withholding tax return on a monthly basis.

● The employer is required to contribute to the general social

security scheme, as follows:

○ 3% to 6% of wages for the health scheme;

○ 3.7% of wages to the retirement scheme,

○ 0.24% to 1.74% to the accident compensation fund;

○ 0.3% to the death compensation fund.

Double Taxation

Double TaxationTreaties generally provide for relief from double taxation on all

types of income, limit the taxation by one country of companies

resident in the other and protect companies resident in one

country from discriminatory taxation in the other.

● To enjoy the benefits of the double tax treaties companies

are required to claim the relief by completing and

submitting a specific form

Tax Treaty Network

VAT

Events Involving Transfer of Taxable Goods and Services in the Indonesian Customs Area

● Deliveries of taxable goods and services in the Customs Area by an enterprise.

● Import of taxable goods

● Use or consumption of taxable intangible goods and services originating from outside the Customs Area in the Customs Area.

● Export of taxable goods (tangible and intangible) and services by taxable enterprise.

VAT obligations arise upon the above deliveries with the value exceeding Rp 4.8 billion annually.

Tax Rates ● VAT rate- 10% (increased or decreased to 15% or 5%

according to a government regulation)

● Vat on the export of taxable goods (tangible and intangible) and services – 0%

● Reporting on monthly basis

● Internal deliveries of taxable goods within a company are subjected to VAT

Usually tax base is the transaction value agreed between the parties concerned.

● Market value for transaction between related parties, remaining inventories of taxable goods

upon a company’s dissolution

● Cost of sales for own-use or free gifts and internal deliveries of taxable goods (between

branches, or from the head office to branches)

● Auction price for deliveries of taxable goods through an auction officer

● Agreed price for deliveries of taxable goods through an intermediary trader

● Average selling price for a video and audio recording products

Tax Base

Tax Base● Average result per film for movies

● Rp12 million per copy of imported movie

● 20% of total costs incurred or paid, exclusive of the acquisition price of land if it is for a

self-construction of a building

● Retail selling price for deliveries or imports of tobacco products

● 10% of the actual billing package for a tour and tourism agency service

● 20% of selling price on the deliveries of gold jewelry, including services carried out by factory

in relation to gold jewelry

● 10% of the actual billing on the deliveries of freight forwarding services in which billing

includes freight charges

Non-Taxable Goods● mining or drilling products extracted directly from their source (oil, natural gas, coal, etc.)

● basic commodities (rice, salt, corn, etc.)

● food and drink served in hotels, restaurants

● money, gold bars and securities

Non-Taxable Servicesa. medical health servicesb. social services (orphanages and funeral services)c. mail services using stampsd. financial servicese. insurance servicesf. religious servicesg. educational servicesh. art and entertainment servicesi. broadcasting services (nor used for advertising)j. public and air transportationk. manpower servicesl. hotel servicesm. public services provided by the governmentn. parking area serviceso. public telephone services (coins)p. remittance services by money orders

● A vendor of taxable goods or services charge VAT from a buyer (for vendor output tax)

● If the accumulated output tax for a particular month exceeds the accumulated input tax for a

same period, the taxpayer should settle the issue by the end of the following month and prior

to the VAT report deadline.

● If the issue is unsolvable than the taxpayer may carry over the overpaid VAT to the following

months or ask for a yearly refund

● Reverse charge system for non-resident vendor or service providers applied

Input - Output Mechanism

VAT Collectors

State Treasury

State Owned Enterprises

PSC (Production Sharing Contract)

Goal: to collect VAT from venders and to pass taxes directly to the government

VAT Exemption Facilities The deliveries and/or import of taxable goods designated as strategic goods are exempt from VAT

● capital goods in the form of machinery and plant and equipment required for the manufacturing

of taxable goods

● animal husbandry products, including hunting and trapping, and fishery products, including the

capture and cultivation of fish

● electricity, except household electricity exceeding 6,600 watts

● clean water distributed through pipes by drinking water companies

● cattle, poultry and fish feed, and the raw materials for manufacturing these

● seeds and seedlings for agricultural, plantation, forestry, farm and animal husbandry products

● weapons, ammunition, transportation vehicles and various other appliances for use by the armed forces and the state police;

● polio vaccines for use in the National Immunisation Program;● general education and religious books;● ships and spare parts for use by national commercial shipping companies or national fishing companies;● aircraft and spare parts for use by national commercial airline companies● trains and spare parts for use by PT Kereta Api Indonesia● low-cost housing, basic flats and student accommodation with certain threshold● train maintenance and repair services received by PT Kereta Api Indonesia● services received by national commercial shipping companies or national fishing companies, including ship

rental, seaport services and ship maintenance or docking services● services received by national commercial airline companies, including aircraft rental and maintenance

services● services rendered for the construction of low-cost housing, basic flats and places of worship● rental of low-cost houses

VAT Exemption Facilities (continued)

Land and Building Tax

Tax rate is maximum 0.3%

Calculated by applying the tax rate on the sale value of the tax object deducted by non-

taxable object (non-taxable object is set at Rp10 million at the minimum)

The non-taxable object are the buildings or lands which are:

• used by central and regional Government for governance purposes

• used for public interest in the areas of religious and social affairs, health, education and

national culture, and non- profit making purposes

• used as a cemetery, ancient heritage site or similar

• constituting protected forests, natural reserve forests, tourism forests, national parks

• used by a diplomatic representative, based on the reciprocal treatment principle

• used by an agency or representative of an international organisation

Tax Rates and Non-Taxable Objects

● Tax is set at 5% of the gross transfer value (tax base)

● However, for transfers of simple houses and simple apartments conducted by taxpayers

engaged in a property development business, the tax rate is 1%

NOTE:

Paid by the time the rights to land and building are transferred to the transferee.

A notary is prohibited from signing a transfer of rights deed until the income tax has been

fully paid.

Tax on Land and Building Transfer

Duty on the Acquisition of Land and Building RightsQualifying land and building rights transfers include:

1. sale-purchase and trade-in transactions

2. grants, inheritances

3. contributions to a corporation

4. rights separations

5. buyer designation in an auction

-Duty rate 5% minus an allowable non-taxable threshold

-the non-taxable threshold amount varies by region: the minimum is Rp. 60 million (except in

-the case of an inheritance, for which starts from Rp. 300 million)

-Due date- the relevant deed of land and building right transfer is signed before a public notary.

Capital Tax

No Capital Tax is Imposed

Stamp tax

Stamp taxCertain documents are subject to stamp duty [IDR 3,000 or IDR 6,000], depending on the amount of the transaction and type of a document.

• letters of agreement, prepared for the purpose of evidencing acts, facts or conditions of a civil nature

• national deeds - It is commonly associated with transferring title to property

• all documents bearing a sum of money (letters of promise to pay, securities or cheques.

Transfer tax

Transfer taxThe acquisition of land or building - 5% of the acquisition value.

Sale of shares listed in Indonesian stock exchange - 0.1% tax on transaction value.

Founders shares - final tax of 0.5% on the share value at time of an IPO.

The transfer of a resident’s company’s shares by a non-resident - withholding tax equal to 5% of the transfer value.

Environmental tax

EcotaxNo specific environmental taxes imposed.

However, in certain regions, a permit to dump liquid waste into certain water resources is subject to retribution collected by the regional government.

Luxury-goods sales tax

Luxury-goods sales taxOn deliveries or imports of certain manufactured taxable goods.

LST must be accounted for every month together with VAT.

The importer or manufacturer is responsible for the settlement of LST.

LST rate are between 10%-125%

Luxury-goods sales tax

Luxury-goods sales tax: Motor vehicles

Luxury-goods sales tax: Motor vehicles

Custom tax

Import duty0% -150% on the customs value of imported goods

currently the highest rate is 40%

Customs value is calculated on cost, insurance and freight level (CIF)

Most goods imported from ASEAN countries - 0% import duty

Export dutyCalculated based on certain % of customs value

Excise tax

Excise tax● Ethyl alcohol (Rp 13,000 - Rp 139,000per liter)● Alcohol drinks● Tobacco products (Rp 6 - Rp 110,000 per stick or gram)● Excise tax will be calculated based on manufacturer's

total production volume.

Thank you !