Home Blog The Tax Directorate General in Indonesia: Roles and Responsibilities Finance | Indonesia | Tax Reporting The Tax Directorate General in Indonesia: Roles and Responsibilities InCorp Editorial Team 19 July 2024 5 minute reading time Table of Contents What is the Tax Directorate General in Indonesia? Brief History of the Tax Directorate General Responsibilities of the Tax Directorate General in Indonesia Importance of the Tax Directorate General for Taxpayers Let InCorp Manage Your Tax Reporting The tax directorate general in Indonesia is crucial to strengthening the country’s fiscal policy and economic stability. As the primary agency responsible for tax collection and administration, the governmental body ensures compliance with tax laws and regulations and generates essential revenue for the government. This comprehensive guide explores how the tax directorate general in Indonesia functions, is responsible and impacts Indonesia’s economy. What is the Tax Directorate General in Indonesia? The Tax Directorate General or Directorate General of Taxes (DGT) is one of the directorates under the Ministry of Finance. It operates by the mandate of the Minister of Finance Regulation No. 184/PMK/01/2010 on the Organization and Work Procedures of the Ministry of Finance. With the presence of the DGT, the Indonesian public is expected to understand the importance of paying taxes correctly and on time to support Indonesia’s development. What Does the DGT Stand For? The Directorate General of Taxes (DGT), operating under Indonesia’s Ministry of Finance, formulates taxation policies. The tax directorate general is a critical driver of the national economy. Therefore, every regulation is expected to capitalize on opportunities arising in the rapidly evolving digital era. READ MORE:Indonesia Implements New Regulations For Withholding TaxWhat You Need To Know About Taxation Of Benefits In KindGuide On Filing Corporate Annual Tax Return (SPT) In Indonesia Brief History of the Tax Directorate General The DGT began as a merger of several taxation units in Indonesia, including the Tax Office, the Bureau of Auction, the Tax Accountant Office, and the Agricultural Tax Office, which was initially under the Directorate of Regional Development Contribution (IPEDA). IPEDA, initially part of the Directorate General of Monetary, was transferred to the Directorate General of Tax following Presidential Decree No. 12/1976 in March 1976. The tax directorate general is structured into head office units and operational office units. The DGT’s head office includes the Secretariat of the Directorate General, directorates, and reviewer positions. The operational offices comprise the Regional Office of the DGT (Kanwil DJP), the Tax Service Office (KPP), the Tax Service, the Counseling and Consulting Office (KP2KP), and the Tax Data and Document Processing Centre (PPDDP). Responsibilities of the Tax Directorate General in Indonesia In addition to implementing local tax policies, the DGT is tasked with standardizing technical aspects within the tax field. As a crucial part of the Ministry of Finance, the tax directorate general in Indonesia is a key economic driver for the country. According to the Minister of Finance Regulation Number 234/PMK.01/2015 mandate, which pertains to the Ministry of Finance’s organization and work procedures, the DGT is responsible for developing and executing taxation policies and technical standards. To fulfill these duties, the DGT performs several functions: Developing tax policies Implementing tax policies Preparing norms, standards, procedures, and criteria for taxation Offering technical guidance and assessments in taxation Managing the operational activities of the DGT Importance of the Tax Directorate General for Taxpayers The Directorate General of Taxes (DGT) plays a pivotal role in overseeing and managing various important functions within Indonesia’s taxation landscape. Collection of State Revenue One of the DGT’s primary roles is collecting state revenue from the taxation sector. The DGT manages taxes such as income tax, value-added tax (VAT), property tax (PBB), and others. This tax revenue is a primary source of state income for financing various government programs and activities. Tax Compliance Supervision and Enforcement The DGT is responsible for overseeing and enforcing taxpayer compliance with tax obligations, which includes monitoring timely tax reporting and payments and preventing tax avoidance or evasion. The tax directorate general in Indonesia strives to create a fair and equitable taxation climate for all taxpayers through strict law enforcement. Formulation of Tax Policies The DGT formulates tax policies, including amendments to tax laws and technical policies related to tax administration. This aims to continuously improve the tax system’s efficiency and provide appropriate incentives for the national economy. Taxpayer Services and Education The DGT aims to deliver excellent services to taxpayers, which includes simplifying tax administration procedures and informing them about their obligations and rights. Additionally, the DGT enhances public awareness and comprehension of the importance of taxation through educational and social outreach initiatives. Development of the Tax System The DGT conducts research and analysis to develop a more efficient, transparent, and fair tax system. This includes implementing information technology and e-government to enhance tax management and oversight. International Cooperation The DGT actively engages in international cooperation regarding tax information exchange and tax avoidance prevention. This cooperation is essential to ensure that cross-border transactions are well-monitored and that due taxes are duly collected. Overall, the role of the Directorate General of Taxes is vital in maintaining the country’s fiscal stability, funding various development programs, and creating a conducive taxation environment for economic growth and societal welfare. Let InCorp Manage Your Tax Reporting Preparing a tax report can be challenging and time-consuming, fraught with the risk of errors that could trigger costly penalties and investigations. InCorp simplifies corporate tax compliance. Our experienced tax consultants offer a comprehensive solution, combining in-depth knowledge of Indonesian tax regulations with a commitment to accuracy and efficiency. Here’s what sets InCorp apart: Experienced Tax Consultants: Our team has the knowledge and expertise to navigate complex tax regulations. Error-Free Filings: We ensure your tax reports are accurate and compliant, minimizing the risk of penalties. Streamlined Process: We handle the entire tax reporting process, saving you time and resources. Reduced Audit Risk: Our comprehensive approach minimizes the possibility of audit triggering. Fill in the form below for accurate, efficient, and compliant tax reporting. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog How Global Mobility Strategy Benefits Businesses in Indonesia Global Mobility | Indonesia | Tax Reporting How Global Mobility Strategy Benefits Businesses in Indonesia InCorp Editorial Team 15 April 2024 5 minute reading time Table of Contents Understanding the Global Mobility Services What is the Global Mobility Strategy? The Importance of Global Mobility Strategy Best Practices of Global Mobility Services The Key Factors of Global Mobility Strategy Streamline Your Global Mobility Experience with InCorp Indonesia In today’s increasingly interconnected world, companies recognize the immense potential of a well-defined global mobility strategy. This strategic approach to facilitating talent movement across international borders goes beyond simple relocation. It is a key driver in unleashing growth and attaining a competitive advantage in the global marketplace. Understanding the Global Mobility Services Providers of global mobility solutions are becoming increasingly crucial in facilitating and aiding a globally dispersed workforce. Companies operating internationally often need to swiftly relocate or recruit personnel across borders to access the right talent at the right time and place. However, managing the relocation and hiring process in new locations can take time and effort. By utilizing global mobility services, businesses can significantly ease the transition for their employees and HR departments, making cross-border moves faster, smoother, and more likely to succeed. Global mobility solutions providers offer expertise in navigating immigration regulations, finding suitable housing, and ensuring a smooth cultural adjustment for employees and their families. This makes partnering with global mobility service providers an evident and advantageous choice. What is the Global Mobility Strategy? While global mobility services’ significance continues to grow, understanding their strategic implications is paramount, particularly for multinational corporations, decentralized firms, and even local companies adapting to remote work in the wake of the pandemic. A global mobility strategy is a comprehensive business blueprint that facilitates the movement of employees within an organization to various locations, both domestically and internationally. This strategy encompasses a range of policies, procedures, and guidelines governing the relocation process for employees. The Importance of Global Mobility Strategy Remote work is becoming increasingly common, necessitating adopting a global mobility strategy to meet the demands of this trend and expand international business. Let’s explore why having such a strategy is crucial: Cultural Adjustment Relocating to new countries can be overwhelming due to cultural, language, cuisine, currency, and climate differences. A global mobility strategy prepares employees for this transition and provides support during their adjustment period. Payment and Benefits for Overseas Employees Various payment methods exist for employees working abroad, each with advantages and disadvantages. Including global payroll and benefits provisions in the mobility strategy ensures transparency regarding compensation, retirement plans, pensions, and other benefits. Management of Remote Workforce Managing a global workforce requires unique skills, technologies, and expectations from both employers and employees. Incorporating workforce management, recruitment, and retention into the global mobility strategy serves as a guide for effective remote management. Relocation Logistics A global mobility strategy outlines the logistical aspects of international relocation, facilitating a smooth transition for employees. This includes arrangements for settling into new environments, offices, and teams. Compliance with Labor, Tax, and Immigration Laws Labor rights, tax regulations, and immigration laws vary across countries, necessitating awareness and adherence to local regulations. A robust global mobility strategy ensures compliance with international and local laws concerning labor, tax, and immigration for the countries of operation. READ MORE:How Global Mobility Services Improve Your BusinessHow Global Mobility Services Facilitate Employee RelocationThe Effective Ways To Improve Talent Retention Best Practices of Global Mobility Services Businesses today must prioritize global mobility best practices to optimize their global mobility strategies. Here are key points to consider: Enhance Employee Experience Instead of solely focusing on cost reduction, invest in improving the employee experience through a well-designed global mobility program. A global mobility program should establish programs and policies to support employees and their families settling in the host country, leading to higher satisfaction and productivity. Review International Requirements Review and address all international requirements comprehensively, including immigration, taxation, documentation, and support services, to ensure a seamless global deployment experience for employees. Implement Flexible Policies Create flexible global mobility policies and processes to accommodate varying employee needs and assignment requirements while maintaining standardization where possible. Maximize Return on Investment Shift the focus from cost-consciousness to maximizing ROI. Track ROI in international assignments to justify additional investments and ensure they generate higher returns. Utilize Appropriate Technology Implement the right technology tools to streamline global mobility processes, from estimating costs to ensuring consistent communication and support for deployed employees. Consolidate Vendors Consider vendor consolidation to save costs and manage fewer vendor relationships while fulfilling global mobility needs effectively. Structure Flexible Schedules Plan structured yet flexible schedules to accommodate time zone differences and enable successful collaboration across global teams. The Key Factors of Global Mobility Strategy Here’s a concise guide to key factors to include in your global mobility strategy for effective team deployment abroad: CategoryDescriptionEmployment LawEnsure employees know host country employment laws and regulations, covering contracts, local legislation, and assignment terms.ImmigrationAssist in planning and obtaining the required visas, work permits, and resident permits for employees relocating abroad.Cultural ConsiderationsProvide insights into local work culture and interpersonal dynamics to facilitate smoother adaptation for global teams.Relocation AssistanceTo aid in their settlement process, support employees in finding housing, schooling, and other essential services in the host location.HR SupportDevelop career development plans and provide country-specific HR support for onboarding, appraisals, and grievance resolution for global talents.Payroll ManagementHandle payroll processes in home and host countries, including currency conversion, tax withholding, and reporting obligations.Pension and Benefits AdministrationManage pension and benefit schemes for employees in home and host countries to ensure comprehensive coverage.Tax ComplianceEnsure compliance with income tax and social security regulations in home and host countries, facilitating tax obligations for global teams. Streamline Your Global Mobility Experience with InCorp Indonesia Simplify your global business operations with InCorp Indonesia’s comprehensive global mobility services. Our seamless process handles all your global mobile activities and projects securely and efficiently, utilizing our extensive knowledge of local regulations. Our experienced consultants, trusted by international businesses for over a decade, ensure that your global mobility needs are met precisely and professionally. At InCorp, our client-oriented approach ensures that we rest when we achieve your satisfaction, delivering tailored solutions to your unique needs. Choose InCorp for a hassle-free and reliable global mobility experience. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog The VAT to Increase by 12%: What Will Happen Next Year? Finance | Indonesia | Tax Reporting The VAT to Increase by 12%: What Will Happen Next Year? InCorp Editorial Team 4 April 2024 5 minute reading time Table of Contents Indonesia to Impose 12% VAT in 2025 The Previous VAT Increase from 10% to 11% in April 2022 List of Goods and Services Free from the 12% VAT Rate VAT Impact on Businesses Let InCorp Handle Your Taxation Process Indonesia is preparing to increase its value-added tax (VAT) rate. The new rate will be one percentage point higher than the current 11% and will take effect in 2025. This change is part of a government plan to broaden the tax base and increase revenue. Indonesia to Impose 12% VAT in 2025 The government has stated that the current value-added tax (VAT) rate of 11% will continue to be applicable for the current year. Nonetheless, according to Law Number 7 of 2021 on Tax Regulation Harmonization (UU HPP), a provision stipulates an increment in the VAT rate to 12%, starting to take effect no later than January 1, 2025. However, the government can adjust the 12% VAT rate under specific conditions. According to Article 7, paragraph (3), the rate may vary between 5% and 15%, based on particular considerations. The Previous VAT Increase from 10% to 11% in April 2022 Fajry Akbar, the Research Manager at the Center for Indonesia Taxation Analysis (CITA), views the policy decision to raise the VAT rate as one suitable method of boosting state revenues. Furthermore, Indonesia aims to increase its tax rate to catch up with neighboring countries like Thailand, which is already 16%. Throughout 2022, Finance Minister Sri Mulyani Indrawati secured an additional IDR 60.76 trillion for the state coffers after raising the rate from 10% to 11%. In 2023, with the continuation of the 11% VAT policy, the government recorded tax revenues from VAT and luxury sales tax (PPnBM) components amounting to IDR 764.34 trillion, marking an 11.16% year-on-year growth. The sector is primarily supported by VAT, mainly Domestic VAT (PPN DN) and Import VAT, which contribute 62.35% and 33.47%, respectively, to the total VAT/PPnBM revenues. Each contributes to state revenues of IDR 476.57 trillion and IDR 255.82 trillion, respectively. Currently, the government is preparing revenue projections for the 2025 State Budget, which is earmarked for the new administration. READ MORE:Indonesia Imposes Stricter Penalties For Tax Non-ComplianceGuide On Filing Corporate Annual Tax Return (SPT) In IndonesiaEverything You Need To Know About Value-Added Tax (VAT) In Indonesia List of Goods and Services Free from the 12% VAT Rate Although the VAT rate increase can be an inconvenience, there are a few goods and services exempt from the 12% Value Added Tax: TypesDescriptionsEssential goods highly needed by the general populace Rice Unhusked rice Corn Sago Soybeans Salt (iodized or not) Meat (fresh or preserved) Unprocessed eggs Unadulterated cow’s milk Fresh fruits Fresh vegetables (including chopped ones) Medical Healthcare Services General practitioners specialists, and dentists Veterinarians Health professionals: dental experts, nutritionists, physiotherapists Midwifery and traditional birth attendants Paramedics and nurses Hospitals, maternity homes, health laboratories, and sanatoriums Psychologists and psychiatrists Alternative medicine practitioners Health services covered by national health insurance Social Services General practitioners specialists, and dentists Orphanages, elderly care facilities Firefighting services Emergency assistance during accidents Rehabilitation institutions Provision of funeral homes and burial services Non-profit sports-related services Financial Services Fund-raising services from the public, such as current accounts, time deposits, deposit certificates, savings, and/or similar forms thereof Depositing, lending, or borrowing funds to/from others using written instruments, telecommunication facilities, promissory notes, checks, or other means Financing services (including Sharia-compliant financing) Pawnbroking services (including Sharia and fiduciary) Guarantee services Insurance Services Excluding insurance agents, loss adjusters, and insurance consultants Educational Services Educational institution services, such as general education, vocational education, special education, civil service education, religious education, academic education, and professional education Extracurricular educational services Labor Services Labor supply services as long as the labor provider is not responsible for the work output of the laborers Training services for laborers The Correlation of Indonesia’s VAT and Singapore’s GST Singapore announced its plan to increase the Goods and Services Tax (GST) during the 2022 budget. The plan involves raising the GST from seven to eight percent in 2023, followed by another increase to nine percent in 2024. Indonesia has also applied a similar strategy for 2025. The increased revenue from the GST hike is being used to meet the country’s medium-term fiscal needs. This adjustment in taxation shows Singapore’s commitment to strengthening its tax revenue base, especially considering the rising healthcare costs in the city-state. VAT Impact on Businesses The introduction of VAT can have significant implications for businesses, including Financial Impact VAT adds costs for businesses by requiring them to collect and remit VAT to tax authorities, affecting cash flow management. Pricing and Margins VAT influences pricing and profit margins, requiring businesses to consider covering VAT costs while remaining competitive. Compliance and Administrative Burden VAT entails administrative tasks such as registration, record-keeping, issuing VAT-compliant invoices, and filing returns, posing challenges, especially for smaller businesses. Impact on Sales and Customer Behavior VAT introduction can alter consumer spending patterns based on price sensitivity, affecting product demand and sales volumes. Competitive Landscape Efficient VAT management can give businesses a competitive edge, while non-compliance or failure to adjust prices may lead to market challenges. Supply Chain Considerations VAT impacts supply chains, particularly in international trade, involving import/export VAT, customs procedures, documentation, and cash flow management. Let InCorp Handle Your Taxation Process With InCorp Indonesia’s specialized services, you can take the burden off tax reporting. Our consultants understand the complexities of Indonesian tax regulations. We handle all aspects of your tax reporting, from meticulous record-keeping to accurate filing with the authorities. By partnering with InCorp, you’ll enjoy several benefits: Streamlined Processes: We take over the time-consuming and often confusing task of tax reporting, allowing you to focus on your core business activities. Enhanced Accuracy: Our tax specialists ensure your filings are error-free, minimizing the risk of penalties and audits. Compliance Confidence: Stay on top of all tax regulations and deadlines with our expert guidance. We keep you informed and ensure you meet all your tax obligations. Peace of Mind: Delegate the responsibility of tax reporting to a trusted advisor. You’ll have peace of mind knowing professionals handle your tax affairs. Don’t let tax reporting slow you down. Contact InCorp Indonesia today to discuss how our services can benefit your business. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog Indonesia Implements New Regulations for Withholding Tax Indonesia | Payroll | Tax Reporting Indonesia Implements New Regulations for Withholding Tax InCorp Editorial Team 13 February 2024 5 minute reading time Table of Contents Legal Basis: Government Regulation Number 58 of 2023 Types of Taxable Income How to Calculate Your Net Income? Effective Tax Rate Classification in Indonesia Who Needs to Pay PPh 21 Income Tax? Understanding Income Tax Withholding in Indonesia Stay On Top of Tax and Business Reporting in Indonesia Simplify Your Payroll System with InCorp Indonesia Starting January 1, 2024, Indonesian businesses and their employees will transition to a new monthly withholding tax system for PPh 21 income tax. This new system, mandated by Government Regulation No. 58 of 2023, streamlines the process for everyone. Legal Basis: Government Regulation Number 58 of 2023 Government Regulation No. 58 has made key changes to employee income tax calculations. Dive into our breakdown to stay informed and navigate the new system smoothly. Monthly Withholding (January-November) Simplified Effective Tax Rates: Traditional progressive tax rates have been replaced by a singular, comprehensive Effective Tax Rate (ETR). This ETR is directly applied to gross income, eliminating the need for annualization and intricate deduction calculations. Pre-Integrated Deductions: The ETR already incorporates relevant deductions such as non-taxable income, occupational expenses, and pension contributions, resulting in a more transparent and straightforward calculation process. Year-End Reconciliation (December) Assured Accuracy: A final annual calculation utilizing the standard progressive tax rate ensures a harmonious reconciliation between ETR withholdings and actual tax owed. Any underpayments are collected, while overpayments are promptly refunded, guaranteeing precise tax compliance. READ MORE:What You Need to Know About Taxation of Benefits in KindGuide On Filing Corporate Annual Tax Return (SPT) In IndonesiaIndonesia To Adopt Global Minimum Tax In 2023: What It Means For Businesses Types of Taxable Income The income that is liable to be taxed under PPh 21 (Income Tax on Salaries) is as follows: Compensation earned through employment, services, or activities in Indonesia, including salaries, wages, and bonuses. Pension income from pension funds. Regular payments from a pension fund. Income of board members and supervisors. Honorariums, commissions, fees, and other freelance and non-employee work rewards. Pocket money, representation money, meeting fees, prizes, and similar rewards received as part of work activities. Partial withdrawals from pension programs for participants who are still employed. Production service, bonuses, gratuities, and other irregular rewards received by former employees. How to Calculate Your Net Income? Calculating your net income involves subtracting eligible deductions from your gross income, representing your total earnings before taxes. Remember, only specific deductions are allowed according to tax regulations: Work-related expenses: Costs incurred for your job, up to a specific limit. Pension contributions: Payments you make towards your retirement savings. Religious donations: Zakat or other donations made through your employer to authorized institutions. Effective Tax Rate Classification in Indonesia The average effective rate (ETR) is calculated using the effective monthly rates categorized by different income ranges to determine the income tax amount. Monthly ETR Rates Category A: Single with no dependent, Single with one dependent, Married with no dependent. Category B: Single with two dependents, Single with three dependents, Married with one dependent, Married with two dependents. Category C: Married with three dependents (M/3). The applicable monthly ETR for each income range in each category can be downloaded below. Download Whitepaper Daily ETR Rates 0% ETR for daily income up to IDR 450,000. 0.5% ETR for daily income above IDR 450,000 up to IDR 2,500,000. No ETR is specified for daily income exceeding IDR 2,500,000 (further guidance needed). Who Needs to Pay PPh 21 Income Tax? Everyone earning income through employment, services, or activities in Indonesia must pay PPh 21 income tax under the new rate. This includes both public and private sector employees, such as: Government officials and civil servants Members of the Indonesian National Army (TNI) and Police (Polri) Pension recipients Understanding Income Tax Withholding in Indonesia Calculating the amount of income tax deducted from your paycheck can be challenging. Still, with the proper guidance and resources, you can easily understand the process and take control of your finances. Your tax amount depends on two key factors: Income type: Are you a permanent employee, freelancer, retiree, or something else? Marital status: Married, single, or somewhere in between? Based on these, here’s how your tax is calculated: Permanent employees & pensioners: Enjoy predictable monthly deductions using Effective Tax Rates (ETRs). Board members & supervisors: Have a dedicated monthly ETR applied to your income. Temporary employees: Your rate varies based on income & payment frequency. Non-employees & others: Use the standard income tax rate. Overseas individuals: Pay a 20% withholding or a double taxation treaty rate. Stay On Top of Tax and Business Reporting in Indonesia Compliance with reporting deadlines is crucial for smooth business operations and avoiding penalties. Here’s a quick guide for individuals and organizations: Individuals File your annual income tax return by March 31 of the following year. Extensions are available for complex situations. Extensions are available if you have additional income sources or complexities. Companies Submit your annual Corporate Income Tax (CIT) return by April 30 for a calendar fiscal year. For other fiscal year-ends, the deadline is the 15th day of the third month following your fiscal year-end. Companies with foreign investment or in specific sectors must meet regular reporting deadlines to BPKM, the Investment Coordinating Board. Download our free calendar with all the important reporting deadlines in Indonesia. Download Calendar Simplify Your Payroll System with InCorp Indonesia Recent changes to the Indonesian tax system, specifically implementing the monthly withholding system for PPh 21 income tax, may generate initial fluctuations in employee paychecks. While intended to simplify the process, this shift from the traditional annual calculation can temporarily complicate businesses’ navigation of the new landscape. InCorp Indonesia is here to provide a seamless and compliant transition for your company’s payroll system under the new regulations. By partnering with InCorp Indonesia, you can: Ensure accurate and timely payroll processing: Leverage our expertise to guarantee flawless payroll calculations that comply with the new regulations. Mitigate compliance risks: Benefit from our proactive approach to navigating the complexities of tax compliance, eliminating potential penalties, and ensuring peace of mind. Streamline administrative workloads: Free up valuable internal resources by entrusting your payroll needs to our dedicated team of specialists. Gain personalized support: Receive tailored guidance and assistance from our professionals, addressing your specific queries and concerns. Schedule a consultation today to learn how InCorp Indonesia can streamline your payroll process and help you confidently navigate the new tax system. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog Exploring the Promising Future of E-Commerce in Indonesia Indonesia | Legal Consultation | Tax Reporting Exploring the Promising Future of E-Commerce in Indonesia InCorp Editorial Team 19 June 2024 6 minute reading time Table of Contents Indonesia's E-Commerce Landscape Indonesia E-Commerce Market Leaders Factors Contributing to E-Commerce Growth The Future and Potential for E-Commerce Growth Overcoming Challenges Stay Compliant with InCorp Indonesia Indonesia offers a huge opportunity for online shopping. It’s predicted that in 2029, the industry will be worth USD 95.84 billion. This means that Indonesia could be a leader in digital business in Southeast Asia. However, there are challenges that need to be overcome, and it’s important to take advantage of the unique opportunities available to make this happen. Indonesia’s E-Commerce Landscape The estimated value of the Indonesian e-commerce market in 2024 is USD 58.43 billion. This figure is expected to soar to USD 95.84 billion by 2029, representing a remarkable compound annual growth rate (CAGR) of 10.40% throughout the forecast period (2024-2029). In 2023, Indonesia’s e-commerce sector saw transactions totaling IDR 453.75 trillion (USD 29 billion). Although the 2022 figure of IDR 475.3 trillion decreased slightly by 4.73%, the sector demonstrated strong growth in transaction volume, reaching 3.71 billion transactions compared to 3.49 billion in 2022. Digital banking services also showed positive momentum, experiencing a 13.48% year-on-year increase in transaction value, reaching IDR 58,478.24 trillion in 2023. Projections for this year suggest that digital banking transactions are expected to reach IDR 63,803.77 trillion. Digital payment platform transactions surged 43.45% year-on-year, totaling IDR 835.84 trillion in 2023. Reflecting the government’s emphasis on digitalization, the use of QR codes in domestic and cross-border transactions increased by 130% yearly, reaching IDR 229.96 trillion. Indonesia E-Commerce Market Leaders Indonesia’s e-commerce market is growing rapidly, and many companies compete to be the top players. Simply put, e-commerce is when you buy and sell things online, like websites or apps. Indonesia has well-known e-commerce companies such as Tokopedia, Shopee, and Lazada. These companies provide a broad selection of products ranging from fashion to electronics, making it convenient for people to purchase what they need from the comfort of their own homes. 1. Tokopedia Tokopedia reigns supreme, boasting a market share of 33.5% as of Q3 2023. Its user-friendly interface, diverse product offerings, and focus on local sellers have made it the go-to platform for millions of Indonesians. 2. Shopee Closing the gap with impressive growth, Shopee holds a 28.7% market share. Its strategic partnerships, aggressive marketing campaigns, and focus on mobile shopping have propelled it to become a significant force in the market. 3. Lazada Backed by Alibaba, Lazada holds a 16.1% market share. Its focus on premium brands and established retailers cater to a different segment than Tokopedia and Shopee. 4. Blibli Blibli occupies a niche with a 10.2% market share. It focuses on curated products from reputable brands, catering to a more discerning customer seeking quality and authenticity. 5. Bukalapak With a 7.2% market share, Bukalapak holds a strong position in the Indonesian market. Its focus on local sellers and community-driven features has resonated with a loyal customer base. Factors Contributing to E-Commerce Growth The e-commerce market in Indonesia is experiencing significant growth, which can be attributed to several factors. One such factor is the surge in the penetration rate of smartphones and the internet, which has increased from 64% in 2020 to 73.7% in the past year. This upward trend aligns with the government’s support, especially for micro-SMEs through B2B channels. This reflects President Joko Widodo’s vision for a seamless transition to a digital economy. Global interest in Indonesia’s e-commerce landscape is apparent, as evidenced by significant investments from companies like Amazon. In October 2021, Amazon injected USD 87 billion into Southeast Asia’s e-commerce sector, with a notable focus on the Indonesian startup Ula. Indonesia’s e-commerce market is regulated by several laws, which include No. 7/2014 on Trade, Government Regulation No. 71/2019, Government Regulation No. 80/2019, and Minister of Trade Regulation No. 50/2020. If an e-commerce platform outside of Indonesia carries out more than 1,000 transactions per year, it is required to set up a Representative Office in the country. The COVID-19 pandemic has caused a significant rise in e-commerce in Indonesia. Due to social distancing measures, people turn to online platforms for food delivery and consumer electronics services. The Ministry of Cooperatives and SMEs has reported that the number of SMEs using online platforms has increased to 10.2 million during the pandemic. READ MORE:Opening An E-Commerce Company In Indonesia2024 Economic Outlook For IndonesiaUnderstanding The New Data Protection Regulations In Indonesia The Future and Potential for E-Commerce Growth For those interested in setting up online businesses in Indonesia, there are some important things to remember. These include various aspects related to e-commerce business that need to be considered. 1. The Potential of D2C In e-commerce, leading companies such as Shopee, Tokopedia, and Lazada dominate the broad marketplace category. However, there is growing interest in segments like B2B marketplaces, e-commerce facilitators, and specialized direct-to-consumer (D2C) commerce. Indonesia holds vast potential for D2C, thanks to its rapidly growing young and productive population. This demographic ensures a continuously expanding market with increasing consumer demands. 2. Growth in Beauty Brands Investor attention has turned toward select beauty brands, including Rose All Day Cosmetics (RADC), supported by AC Ventures, and From This Island, reportedly receiving investment from Alpha JWC Ventures recently. Local beauty brands are intriguing due to their diverse pricing and product categories. Each boasts a standout product. Many companies are venturing into private labels within this sector, where they can achieve higher profit margins. 3. The Outlook for Social Commerce According to investors, social commerce, which leverages community networks and social media platforms for product and service sales, holds promising potential. The Indonesian social commerce market is anticipated to reach nearly USD 90 billion by 2028. Notable startups like Evermos and Super focus on tier-2 and tier-3 cities in Indonesia, which have substantial untapped markets for online shopping. These cities attract businesses and investors as they represent the country’s mass markets. However, companies that want to expand into these regions must adapt their strategies and business models to suit the unique characteristics of these areas. Overcoming Challenges In November 2019, the Indonesian government introduced Government Regulation 80 of 2019 (GR 80, 2019) to enhance the oversight of internet-based and electronic trading activities in the e-commerce sector and ensure tax compliance. A recent implementing regulation, a revision of Minister Trade Regulation No. 50/2020 (MR 50/2020), now bans e-commerce platforms from selling certain foreign goods valued under USD 100. These products must meet Indonesian standards, such as the Indonesian National Standard (SNI) and Food and Drug Supervisory Agency (BPOM) requirements, which mirror offline market standards. In addition, Minister Trade Regulation No 31/2023, released on September 26, 2023, prohibits the sale of goods on social media platforms. Social commerce platforms have been given a one-week deadline to comply with new regulations to prevent competition between large platforms and small businesses. While advertising on social media is permitted, direct sales transactions are not. Non-compliance may result in warnings and, eventually, the revocation of the Indonesian business license. Guide to Doing Business in Jakarta Mailchimp Free eBook Indonesia Business Insight Full NameEmail I have read InCorp's Privacy Policy and agree to InCorp using my information provided to contact me about related content, and services.*Subscribe Stay Compliant with InCorp Indonesia E-commerce in Indonesia demonstrates significant potential, prompting the government to introduce various efforts to fortify its regulatory landscape. Recognizing the complexities of legal aspects in this dynamic sector, InCorp Indonesia provides valuable support through legal compliance and tax consulting services. Our expert team will ensure you can navigate the complexities effortlessly while remaining compliant with the relevant laws. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog Guide on Filing Corporate Annual Tax Return (SPT) in Indonesia Accounting | Tax Reporting Guide on Filing Corporate Annual Tax Return (SPT) in Indonesia InCorp Editorial Team 18 April 2023 6 minute reading time Table of Contents What is Corporate Tax? The Importance of Corporate Tax Reporting Understanding Corporate Tax in Indonesia How to File Annual Tax Return in Indonesia Corporate Annual Tax Return, or SPT (Surat Pemberitahuan Tahunan), is a vital document that companies in Indonesia must file to report their annual tax obligations to the government. The SPT allows companies to accurately declare their taxable income, deductions, and other pertinent financial information to the tax authorities. This article aims to emphasize the significance of corporate tax reporting and provide guidance on how to report corporate annual tax returns (SPT) in Indonesia. What is Corporate Tax? Corporate tax is a type of tax that is imposed on the profits earned by a company. The company’s taxable income is computed by deducting COGS, G&A, marketing expenses, and other costs from the revenue earned, which is used to determine the tax amount payable. The corporate tax rate can differ considerably depending on the country, and some countries are known for having lower tax rates than others, which has led to them being labeled as tax havens. Corporations may also use various methods such as deductions, subsidies, and tax loopholes to reduce their tax obligations. The effective tax rate, or the actual amount of tax paid by a corporation, is generally lower than the initial statutory rate declared before applying any deductions, resulting in this outcome. Read more: How to Determine Personal and Corporate Income Tax Indonesia The Importance of Corporate Tax Reporting The corporate income tax is crucial to our economic and political systems. It requires corporations to pay taxes on their profits, generating significant revenue for governments to fund public services and infrastructure. However, the importance of the corporate income tax goes far beyond simply generating revenue. Advocates for corporate income tax argue that it is an essential tool for promoting tax fairness, reducing income inequality, encouraging responsible corporate behavior, and holding corporations accountable for their actions. Governments can utilize the substantial revenue generated by corporate income tax to finance public services and infrastructure projects. The corporate income tax promotes tax fairness by requiring corporations to pay their fair share, reducing the burden on individuals and small businesses. Developing countries depend on corporate income tax to fund their development programs, improve social services, and reduce poverty. The corporate income tax creates a level playing field for businesses, reducing unfair competition and promoting innovation. The corporate income tax is an essential aspect of promoting democracy and ensuring that government policies reflect the interests and needs of citizens rather than just powerful corporations. Understanding Corporate Tax in Indonesia The Indonesian government imposes several taxes on corporate income. These taxes are levied on a company’s taxable income, which is calculated based on the company’s revenue minus the cost of goods sold, general and administrative expenses, selling and marketing expenses, research and development expenses, depreciation, and other operating costs. There are different types of taxes on corporate income in Indonesia, the rates at which they are levied, and the rules that apply to their payment and reporting. The following part will explain further on each type: Taxes on a company’s taxable income are imposed by considering its revenue minus operating costs, such as the cost of goods sold, general and administrative expenses, selling and marketing expenses, research and development expenses, depreciation, and other expenses. Indonesia imposes various taxes on corporate income, each with different rates, payments, and reporting regulations. The subsequent section will elaborate on each of these types. Corporate Income Tax A company’s taxable income is subject to corporate income tax. Taxable income is calculated based on the company’s revenue minus various expenses. Indonesia’s corporate income tax rate is 22%, although specific industries may be subject to a different rate. Withholding Tax Companies may be subject to withholding tax on payments such as interest, dividends, royalties, and services rendered. Value-Added Tax (VAT) VAT is levied on the sales of goods and services. Companies must register and report their VAT obligations to the tax authorities. Land and Building Tax Land and building tax is imposed annually on owners or users of land and buildings located in Indonesia. The tax rate varies depending on the location and value of the property. Transfer Tax Transfer tax may be imposed on transferring land, buildings, and other assets such as vehicles and shares. Stamp Duty Stamp duty is imposed on certain legal documents, such as contracts and agreements. The rate varies depending on the type of document and its value. Luxury Goods Sales Tax Luxury goods sales tax is imposed on the sales of certain luxury goods, such as yachts, airplanes, and high-end cars. The tax rate varies depending on the type and value of the goods. Excise Tax Excise tax is imposed on the sales of certain goods, such as tobacco products, alcoholic beverages, and vehicles. The tax rate varies depending on the type of goods. Customs Duty Customs duty is imposed on the import and export of goods. The rate varies depending on the type and value of the goods. Companies operating in Indonesia must carefully comply with the rules and regulations surrounding these taxes to avoid any penalties or fines. How to File Annual Tax Return in Indonesia If you run a business in Indonesia, it’s essential to understand how to file an annual tax return. Filing your tax return on time and with accurate information is necessary to remain compliant with tax regulations and avoid penalties. In Indonesia, the tax authority requires companies to file an annual tax return for corporate income tax, known as SPT Tahunan PPh Badan. This document summarizes the company’s financial information for the year and calculates the amount of tax payable based on the taxable income. Here are the steps to do so: Determine the deadline: The annual tax return filing for corporate income tax is generally April 30th of the following year. Prepare the required documents: The documents needed for filing the annual tax return include financial statements, a tax registration number (NPWP), and other relevant documents, such as withholding tax receipts. Calculate the taxable income: Calculate the company’s taxable income by subtracting all allowable deductions from the total revenue. Calculate the tax payable: Calculate the amount of tax payable based on the applicable tax rate. Fill out the SPT form: Fill out the annual tax return form, or SPT, with the calculated taxable income and tax payable. Submit the SPT form: Submit the SPT form and supporting documents to the tax office by the deadline. Make the payment: Pay any tax payable by the deadline. Retain the receipt: Retain the receipt of payment as proof of payment. Comply with the post-filing requirements: After filing the SPT, the company must comply with post-filing requirements, such as responding to any inquiries or audits by the tax office. As the tax year ends, businesses should start filing their reports and pay careful attention to the deadlines. InCorp Indonesia (formerly Cekindo) also provides accounting and tax consulting services for those requiring assistance with such matters. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog Indonesia to Adopt Global Minimum Tax in 2023: What It Means for Businesses Accounting | Other Tax Indonesia to Adopt Global Minimum Tax in 2023: What It Means for Businesses InCorp Editorial Team 6 March 2023 6 minute reading time Table of Contents Global Minimum Tax Happens Due to The Digital Economy Transformation The Regulation of Global Minimum Tax for Countries The Purpose of Implementing Global Minimum Tax for Companies and Countries The Impact on The Economy The rise of global tech giants and digital platforms has led to many countries needing help to tax these new forms of economic activity. As a result, the concept of a global minimum tax (GMT) has gained traction among policymakers worldwide. Global Minimum Tax Happens Due to The Digital Economy Transformation Taxation of the digital economy has become a significant challenge for governments around the world due to the borderless nature of digital transactions. The digital economy has revolutionized businesses, and traditional taxation methods may only apply to some digital worlds. Many digital companies operate in different countries without having a physical presence, making it difficult to determine where they should pay taxes. Some countries have introduced new tax laws targeting digital companies to address this issue, while others have proposed changes to existing tax laws. The Organisation for Economic Cooperation and Development (OECD) has been working on a new framework for taxing the digital economy, which aims to ensure that companies are taxed in countries where they generate significant revenues, even if they have no physical presence there. However, the challenge remains to balance ensuring that digital companies pay their fair share of taxes and not discouraging innovation and growth in the digital economy. The Regulation of Global Minimum Tax for Countries The OECD initially introduced its efforts to establish a taxation system for the digital economy in 2013. It initially merely started as an initiative to address tax avoidance. However, it has progressed to reshape the international tax landscape. In doing so, the OECD has set up a two-pillar approach. Pillar One Pillar One aims to promote a more equitable distribution of profits and taxation rights among the largest and most profitable multinational enterprises (MNEs) by reallocating some taxing rights from their home countries to the markets where they conduct business and generate profits. It applies regardless of whether the MNE has a physical presence in that market. In addition, the new rules will apply to MNEs with global sales exceeding EUR 20 billion and profitability exceeding 10%. Where the 25% of profit exceeding the 10% threshold is allocated to the market jurisdictions. Pillar Two Under Pillar Two, GMT contains two policy plans. First, Global anti-Base Erosion Rules (GloBE) consist of two schemes: the income inclusion rule (IIR) and the undertaxed payment rule (UTPR). The minimum tax on IIR and UTPR is 15%. So, IIR will force MNEs to pay an effective corporate income tax rate of 15% regardless of location. Therefore, if the investment destination country for MNEs imposes a rate below 15%, the difference will be an additional tax burden (top-up tax) imposed on the parent entity in the country of residence. Meanwhile, the UTPR scheme means that the costs incurred by MNEs in their country of residence to constituent entities in countries with an effective tax rate below 15% are non-deductible. If the IIR has been implemented in the parent country, the UTPR will not apply. The second is the STTR (Subject to Tax Rule) scheme, which allows the source country to tax affiliate income in the country of residence when the income is not or is taxed under the effective tax rate of 9%. STTR will only be imposed bilaterally through a Double Taxation Avoidance Agreement (P3B) by looking at the country of origin. The STTR scheme aims to realize the single tax principle: income must only be taxed once and eliminate double taxation and double non-taxation. The Purpose of Implementing Global Minimum Tax for Companies and Countries In recent decades, there has been a decline in corporate tax rates worldwide due to governments’ competition to encourage private investment and foster economic growth. Global corporate tax rates have dropped from over 40% in the 1980s to below 25% in 2020. The OECD tax plan aims to stop this wave of policies, making it more difficult for governments to generate revenue to fund their increasing spending budgets. The proposed minimum tax is especially significant as governments grapple with deteriorating public debt metrics worldwide. Read more: Building a Sustainable Future: Carbon Taxation on Coal Use in Businesses Global Minimum Tax for Developing Countries Although the media coverage of the agreement has concentrated chiefly on the taxation of the digital economy, the global minimum tax is expected to have a more significant effect on developing nations. It is a critical development as corporate income taxes can provide governments with vital revenue to achieve their public policy goals. Moreover, for several decades, corporate income tax rates have been declining due to tax competition. Developing countries, in particular, depend more heavily on corporate income tax revenue. With the economic impact of the ongoing COVID-19 pandemic in the past two years, these governments need to locate resources to fund improved physical and digital infrastructure. Pros & Cons of Global Minimum Tax There are several benefits to imposing a global minimum tax rate. Amongst others, this would allow for a reallocation of tax revenues. The revenues earned from imposing a minimum tax rate would allow the government to increase public spending for the country. Individuals could also be imposed fewer taxes due to the additional revenue. It also pushes for better international competition for small businesses, allowing them to thrive in a tough economy. The cons, conversely, are that developing countries may lose out on the growth they have enjoyed from offering large companies low taxes. The effectiveness of this policy is also to be questioned. The Impact on The Economy Pillar Two aims to curb tax competition between governments that arises from their efforts to attract or retain actual investments by imposing a lower limit on taxes. The primary rationale behind creating Pillar One is to boost revenue collection. The slowdown in the decrease of statutory corporate tax rates indicates a decreased demand for reductions in corporate taxes. Action on Global Minimum Tax for Indonesia The Indonesian government is anticipating the impact of implementing a global minimum tax. Therefore, it seeks other countries’ input to plan the best implementation of this policy. There could be an impact on Indonesian tax schemes such as tax holidays. However, Indonesia has a year to discuss and prepare for the implementation. It is looking for the best way to implement initiatives that would be fair yet also provides benefit to investors. In conclusion, many changes are expected to the current regime as Indonesia slowly transitions to implement a global minimum tax. To embrace such changes, InCorp Indonesia provides accounting and tax consulting services that would ease the process for all businesses. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog Understanding Digital Tax in the Global Economy Finance | Tax Reporting Understanding Digital Tax in the Global Economy InCorp Editorial Team 15 July 2022 4 minute reading time Table of Contents The Challenges of Implementing the Digital Tax The Impact of Digital Tax on Business Digital tax is in line with the technological developments that continue to occur, providing many conveniences in conducting digital transactions. Digital tax is also integral as we are currently in the Digital Economy Age. Information is perceived as something more than just a way of communication nowadays. It becomes a source of generating profits for the economy. A concrete example of the digital economy age is seen through the number of e-commerce businesses providing various goods and services the community needs. The situation generated by the digital economy age is relevant in Indonesia. It shows the number of internet users has faced a 17% increase in 2020 compared to the previous year. The growth brings the total number of internet users in Indonesia to 175.4 million people. The number is expected to increase as e-commerce becomes consumers’ natural choice. In addition, there is a high number of companies within the nation that are engaging in digitizing their businesses. The current digitization trend makes digital tax a logical consequence of equalizing continuous progress. Digital tax can be defined as a policy imposed or charged to companies engaged in global digital business. Therefore companies should consider assistance in understanding the new policy of taxes. The basis for enacting an international digital policy for digital companies to pay taxes is considering economic benefits that have been taken or a significant economic presence. The Challenges of Implementing the Digital Tax The digitalization of the economy is a new challenge for tax authorities. The primary characteristic of digital businesses is their reliance on intangible assets, which allow them to manage the value chain in several jurisdictions. This gives them the freedom to locate operations in countries with relatively lower tax rates, which is often different from where their consumers are located. It is due to this reason that there often tends to be a loss in tax revenue. Further adding to the matters, there is an uneven playing field between domestic taxpayers and offshore suppliers, creating unhealthy competition. Therefore, companies should consider adding another accounting workforce to ensure financial stability. The Indonesian government enacted Law No. 2 in the Year 2020 to counter the problem to initiate a tax policy on global e-commerce. This is an attempt to secure and retain tax revenue in Indonesia. Postponing The Initiative The OECD, on 24 May 2022, revealed that the global digital tax agreement is still in progress and that the process will take a year to enact. The postponement occurs because finalizing the technical details on the digital tax deal is progressing much slower than initially planned. The timeline set was considered very ambitious for implementation. The Biden government and the European Union have struggled to pass legislation implementing the global minimum tax deal, which 140 countries agreed upon in October 2021. The new goal set for performance is from 2024 onwards. Various finance ministers unanimously provide approval and support for the global minimum tax, which is enforced through related rules. The Impact of Digital Tax on Business Risk in Asian Economics Even though the worldwide tax system is expected to increase efficiency, some parties feel that the global minimum tax imposed will impact Asian economies. Asian countries will find it challenging to manage their finances, economic development, and employment matters if there is no consideration paid to the needs and capacity to implement the reforms. The problems will arise primarily due to the region’s diversity and unique circumstances and conditions that would need further attention in implementing the changes. These parties urged policymakers to weigh and consider the tax designs to achieve a good balance between the varying norms. Difficulties in Indonesia Indonesia has been facing significant challenges in welcoming investments due to the ever-changing collection of taxes which makes it difficult for companies operating in Indonesia to meet this aside from the incremental costs of the taxes themselves. Even though these companies would greatly benefit from an inclusive and comprehensive tax system on the digital economy, which is to be achieved through harmonizing tax legislation, there is a common concern. The concern is that these companies are continually forced to adapt to the new regulations, pushing them to compete for their share of tax revenue. The underlying difficulties that come alongside the digital revolution are the minimum tax exposure and uncertainties surrounding this area. The ever-changing tax regime in Indonesia has often made it challenging for companies to manage and further assess the taxes imposed on a company. This is often challenging as companies must adhere to the taxation regulation, and the financial reports must be fully accounted for. Cekindo extends services on accounting consultations and also tax consultations that would help companies run their business activities smoothly. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog How Can Foreigners Buy A House in Indonesia? Land Property Ownership | More Services | Tax Reporting How Can Foreigners Buy A House in Indonesia? InCorp Editorial Team 8 December 2023 12 minute reading time Table of Contents Can Foreigners Buy A House in Indonesia? What are the Advantages of Buying Properties in Indonesia As A Foreigner? What are The Challenges of Buying A House in Indonesia As A Foreigner? Common Knowledge to Buy a House in Indonesia As A Foreigner Buy A House in Indonesia: Terms and Conditions for Foreigners Types of Property that Foreigners Can Own in Indonesia 6 Ways to Obtain Property As Foreigners in Indonesia How do Foreigners Purchase a Property in Indonesia? How Property Tax Works in Indonesia for Foreigners? Leasing Property as an Alternative to Buy A House in Indonesia Can Ownership of Land for Foreigners be Acquired through Marriage? Obtain Your Dream Property with InCorp Indonesia Indonesia is an attractive destination for foreigners seeking to invest in property. Possessing stunning landscapes and vibrant culture makes Indonesia’s popularity more significant than ever. However, are you ever curious how easy it is to buy a house in Indonesia? Acquiring a house or making a real estate investment in Indonesia in a tropical paradise has challenges and regulations. This article will explore the obstacles foreigners face when purchasing property in Indonesia and the essential requirements and considerations for successful property ownership. Can Foreigners Buy A House in Indonesia? While it’s more challenging in Indonesia than many expect, foreigners are allowed to purchase property. However, full ownership, known as Hak Milik (HM), is exclusive to Indonesian passport holders, reflecting the government’s aim to safeguard the housing market from excessive foreign influence. Nonetheless, there are alternative ways for foreigners to acquire and possess property in Indonesia. Foreigners can buy property in Indonesia, though specific restrictions and criteria must be fulfilled. A crucial requirement is that the property must be under a leasehold arrangement, signifying a long-term lease rather than outright ownership. What are the Advantages of Buying Properties in Indonesia As A Foreigner? Embarking on property ownership in Indonesia as a foreigner unveils a spectrum of advantages. From enticing investment potential to flexible leasehold options, here’s a concise breakdown: Lucrative Investment Potential: Indonesia’s thriving economy presents opportunities for property value appreciation. Tourism and Retirement Appeal: Ideal for retirement or vacation homes, offering diverse attractions and landscapes. Leasehold Flexibility: Long-term lease options provide secure land use without full ownership complexities. Convenient Condominium Ownership: Straightforward ownership under the “Hak Pakai” title for clear legal frameworks. Business Expansion Opportunities: Establishing a local entity facilitates property ownership for business expansion. Participation in Economic Growth: Contribute to and benefit from Indonesia’s economic growth through real estate. Rental Income Potential: Rent a property, especially in popular tourist destinations. What are The Challenges of Buying A House in Indonesia As A Foreigner? Developers believe that the price limit for foreign housing to buy a house in Indonesia will not significantly impact the property market if the government does not make some other regulatory breakthroughs. Deputy General Chairman of Real Estate Indonesia (REI) for Law and Legislation, Igneszj Kemalawarta, said that developers welcome the issuance of Regulation of the Minister of Agrarian Affairs and Spatial Planning or Head of the National Land Agency No. 13 of 2016. The law regulates the issue of price limits for residential properties that foreigners can buy. The regulation stipulates that foreigners can only buy Jakarta property for a minimum price of IDR 10 billion for landed houses and IDR 5 billion for flats or apartments. For other regions, the price limit ranges from IDR 1 billion to IDR 5 billion for landed houses and IDR 750 million to IDR 2 billion for apartments. However, the regulation will not increase the foreign national property market because of other obstacles. Common Knowledge to Buy a House in Indonesia As A Foreigner The government needs to fix at least five things to loosen the faucet of foreign ownership restrictions in Indonesia, which will stimulate the domestic property sector. Therefore, these five things become common knowledge for foreigners to familiarize themselves. 1. The Right of Use Property Banks are often reluctant to accept properties with the status of Right to Use as collateral for loans. This has created a wave effect in which people are not focusing on any Right to Use properties, and developers still need to focus on developing such properties. 2. Credit Facilities The regulation allowing foreigners to get credit facilities to buy a house in Indonesia has still not been made. Since the price limit set by the government is still high, foreigners being targeted are in the upper segment. 3. Complex Process for Foreigners to Get a Residence Permit The process for foreigners to obtain a residence permit in Indonesia is still quite complex and needs to be simplified. This includes both temporary and permanent residence permits. The government regulation only opens up opportunities for foreigners with a permit to buy a house, whose existence within the country provides benefits such as business. 4. No Homeownership Opportunities Developers still hope the government will open homeownership Indonesia opportunities for foreigners not domiciled in Indonesia to expand the market. Even so, developers hope to increase foreign markets after opening the ASEAN Economic Community era. 5. The Right to Use Dilemma The Right to Use dilemma in the domestic property market must be fixed. The foreign market is still relatively new, so developers are hesitant to build properties with the Right to Use, especially for apartments. This is because the local market prefers properties with the Right to Build status over the Right to Use. READ MORE:10 Strategic Locations for Buying Property in BaliHow Can Foreigners Buy Apartments in Indonesia?Tips for Selecting A Reliable Property Agent in Bali Buy A House in Indonesia: Terms and Conditions for Foreigners You’ve been living and doing business in Indonesia for quite some time and now dreaming of owning property in Indonesia? Here’s a handy list of terms and conditions you need to know to make your property ownership dreams come true. 1. The “Right to Use” Requirement First, as a foreigner, you can only purchase landed houses with the coveted “Right to Use” status. This means that the property is on state-owned land or with ownership rights. So, ensure you’re eyeing the correct property type before diving into the Indonesian real estate market. 2. Price Limits Across Regions Indonesia is diverse, and property prices vary depending on the region. The government has set price limits for different areas to keep things fair. For example, in Jakarta, the minimum price for landed houses is IDR 10 billion, while for flats or apartments, it’s IDR 5 billion. For other regions, these limits can range from IDR 1 billion to IDR 5 billion for landed houses and IDR 750 million to IDR 2 billion for apartments. Keep these numbers in mind while hunting for your dream property. 3. Immigration Papers and Residence Permits Before you can call that Indonesian property your own, you’ll need more than just a suitcase of cash. You must possess official immigration papers, including a residence permit. This paperwork proves that you’re not just a tourist passing through; you’re here to invest in Indonesia’s real estate market. 4. Omnibus Law and Spatial Plans Thanks to the Omnibus Law, local governments in Indonesia are now required to upload spatial plans to the OSS System. What does this mean for you? It streamlines the process of checking if your potential property complies with specified land use regulations. It’s like having a GPS for navigating the bureaucratic maze of property ownership. So, there you have a list of essential terms and conditions for foreigners looking to own property in Indonesia. With this information, you’ll be better prepared to embark on your Indonesian property ownership journey. Happy house hunting! Types of Property that Foreigners Can Own in Indonesia In Indonesia, foreigners can own various types of property through different arrangements. Here’s a breakdown: Leasehold Property Foreigners can acquire property through long-term leases, providing them with the right to use and develop the land or structure for an extended period. Condominiums Foreigners can own condominiums under the “Hak Pakai” (Right to Use) title, granting them ownership of the unit for a specified duration. Hak Guna Bangunan (HGB) This is a right to build and use the land for a specific period, usually up to 30 years, extendable for an additional 20 years, and even longer. Hak Pakai (Right to Use) This right allows foreigners to use and exploit state-owned land, often for commercial or industrial purposes. Investment Property through a Local Entity Foreigners can establish a locally registered company to purchase and own property for business purposes, subject to certain regulations. Understanding these property ownership options helps foreigners navigate the Indonesian real estate landscape in compliance with local regulations. 6 Ways to Obtain Property As Foreigners in Indonesia Foreign nationals (WNA) have several options for acquiring real estate in Indonesia. Here they are: Invest through a PT PMA: Foreigners can invest by setting up a foreign-owned company, adhering to BKPM requirements. Purchase Leasehold Property: Buy property with extended usage rights, avoiding full ownership. Acquire Property under Hak Pakai (the right to use) Title: Own property through a legal right for residential use. Obtain Property under Hak Guna Bangunan Title: Get the right to build and use land for a specified period. Make a Purchase Using a Passport: Some properties allow direct purchase using a passport. Buy through an Indonesian Nominee: Utilize a local nominee for simplified ownership. These options offer foreign nationals diverse ways to engage in Indonesia’s real estate market. How do Foreigners Purchase a Property in Indonesia? Purchasing or leasing property in Indonesia can be intricate for foreigners unfamiliar with local rules. Simplify the process with these steps: Establish a PT PMA Create a PT PMA to enable property transactions, meeting Indonesia Investment Coordinating Board (BKPM) requirements. Using a local agency can streamline this process. Engage a Professional Real Estate Agent Working with a skilled real estate agent saves time and access a wider property range. They assist in negotiations, ensuring your interests are protected. Search for a Property Consider location, size, materials, and style when looking for property. Our platform can help you find the right match based on your preferences. Check Property Licenses Request the Certificate of Property and Building Approval (PBG) from the seller before negotiating. Lack of these documents may signal issues in the process of buying a house in Indonesia as foreigners. Conduct Due Diligence Verify land ownership, licenses, and contracts to avoid legal problems and ensure a worthwhile investment. Down payment and Sales Purchase Agreement Sign the SPA in the presence of a public notary, making a down payment of 10-30%. Ensure the SPA protects your interests. Finalize the Transaction Transfer ownership in the presence of a notary, paying the Transfer Tax (BPHTB) on time. Be cautious of unofficial price suggestions to minimize taxes. Ownership Transfer After completing payment and tax obligations, the notary transfers ownership, registered at the National Land Agency (BPN). The buyer receives a Property Certificate, solidifying legal ownership. How Property Tax Works in Indonesia for Foreigners? Since its economic reform, Indonesia has become a sought-after destination for many foreign business owners and investors to purchase a piece of property. Foreigners can benefit highly from one of the lowest property taxes on their properties compared to many other Southeast Asian countries. The land and building tax, a state tax that is the most fundamental property tax in the country, is levied at 0.5% and serves as a regional income for local and central governments for their facilities. Both parties must pay certain taxes when transferring land and building rights in Indonesia. The sellers pay an income tax on the sale of land or property, and the buyers pay an acquisition tax. The seller tax is as follows: 1% for simple flats or simple houses for their transfer of land or building rights 2.5% for regular buildings except for simple houses or simple apartments for their transfer of land or building rights 0% for government buildings and government’s special-assignment buildings for their transfer of land or building rights The transaction value determines the buyer’s tax, which is 5%. However, specific individuals like diplomatic consulates or representatives of agencies of NGOs can get away from these taxes. Other taxes related to the property are lease taxes applicable for tax & non-tax residents and construction tax, which applies when the construction of the building is done. Taxation in Indonesia can be complicated and tricky. InCorp can assist with a tax consultation to avoid administrative risk. Leasing Property as an Alternative to Buy A House in Indonesia There are six main items we have pointed out to check before renting a property. They are: 1. Quotation and Payment Renters must pay rent in Indonesian Rupiah. Some quotations still have US Dollars as their main nominals. However, foreigners must do prior planning before losing out on currency exchanges. 2. Duration of Lease The usual lease term is 20-30 years, depending on the agreement. Ensure the lease can be extended if necessary and agree on payment terms beforehand. 3. Leasing Contract Find out what items are covered in the leasing contract. The renter usually covers maintenance costs, air conditioning cleaning, water pump repair, and other utilities. Discuss an agreement where more significant expenses need to be paid by the rentee. An agreement on whether monthly fees like electricity, water, internet, and phone bills are included in the payments should be made. READ MORE:A Guide to Property Tax in IndonesiaThe Ultimate Handbook for Managing a Rental Property in BaliThe Growing Potential of Property Investment in Surabaya 4. Security Deposit Making a security deposit is standard and is usually priced at one month’s rent after signing the lease. Ensure the security deposit is 100% refundable and no fine print is included in the agreement. 5. Renewal Right The option to renew the lease should be made available and priority to the renter. During renewal, the price will usually increase. Ensure that you know the current land pricing to avoid getting duped. 6. Sublet Right Sometimes, some homeowners allow tenants to sublet the area to other renters. Renters or foreigners must discuss this with the landlord before signing the agreement. Can Ownership of Land for Foreigners be Acquired through Marriage? According to the Indonesian Marriage Law of 1974, an Indonesian citizen marrying a foreigner may lose Hak Milik rights. However, the couple can sign a prenuptial, postnuptial, or post-marital agreement to maintain property rights. While not covered by the Marriage Law, these agreements allow the Indonesian spouse to own property legally, enabling the foreign spouse to purchase and own it through the Indonesian spouse acting as a property nominee. Obtain Your Dream Property with InCorp Indonesia In conclusion, owning property in Indonesia as a foreigner can be complex, involving various regulations and requirements. To streamline this journey and minimize the associated hassle, consider enlisting the land and property ownership service of InCorp Indonesia. Our experts possess the knowledge required to navigate these regulations, and we offer a comprehensive company registration service. We facilitate a seamless process to help you achieve your dream of owning property in Indonesia. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog Crypto Markets in Indonesia Regulated with VAT Finance | Tax Reporting Crypto Markets in Indonesia Regulated with VAT InCorp Editorial Team 12 May 2023 4 minute reading time Table of Contents VAT and Income Tax Issued for Crypto Markets by the Indonesian Government Tax Harmonization Law to Regulate Crypto Markets in Indonesia E-Wallet Changes with VAT VAT and Income Tax Issued for Crypto Markets by the Indonesian Government Cryptocurrency is a digital currency secured by cryptography and is considered secure as it is nearly impossible to counterfeit. This currency is not issued nor regulated by a central authority which makes it immune to government intervention to a certain extent. It is based on a network distributed across a large number of computers. Due to its decentralized structure, cryptocurrency allows for cheap and fast money transfers. Crypto assets as traded commodities are considered intangible taxable goods. Trading platforms that conduct themselves through electronic systems, otherwise known as Penyelenggara Perdagangan Melalui Sistem Elektronik (PPMSE), that facilitate crypto assets are VAT collectors. These include physical crypto asset traders registered with the Indonesian Commodity Futures Trading Regulatory Agency (BAPPEBTI) and crypto-asset electronic wallet service providers. The Indonesian government has decided to start taxing the crypto markets for any transactions and assets related in May 2022. The taxation will also be done on other financial technology services too. The finance ministry has set the VAT on crypto-assets purchases at 0.1%. The transactions, as mentioned earlier, earnings, and capital gains will be subject to a 0.1% final income tax. This rule is effective from May 1, 2022. Trading conducted on platforms that the government does not authorize is subject to higher VAT and income tax of 0.2% each. Tax Harmonization Law to Regulate Crypto Markets in Indonesia The Goal of the Tax Harmonization Law President Joko Widodo passed the Tax Harmonization Bill on October 29, 2021. Amongst others, the law regulates: The principles, objectives, and scope of the law General provisions and tax procedures Income tax Value Added Tax Taxpayer Voluntary Disclosure Program Carbon Tax Excise Transitional Provisions Closing Provisions The law is established to increase sustainable economic growth and support the acceleration of economic recovery. The law stipulates that it is primarily based on justice, simplicity, efficiency, legal certainty, utility, and national interest. The tax policies contained within this law provide for a higher degree of fairness and support and strengthen the MSME sector. Alongside that, realizing a tax system with a higher level of legal certainty would also result in increased voluntary compliance of taxpayers. The passing of this law is appreciated as a comprehensive attempt that is part of the continuous reforms conducted by the Directorate General of Taxation. The reform is undertaken by repairing administrative processes, improving human resources and organizational structure, and business processes. It is hoped that revenues can once again be optimized to achieve fiscal consolidation. The law is expected to close any regulatory gaps and facilitate the new developments in digital activities from the administrative aspect. The Tax Mechanism on Crypto Markets Policies regarding taxes on cryptocurrency transactions and crypto assets are poured into Minister of Finance Regulation No. 68 Year 2022 concerning Value Added Tax and Income Tax on Crypto Asset Trading Transactions, effectively starting May 1, 2022. VAT tax is levied on crypto transactions and is collected by the platform that facilitates the trade. The amount of which is: 1% of the VAT rate multiplied by the transaction value of the crypto asset if the PPMSE is a physical trader of crypto assets. 2% of the VAT rate multiplied by the transaction value of the crypto asset if the PPMSE is not a physical trader of crypto assets. VAT is effectively collected when: Crypto asset purchases make payments to PPMSE; Crypto assets are exchanged for other parties’ accounts; or There has been a transfer of crypto assets to another party’s account, even if the exchange involves goods other than crypto. New or foreign companies facing difficulties comprehending the possible impact of the new regulations on their business could consult Cekindo as they offer tax and legal consultations. E-Wallet Changes with VAT The imposition of taxes on financial technology services is not something new, as the services mentioned above were already subject to VAT. However, the close relationship with banking activities urged the Minister of Finance to issue a new regulation of Minister of Finance Regulation No. 69 Year 2022 concerning Income Tax and Value Added Tax on Implementation of Financial Technology. The new rule merely imposes taxes on services that facilitate transactions, which means no direct tax levied on the value of the transactions or the transaction actors. The financial technology services subject to tax imposition include payment services, crowdfunding, investment management, online insurance, and digital financial support services. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog Financial Outsourcing Indonesia: A Guide to Transforming Your Business Accounting | Finance | Tax Reporting Financial Outsourcing Indonesia: A Guide to Transforming Your Business InCorp Editorial Team 14 April 2022 5 minute reading time Table of Contents Transforming Your Business Amidst the Pandemic The Role of Financial Functions in a Business’ Success Benefits of Financial Outsourcing Services for Business Transformation in Indonesia Transforming Your Business Amidst the Pandemic An essential point in coming out of this pandemic with a sustainable and thriving business is adapting to rapidly changing scenarios. With market disruption across all sectors of the economy within the past two years, it is clear that keeping productivity and performance high is essential to staying competitive. In some cases, people might even argue that reducing costs by managing cash flow is equally as important. Indonesia’s most significant GDP contributor, micro, small, and medium enterprises, has reported a steady decrease in sales due to the pandemic. This group, which accounts for 99% of all businesses, said that their revenue had taken a nosedive by 30%. Dr Armand Hermawan CPA (Aust.), Director of Strategy and Execution for multinational telecommunication company PT Indosat Ooredoo Hutchison, Tbk, says that a proper transformation strategy with excellent execution can ensure companies sustain in the face of market threats. Putting in the discipline of getting jobs done combined with persistence and commitment, the transformation of a company to survive will be within reach. Starting with a common objective that is properly communicated will create a sense of urgency within the organization which will then turn into a full-fledged change strategy. Whilst conducting this, a method of measurement in each step must be implemented to celebrate each win and ensure that the transformation process flows nicely. The Role of Financial Functions in a Business’ Success It can be argued that the finance department of every business is the heart and soul of a company. It needs to be at the forefront of every business since this department will decide whether a business can sustain itself with its monthly revenues. Without a solid finance team, a company can collapse due to poor financial management. A necessary part of any business, efficient management of the financial resources within a company can prove to be the most valuable part of keeping the business afloat. All this falls within the broad spectrum of financial management. Listed below are some reasons why financial management is vital for businesses: Following Rules & Managing Tax A proper finance team also acts as advisors on better managing the financial decisions within the legal jurisdictions. This department helps businesses follow regulations and find legal tax loopholes that could further strain the company’s financial position. Control Business Costs Every company has some essential fixed costs that cannot be substituted. Keeping costs low and reducing expenses should help the company maintain a cash surplus for rainy days or be used for investing in other departments. A sound financial management team will help find solutions when given a working budget. Improve Weak Areas As the brain of the business, finance teams will use their analytical skills to find out which areas are performing well and which areas are not. The management will then decide what functions are worth investing in. Such analysis is essential for exposing weak areas within the business, which can then be given special attention. This list only highlights a small number of the critical areas where finance management plays a vital role in the success of a business. With this, a conclusion can be drawn: the financial industry is indeed thriving in the light of businesses constantly opening, scaling up, and transforming. Benefits of Financial Outsourcing Services for Business Transformation in Indonesia Businesses nowadays are constantly looking for ways where they can outsource their services. They do this primarily to reduce and control their costs of operations, improving the company’s focus. As a business outsources their services, they make more time within the company for new purposes. One other important reason is that a business would instead get experts to work on a specific function rather than internally hire. In the wake of the pandemic, Indonesian businesses that have only recently opened up are heavily relying on professional services by outsourcing their business functions. Within the country, businesses are turning their heads to Semarang as the ideal location for outsourcing services in Indonesia. To find out why, read our piece on Outsourcing in Semarang. A business usually hires highly trained accountants and professionals for financial outsourcing services to provide the best practices. There are many other ways that local businesses can benefit from outsourcing, such as: Cost Saving Businesses can look at cities with an increasing literacy rate and relatively lower labor costs when outsourcing in Indonesia. This, combined with costs like benefits, taxes, and bonuses, shows a significant advantage on why a business needs to outsource. Increased Flexibility Having more flexibility within the organization can pivot to other more high prioritized functions. If it is a small team, handling too many things in the finance department can be too overwhelming, reducing productivity and outcome. Delivering results without a time constraint is another plus point of financial outsourcing. Access to Better Tools & Processes When outsourcing financial services, financial service providers usually use several highly specialized tools and data analytic services to deliver the best results. Smaller organizations usually avoid these advanced tools to minimize their overhead costs. This is why by outsourcing the finance team, a business can get not only access these tools but also get introduced to new processes, which in turn builds overall efficiency. Business Intelligence Due to high competition, it may be challenging to compete with the major players when not fighting with the right weapons. In this case, when the competitors are using more analysis methods and a more concentrated team of business intelligence, it could be the differentiator when battling to come out on top. When receiving research from your outsourced business functions, you can develop plans and adjustments on how to reach those newly identified goals. Even during tough economic times, what seems to be an expenditure that could look a little excessive can instead be the one thing your business needs to scale up in a way that it has imagined. Among several financial outsourcing services, important ones are tax reporting services & accounting services. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Home Blog Indonesia Imposes Stricter Penalties for Tax Non-compliance Company Income Tax | Finance | Personal Income Tax | Tax Reporting Indonesia Imposes Stricter Penalties for Tax Non-compliance InCorp Editorial Team 18 June 2024 7 minute reading time Table of Contents Annual Tax Reporting in Indonesia Tax Compliance in Indonesia: Important Things To Know Annual Tax Reporting in Indonesia What Are Taxes Applicable in Indonesia? Corporate Tax in Indonesia Navigating Tax Compliance in Indonesia Penalties for Tax Non-compliance in Indonesia Make Things Easier with Tax Consulting Services in Indonesia Stay Compliant with InCorp Indonesia Tax compliance in Indonesia requires Individuals and corporations that have acquired a Tax ID (NPWP). The document will record your tax obligations, such as wages, dividends, revenues, and other income sources, to file a tax report with the Indonesian tax authorities. Annual Tax Reporting in Indonesia Annual Tax must be paid to the Indonesian tax body, the Directorate General of Taxes (DGT), every year. To submit the annual tax filing in Indonesia, one must first register as an individual or a corporation. Given Indonesia’s frequent and abrupt changes in tax legislation, the registration will necessitate submitting several documents. Note that Individuals and corporations are required by Indonesian law to file a tax report with the Indonesian Tax Authority. Through Circular Letter Number 4/2021 regarding the Implementation of Terms in Criminal Offenses Related to Tax, the Indonesian Supreme Court of Justice imposed harsher penalties on November 29, 2021. This article will go over the most crucial points to remember regarding tax compliance in Indonesia and how to avoid penalties. Tax Compliance in Indonesia: Important Things To Know Tax Calculation Indonesia employs a self-assessment system in which taxpayers are entrusted to calculate, pay, and report their taxes in line with applicable laws and regulations. The DGT, however, may send tax assessment letters to a specific taxpayer if it discovers that, based on additional information provided by a tax auditor, the taxpayer has not fully paid his taxes. Another factor that may lead to the DGT issuing an official tax assessment is the failure to keep books in compliance with the established standards. Tax Payment and Filing Obligations Tax liabilities for a specific time of year are generally paid to the State Treasury through an authorized tax-payment bank (bank persepsi) and then reported to the DGT office through the submission of relevant tax forms. Depending on the tax obligation, tax payments and returns must be filed electronically, either monthly or annually. Direct payments, third-party withholdings, or a mix of the two can be used to meet corporate tax liabilities. If the entire amount of Tax paid in advance for the year is less than the total amount of CIT payable, the firm must make up the difference before completing its CIT report. Guide to Doing Business in Jakarta Mailchimp Free eBook Indonesia Business Insight Full NameEmail I have read InCorp's Privacy Policy and agree to InCorp using my information provided to contact me about related content, and services.*Subscribe Annual Tax Reporting in Indonesia Every year, companies are required to pay Annual Tax to the Indonesian Directorate General of Taxes (DGT). Individuals and corporations must first register with the DGT to submit the Annual Tax Report. What Are Taxes Applicable in Indonesia? Indonesia’s rich landscapes and vibrant culture are matched by a complex tax system, essential knowledge for residents and visitors alike. Grasping the applicable taxes is crucial for informed financial decisions and compliance. Here are the primary taxes you should be aware of: 1. Income Tax Indonesian residents face progressive tax rates on global income, while non-residents are taxed solely on Indonesian-sourced income, ranging from 5% to 30%, depending on earnings. 2. Value Added Tax (VAT) Known as “Pajak Pertambahan Nilai” (PPN), VAT applies 10% to goods and services, with specific exemptions and reduced rates. 3. Corporate Income Tax Companies are subject to a 25% corporate income tax on global income, though specific sectors and regions can access incentives and reductions. 4. Withholding Tax Non-residents face withholding Tax on payments, including dividends, interest, royalties, and services. Rates vary based on the payment nature and applicable treaties. 5. Land and Building Tax “Pajak Bumi dan Bangunan” (PBB) is based on property ownership, with rates varying by property type and location. 5. Customs and Excise Duties Import and export duties apply to goods, with rates dependent on type and trade agreements. 6. Luxury Goods Sales Tax High-end items like luxury cars and electronics incur this Tax, necessitating consideration in luxury purchases. 7. Motor Vehicle Tax Annual Tax on vehicles, determined by type, size, and age. Corporate Tax in Indonesia Corporate Tax in Indonesia is the Tax imposed on companies’ earnings. The standard rate is 25% of net income. However, rates can vary based on industry, location, and incentives. International companies should consider tax treaties for cross-border transactions. Understanding corporate Tax helps businesses budget and comply with the law. Consulting tax professionals is advised for accurate calculations and timely filing. For companies operating in Indonesia, corporate Tax is imposed on earnings within the country, with a standard 25% rate. Varied rates apply based on industry, location, and incentives. International companies should consider tax treaties for cross-border transactions. Understanding corporate tax aids compliance and accurate calculations, often necessitating consultation with tax professionals. Navigating Tax Compliance in Indonesia With Indonesia’s frequent tax legislative changes, registration involves submitting specific documents. By law, individuals and corporations must file tax reports. As of November 29, 2021, Circular Letter No. 4/2021 imposed stricter penalties for tax-related criminal offenses. Tax Calculation and Payment A self-assessment system is employed in Indonesia, where taxpayers compute, pay, and report taxes based on laws and regulations. Failure to comply with standards can lead to official tax assessments. Tax Payment and Filing Tax liabilities are paid to the State Treasury through authorized tax-payment banks, and returns are submitted to the DGT office via relevant tax forms. Electronic filing is expected monthly and annually, with various methods to meet corporate tax liabilities. Tax Payment and Reporting Deadline Various taxes have distinct monthly and annual deadlines for payment and filing, which is essential to avoid penalties. Type of TaxMonthly Payment DeadlineMonthly Filing DeadlineAnnual Filing DeadlineCIT15th of the month20th of the month4th month following the conclusion of the tax yearIndividual Income Tax15th of the month20th of the month3rd month following the conclusion of the tax yearEmployee Withholding Tax10th of the month20th of the monthN/AOther Withholding Taxes10th of the month20th of the monthN/AVAT & LGSTBefore the VAT return filing deadlineEnd of the monthN/A Penalties for Tax Non-compliance in Indonesia The Supreme Court of the Republic of Indonesia published Circular Letter No. 4 in 2021 about the Implementation of Terms in Tax-Related Criminal Offenses, which has been in effect since November 29, 2021, and states the following clauses: Regarding requesting termination of prosecution, the district court should prosecute a pre-trial involving a criminal offense in taxation where the investigator or public prosecutor is domiciled. The criminal culpability of the caretaker and another party of the Criminal Offense in Tax during the Period of such offense is not absolved by the company’s insolvency or liquidation. The Defendant of a Criminal Offense Related to Tax is not eligible for probation. Other (additional) criminal sanctions will be imposed on both individuals and corporations. Tax-related criminal offenses can occur as a result of: Tax Embezzlement; Failure to file a tax return, whether on purpose or not; Falsifying supporting data for a tax report or submitting an incorrect tax report; Refusal of a tax officer’s inspection; Failure to retain accurate records; Misusing Tax ID. Late payment and reporting, incorrect submissions, and other non-compliance actions incur penalties, varying by type of Tax and offense. Late tax payment: Monthly fee of 2% for a maximum of 24 months Late tax reporting and Underpayment: IDR 100,000 – IDR 1,000,000 penalty relying on the type of Tax Rejected tax objection: 50-100% of the portion of the underpayment Incomplete, late issuance, non-conforming issuance, or non-issuance of VAT invoice: 2% surcharge Incorrect tax return submission or non-submission: 3-12 months in jail or a fine of 200% of the unpaid Tax Embezzlement, fraud, and improper bookkeeping of export and import activities: a maximum sentence of six years in jail or a fine of 200-600% of the actual payments Make Things Easier with Tax Consulting Services in Indonesia Many businesses prefer outsourcing the tax compliance in Indonesia of their obligations to Tax Consulting Services. To top it all, outsourcing companies help businesses cut overhead costs, save crucial time better spent on core business, and provide security by using the latest technology to secure your data. Tsx consulting expert ensures error-free and boosted compliance and full-fledged assistance in strategizing tax planning. Moreover, by outsourcing, one can access a higher level of tax expertise and an efficient document management system. Stay Compliant with InCorp Indonesia To ensure client satisfaction, we offer a complete package of tax consulting services, including accounting, tax reporting, and auditing services. Read Full Bio Pandu Biasramadhan Senior Consulting Manager at InCorp Indonesia An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.