Guide to Tax Obligations and Payroll Compliance in Indonesia 2023

One of the crucial things in doing business is to stay in 100% compliance, regardless of where you run it. Tax obligations such as registration, payment, and reporting are mandatory compliances to keep your business running.

In Indonesia, there are many types of tax obligations to follow. As a foreign investor or business actor, it may be challenging for you to understand them one by one. Consider that the regulations are prone to changes. Therefore, opting for assistance from a qualified tax consultant in Indonesia is highly recommended.

To help you sort things out, this article discusses some of the most important taxes in Indonesia that you must be aware of, along with sanctions and penalties for tax non-compliance. Later, the article also elaborates on payroll compliance in Indonesia.

Tax Obligations and Compliance in Indonesia

Corporate income tax (CIT) and value-added tax (VAT) are the most important tax obligations to which every business owner should pay attention.

Tax requirements and rates may differ depending on business classification, activities, and location. For details, you can contact an expert on tax consultancy at InCorp Indonesia (formerly Cekindo).

Sanctions and Penalties for Tax Obligations in Indonesia

Non-compliance cases for tax obligations in Indonesia can be classified as non-severe and severe, with sanctions and penalties incurring accordingly. For example, if a company is late for tax payments, it will be subject to a monthly surcharge of 2% of the total Tax liability.

A company failed to report may get fined between IDR 100,000 and IDR 1,000,000, depending on the tax type. Incomplete, late issuance, non-conforming issuance, or non-issuance of the VAT invoice will be subject to a surcharge of 1%.

Serious tax infringements in Indonesia, such as providing wrong information for tax returns and not submitting tax returns, may result in imprisonment of between 3 and 12 months or a fine of 200% of the underpaid tax.

Fraud, embezzlement, and improper bookkeeping cases can result in a maximum of 6-year imprisonment or a surcharge of 200-600% of the actual payments.

Payroll Compliance in Indonesia

In Indonesia, the company must withhold the employees’ income taxes, regardless of their citizenship. At the end of the year, the employer in Indonesia will provide employees with their annual tax returns.

Then, the company and the employees must submit their annual tax returns to the tax authority no later than 31 March of the following year.

Everyone’s income is subject to a basic tax allowance in Indonesia. But if the payment is below the minimum amount, the taxable income is not subject to tax.

If the taxable income is higher than the basic tax allowance, they must pay for their income tax, and the tax rates are progressive. In other words, the higher a taxable income is, the higher the amount to be paid to fulfill tax obligations.

All tax residents, including foreign nationals, must register for the National Taxpayer Identity Card (NPWP). Those without the NPWP are subject to an additional 20% charge on their income tax withholding.

The following tax rates can be used as the basic guidance for income tax calculation in Indonesia:

• The first IDR 0 – 60,000,000: 5%
• The next IDR 60,000,000 – 250,000,000: 15%
• The next IDR 250,000,000 – 500,000,000: 25%
• The next IDR 500,000,000 – 5,000,000,000: 30%
• The next amount over IDR 5,000,000,000: 35%

In addition to deducting the income tax, there are several things to consider for payroll calculation in Indonesia:

• Minimum salary: amount may vary between regions in Indonesia
• Work hours: 40 hours is usually the standard work hours (Monday to Friday) for employees in Indonesia
• Overtime work: each employee is only allowed to 3-hour of overtime per day. The overtime time rate is 1/173 of the monthly salary of an employee.
• Allowance: a religious holiday allowance (THR) must be given to all employees. This allowance is an extra income, not part of the monthly salary. It is usually given either before Eid al-Fitr or Christmas.
• Mandatory insurance: All local and foreign employees who have worked and resided in Indonesia for over six months must participate in the BPJS Employment Program in Indonesia. This program consists of a healthcare BPJS and a social security BPJS.

Let InCorp Indonesia Handle Your Tax Obligations

As mentioned above, entrepreneurs must ensure 100% compliance regarding taxation and payroll in Indonesia. While you can do it all by yourself, it is best to let a team of experts handle the matters related to tax and payroll.

Then, tax, accounting, and payroll outsourcing is a wise business decision. You can eliminate those burdens and finally have the peace of mind to grow your business even more.

To gain more insights into how business process outsourcing from InCorp Indonesia (formerly Cekindo) can support your business growth in Indonesia, have a free consultation with our specialists by completing the form below.