Indonesia Tax Profile

Summary

Indonesia
Tax Profile
Produced in conjunction with the
KPMG Asia Pacific Tax Centre
July 2018
1
Table of Contents
1 Corporate Income Tax 3
1.1 General Information 3
1.2 Determination of taxable income and deductible expenses 6
1.2.1 Income 6
1.2.2 Expenses 7
1.3 Tax Compliance 8
1.4 Financial Statements/Accounting 9
1.5 Incentives 11
1.6 International Taxation 12
2 Transfer Pricing 19
3 Indirect Tax 21
4 Personal Taxation 22
5 Other Taxes 23
6 Trade & Customs 24
6.1 Customs 24
6.2 Free Trade Agreements (FTA) 24
7 Tax Authority 25
© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client
services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 2
1 Corporate Income Tax
1.1 General Information
Corporate Income Tax Rate
Income tax. The corporate tax rate is 25%. Listed companies that meet certain conditions are eligible for a
5% reduction in the corporate tax rate

A company with gross turnover of less than IDR 50 billion (approximately USD 5.5 million) is eligible for a
50% reduction in the corporate tax rate on the proportion of taxable income which results when IDR 4.8
billion is divided by the gross annual turnover

Unless it chooses not to, certain companies (e.g., companies that are engaged in the trading business) with
gross turnover of less than IDR 4.8 billion in one fiscal year would be subject to 0.5% final tax on their
gross revenue

Residence
A company will be resident in Indonesia if it is incorporated 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

Representative Offices of foreign companies are also required to register as taxpayers, even though they
may not be a PE. This is necessary, as the Representative Office will have to withhold tax on payments to
employees and third parties and lodge relevant tax returns

Basis of Taxation
Resident corporate taxpayers are taxed on their worldwide income

Tax Losses
Losses can be carried forward for a period of five years. However, in certain circumstances this may be
extended to 10 years under special facilities available for certain regions and/or industries

Changes in shareholders do not affect the validity of the carried forward losses. Capital losses are treated
the same as operating losses if the losses are reasonable based on sound market practice. No foreign
losses can be included in the tax computation

There are no loss carry back provisions in Indonesian tax law

Tax Consolidation/Group Relief
No provision exists for grouping or consolidation under Indonesian law

Transfer of Shares
Transfers of shares listed on the Indonesian stock exchange are subject to a final transfer tax of 0.1%

Founder shares are subject to an additional final tax of 0.5% on listing

For the transfer of unlisted shares, 25% capital gain tax (due on net basis) will apply for the Indonesian tax
resident seller. The settlement and reporting of the tax due is done on self-assessed basis. If the seller is
non-Indonesian tax resident, a 5% capital gains tax (final, due on the gross transfer value, which has to be
at arm’s length) will apply

Transfer of Assets
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services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 3
On the transfer of title of land and buildings, 2.5%income tax (final) for the seller and 5% title transfer tax
for the buyer will apply. Lower income tax rate will apply under special circumstances

On the transfer of assets (other than land and buildings), 25% capital gain tax (due on net basis) will apply
for the Indonesian tax resident seller. The settlement and reporting of the tax due is done on self-assessed
basis. If the seller is non-Indonesian tax resident, the 5% capital gain tax (final, due on gross basis) will
apply (non-residents cannot hold real estate directly, they should hold it through a company. So the share
transfer is taxed)

Capital Duty (Non-tax planning)
Indonesia has no capital duty due on placement of capital, nor on liquidation

CFC Rules
Indonesia has a CFC regime

A CFC is defined as a foreign unlisted corporation in which an Indonesian resident individual or corporate
shareholders, either individually or as a group, directly or indirectly, hold 50% or more of the total paid in
capital. Listed corporations are not CFCs. The Indonesian shareholders shall be deemed to receive
dividends within four months after the tax return filing deadline; or seven months after the end of the fiscal
year where there is no obligation to file an annual tax return, or there is no specific deadline of filing in the
country of residence of the CFC

Thin Capitalization
Where a “special relationship” exists between parties, interest may be disallowed as a deduction
where such charges are considered excessive, such as interest rates in excess of commercial rates

Interest-free loans from shareholders may, in certain cases, create a risk of deemed interest being
imposed, giving rise to withholding tax obligations for the borrower

The Minister of Finance on 9 September 2015 issued the “thin capitalization” rules that limit the
deductibility of interest and other financing costs. In this regulation, the MoF has set a Debt to Equity
Ratio (“DER”) maximum of 4:1, effective for Fiscal Year 2016 onwards. The thin capitalization rules
are not applicable for certain industries, such as infrastructure and financial services amongst others

Special rules on tax deductibility of interest apply in the mining, and oil and gas sectors in accordance
with the contracts

Interest Deductibility Restrictions
Interest should be at arm’s length if the transaction is between related parties and the thin capitalization
rules should be satisfied. If not, the interest deduction may be denied

Amalgamations of Companies
Amalgamations of Indonesian incorporated companies in the context of business restructuring must be
priced at market value. Under certain circumstances, the transaction could be done at book value with
approval from the Tax Office. Based on the prevailing regulation, the said circumstances are:
 Amalgamation of Indonesian limited liability companies, whereby the surviving company must be
company with the lowest fiscal loss (if any) and the transferor company must be ceased upon
transferring all of its assets and liabilities to the surviving company;
 Amalgamation of Indonesian limited liability company with foreign limited liability company,
whereby the Indonesian limited liability company must become the surviving company and the
foreign limited liability being the transferor company must be ceased upon transferring all of its
assets and liabilities to the surviving company

General Anti-Avoidance
No general anti-avoidance rules apply other than mentioned above. In practice, especially at the tax court
level, tax authorities often follow substance over form

Anti-treaty Shopping
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services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 4
To utilize the tax treaty provisions, a non-resident must confirm in Form DGT-1 (for non-resident banks,
they must use Form DGT-2) that the transaction has economic substance and is not solely designed to
take advantage of tax treaty benefits

Other Specific Anti-Avoidance
No other specific anti-avoidance regimes rules apply

Rulings
Indonesia has a ruling system in place. However, tax rulings are not generally published, and are only
applicable to the relevant taxpayer that requested such ruling

Hybrid Instruments
The treatment of hybrid instruments for tax purposes will generally follow the accounting treatment, and the
related tax obligations will be determined based on such accounting treatment

Hybrid Entities
There are no specific rules that apply to hybrid entities in Indonesia

Related Business Factors
Forms of legal entities typically used for conducting business
Limited liability companies are the typical legal entity used for conducting business in Indonesia. Limited
liability companies with a foreign shareholder(s), known as PMA Companies, are the only form permitted
under the Foreign Investment Law

A PMA Company is currently not allowed to be a pure holding company. Indonesian residents can establish
regular limited liability companies ("PT Biasa" or "PT PMDN") to hold offshore investments. These
companies are allowed to be established as pure holding companies

Capital requirements for establishing a legal entity
There is no general capital requirement for establishing a legal entity. Rather, the Indonesia Investment
Coordinating Board (“BKPM”) will assess each entity on its facts and circumstances and set a minimum
capital requirement for establishing that particular entity. However, there must be a debt to equity ratio of
3:1 on the investment amount

In practice, as a general guide, the BKPM will require a minimum of USD 250,000 of share capital for
establishing a service company

Other local requirements for establishing a legal entity
Foreigners are generally permitted to invest with no restriction on the maximum size of the investment, the
source of funds (subject to 3:1 debt to equity ratio) or whether the products are destined for export or the
domestic market

However, there are certain industry sectors which are closed or restricted to limited foreign investment
ownership (must have a local partner) on the Investment Negative List

Use of Indonesian Rupiah (“IDR”) for transactions in Indonesia
Unlike before where a foreign currency could be used in invoices (normally the USD), as of 1 July 2015, it
is mandatory to use IDR for all transactions (either cash or non-cash settlements) conducted in the territory
of Indonesia. There are certain limited exceptions for this requirement

© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client
services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 5
1.2 Determination of taxable income and deductible expenses
1.2.1 Income
General
Income means additional economic capability received or earned by taxpayer in any name and any form,
whether originating from Indonesia or from outside Indonesia that may be used for consumption or to
increase the wealth of the taxpayer. Taxable income means the income less the deduction of allowable
expenses as specified by the laws

Branch Income
A foreign company is only permitted to register and operate a permanent establishment structure in
Indonesia in a limited number of industries (e.g., construction, mining). Representative offices (ROs) can
only be established for non-direct profit earning (trade liaison) activities

Capital Gains
Capital gains, regardless of the reason for the disposal of the asset, are taxable

Certain tax treaties provide an exemption on capital gains on the sale of unlisted shares by the non-
resident shareholders, if Form DGT-1 is available. In the case that no exemption is available, the sale of
unlisted shares is subject to 5% withholding tax on the total transaction value (gross proceeds) and in this
case, an independent appraisal report is required to demonstrate that the transaction value is an arms-
length price

All capital gains are taxable unless tax treaty relief is available

Capital gains earned by Indonesian resident are taxable with 25% corporate income tax

Dividend Income
Dividends paid from an Indonesian resident subsidiary to a non-resident parent will be subject to 20%
withholding tax or a reduced rate if the non-resident parent resides in a tax treaty country and can meet the
requirements to utilize the tax treaty provisions

Dividends paid to a resident parent are subject to 15% withholding tax, which is creditable for the parent
company. In case the parent company holds at least 25% of the shares in the Indonesian subsidiary, and
the dividend is paid out of the retained earnings no withholding tax should be due and the dividend should
be exempt at the parent company level

Deemed dividends are always taxable (because not paid out of the retained earnings). Liquidation
proceeds are treated as normal dividends. Any excess above the equity will be taxed as a dividend (or
exempt if the conditions are fulfilled)

Dividends received from non-resident subsidiaries are taxable. Any foreign withholding tax should be
creditable with the Indonesian corporate income tax. Any excess credit is lost

Interest Income
Interest paid from an Indonesian resident to a non-resident company will be subject to 20% withholding tax
or a reduced rate if the non-resident company resides in a tax treaty country and can meet the
requirements to utilize the tax treaty provisions

Interest paid to a resident company is subject to 15% withholding tax, which is creditable for the receiving
company

Deemed interest is taxable

Interest received from non-resident companies is taxable. Any foreign withholding tax should be creditable
with the Indonesian corporate income tax. Any excess credit is lost

Other Significant Items
Not applicable
© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client
services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 6
1.2.2 Expenses
General
Expenses to obtain, collect and maintain income should generally be deductible

Minimum Taxation Requirements for the Deductibility of Losses
No, foreign sourced losses are not deductible

Capital Losses
Realized domestic capital losses are generally deductible. Write-downs in value are not tax deductible. A
complete write-off of a loan may be tax deductible if various requirements have been fulfilled. Foreign
exchange losses are tax deductible (FX gains are taxable)

Goodwill cannot be amortized for tax purpose. Impairment of the value may be tax deductible

Carry Forward
Carry forward of tax losses is limited to five years. This period may be extended for up to ten years under
special tax incentives available for certain regions and/or industries

Carry Back
No carry back

Bad Debts
Write-off is deductible if various requirements have been fulfilled

Change of Control Rules
Changes in shareholders do not affect the validity of the carried forward losses

Depreciation/Capital Allowance
Depreciable property is defined as tangible property owned and used in the business or owned for the
production, recovery and securing of income, which has a useful life of more than one year. Land is not
depreciable, except for certain industries

Buildings and other immovable property are depreciated only using the straight-line method. For all assets
other than buildings and other immovable property, depreciation is calculated using either the declining
balance or the straight- line method at a company’s option. These assets must be grouped into categories
defined by the tax regulations, as are the useful lives to be applied in calculating tax depreciation for each
category

Once applied, taxpayers are not allowed to change the method of depreciation without the tax authorities’
approval. Special rules apply in the oil & gas and mining sectors

Double Deductions
Not applicable
Interest Expenses
Interest expenses in principle deductible if incurred in order to obtain, collect, and maintain taxable income

In addition, the interest rate should be at arm’s length subject to thin capitalization rules
Inventories
Inventory costs (including obsolescence) are tax deductible

Other Significant Items
Not applicable
© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client
services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 7
1.3 Tax Compliance
Compliance Requirements
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 year or tax year, and this deadline may be extended for two months by notifying the Director
General of Taxation

Mandatory Electronic Filing
Electronic filing is mandatory for taxpayer that meets certain conditions, e.g., taxpayer that is registered as
VAT-able firm

Requirement to Prepare Tax computation / Return in Functional Currency
Basically, tax computation is required to be prepared using Indonesian Rupiah currency. With approval
from the Tax Office, taxpayer could prepare tax computation / return in English using United States Dollar
currency

Documents to File with Tax Return
Certain documents are required to be attached to tax return. The tax return would be considered as
incomplete without those documents

Exemptions to File Audited Financial Statements with Returns
The Audited Financial Statements are required to be attached to the Corporate Income Tax return

Exemption is given if the taxpayer’s financial statements are not audited by an independent auditor. In that
case, the non-audited financial statements are required to be attached instead

Language to File Return, Computation and Supporting Documentation(s)
Tax computation / return are required to be prepared in Bahasa Indonesia. With approval from the Tax
Office, it can be prepared in English

Filing Extension Availability and Details
Filing extension is only available for annual corporate income tax return. The extension is given for
maximum two months

Payment of Estimated Tax
Monthly installment to the annual corporate income tax is calculated based on last year regular taxable
income. The installment must be settled on the 15th of the following month

Interim Tax Returns
Not applicable

Payment of Tax
Underpayment of annual corporate income tax must be paid before the return is submitted

Penalties for Non-compliance
Late tax return submission is subject to IDR 1 million (per return)

Penalties and/or Interest for Underpayment of Taxes
Late tax payment is subject to 2% penalty per month, maximum 24 months

Statute of Limitation
There is a five-year statute of limitations. It might be extended if the taxpayer committed criminal act

© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client
services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 8
1.4 Financial Statements/Accounting
Details of Local Accountant Requirements
Under the current tax law, all companies must maintain their bookkeeping in Indonesia in accordance with
the Indonesian Financial Accounting Standards. Indonesian Financial Accounting Standards are adopted
from the IFRS; however, there could be a timing difference between the effective date of the IFRS and the
Indonesian Financial Accounting Standards

Companies are required to self-assess and lodge annual corporate income tax returns. Consolidated
returns for commonly owned entities are not permitted. The returns must be lodged with the relevant tax
office within four months after the end of the calendar year or tax year (in case that the tax year is different
with the calendar year), this deadline may be extended for two months by notifying the tax office

The accounting financial statements are required to be attached to the income tax returns (if the financial
statements are audited so the audited accounts must be attached) together with the reconciliation to
calculate the taxable income/loss (after taking into account the permanent and timing differences)

Fiscal Year
Fiscal year usually follows accounting period. Change of fiscal year requires approval from the Tax Office

Periodicity of Local Books to be Closed
Fiscal year covers 12-months period

Retention Period for Statutory Financial Statements/Working Papers
Taxpayer is required to keep its bookkeeping along with the supporting documents for 10-years period

Requirements to Retain Physical Copies Locally/Electronically Stored Data to Reside on In-
country Server
Taxpayer is required to maintain bookkeeping in Indonesia

Requirements to Prepare Financial Statements in Local Currency
From tax perspective, taxpayer must prepare FS for the purpose of tax calculation (no restriction for
commercial purpose) in local currency. With approval from the tax office, the FS for the purpose of tax
calculation could be in USD

What GAAP must the Financial Statements be Prepared Under?
The financial statement must be prepared in accordance with the Indonesian accounting standard

Prescribed Format and Details for Financial Statements
Financial statements must be prepared following the prescribed standard governed under the Indonesian
accounting standard

Filing Due Date
Financial statements must be submitted along with the annual corporate income tax return at the latest the
end of the fourth month following the end of the fiscal year

Filing Format of Financial Statements
There is no specified format for filing the Financial Statements
Filing Extension Availability and Details
Not applicable

Penalties for Non-Compliance
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services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 9
Failure to comply with the requirement, i.e., submitting the financial statement would be considered as not
having filed the tax return. This is subject to a late reporting penalty of IDR 1,000,000

© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client
services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 10
1.5 Incentives
Intellectual Property Incentives
Not applicable

R&D Incentives
Research and development undertaken in Indonesia is deductible expenditure

Special Tax Regimes for Specific Industries or Sectors
As of February 2018, income tax relief is available for investments in 26 selected sectors (71 sub-sectors)
and/or 16 selected sectors in selected locations (74 sub-sectors). The selected business sectors are
economic sectors that have high priority on a national scale, particularly in respect of boosting exports. The
selected regions are remote regions, which are economically potentially worthy of development, but whose
economic infrastructure is generally inadequate, and where access by public transport is difficult

Other Incentives
Other tax incentives are available for certain entities in specific industries, including:
 Tax holidays, (reduction in corporate income tax rate for up to twenty years period upon
commencement of commercial operation for pioneer industries with a certain amount of minimum
investment)

 Tax exemptions for certain transactions, e.g. merger and spin-off, and newly established foreign
owned company
 Income tax relief on investment in certain business and/or certain regions in the form of additional
deductions, accelerated tax depreciation, and extended loss carry forward periods

© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client
services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 11
1.6 International Taxation
Double Taxation Relief
Double taxation relief is available under tax treaty with Indonesia treaty country partner. As of February
2018, Indonesia has 66 double tax agreements in place

Foreign-exchange Controls
There are no foreign exchange restrictions in Indonesia, but there are some administrative reporting
requirements for transfers exceeding USD 10,000 (disclosure of the underlying transaction of this transfer)

International Withholding Tax Rates
Withholding tax is imposed at 20% on various amounts payable to non-residents (e.g. dividends, interest,
and royalties), unless the non-resident has a permanent establishment in Indonesia, whereby the rates
applicable to payments to residents apply

The withholding tax rate may be reduced where the foreign resident is exempt or eligible for a reduced rate
by virtue of a tax treaty. In order to qualify for any relief under a relevant tax treaty, non-residents must
provide a certificate from the tax authority in their country of residence (Form DGT1 for most taxpayers and
Form DGT2 for banks). In most cases, the withholding liability arises when the expense is incurred, not
when the payment is made

Permanent Establishments of foreign enterprises are also 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

Withholding Tax Rates under the Income Tax Treaties
Reduced tax treaty benefits would apply if non-resident taxpayer has satisfied general residency and
economic substance test (including principal purpose test) and beneficial ownership test in case of dividend
(including branch profit tax), royalty, and interest. Foreign taxpayer must submit to the Indonesian
withholding tax agent the prescribed certificate of domicile (DGT-1 Form or DGT-2 Form for banking and
financial institution) that has been completed and validated by the competent tax authority of the treaty
country partner. Indonesian withholding tax agent is not permitted to apply the reduced tax treaty rate if the
Form is incomplete or completed not in accordance with the prevailing regulations

Under certain tax treaties, the application of the reduced tax treaty rate is also subject to additional
requirements such as minimum participation requirement and minimum holding period in the case of
dividend and interest. Under certain tax treaties, fees for technical services might be characterized as
royalty

© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client
services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Indonesia Tax Profile 12

Indonesia. Tax Profile . Produced in conjunction with the KPMG Asia Pacific Tax Centre . July 2018 . A company with gross turnover of less than IDR 50 billion (approximately USD 5.5 …

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Frequently Asked Questions

What is the withholding tax on non resident income in indonesia?

Non-resident individuals are subject to withholding tax at a rate of 20% (Article 26 income tax, subject to a relevant tax treaty provisions) on Indonesia-sourced income (as specified on pages 34-35). 22Indonesian Pocket Tax Book 2022 PwC Indonesia Individual Income Tax Registration and filing

How is taxation determined in indonesia?

Taxation in Indonesia is determined on the basis of residency. Residency tests are applied as follows: • Individual resident taxpayers are individuals who: - are domiciled in Indonesia; or - stay in Indonesia for more than 183 days in any 12-month period; or - are present in Indonesia during a tax year and intending to reside in Indonesia.

What is the new income tax facility of indonesia?

The Government introduces income tax facility for labor-intensive industries and certain types of expenditure incurred by Indonesian taxpayers, which will be soon regulated under MoF regulation. There are 3 (three) business activities eligible for this new income tax facility: 1.

What are the tax rates in indonesia for 2019?

Rental of land and/or buildings 10% (13)(14)20% Interest or discount on Bank Indonesia Certificates (SBI), savings & fixed deposits (9) 20% (10)20% Gain on approved asset revaluation 10% or 15%(11)N/A Sharia business income 20%(12)20%(12) Indonesian Tax Guide 2019-2020 43 Type of Income Effective Withholding Tax Rates