Indonesia – Tax System
A) Corporate Income Tax :-The corporate tax rate is 25 percent. Listed companies which meet certain conditions are eligible for a five percent reduction in the corporate tax rate.A company with gross turnover of less than IDR 50 billion (approximately USD 5.5 million) is eligible for a 50 percent reduction in the corporate tax rate on the proportion of taxable income which results when IDR 4.8 billion is divided by the gross annual turnover. Where gross turnover is below IDR 4.8 billion, the reduction applies on all taxable income.A company will be resident in Indonesia if it is incorporated in Indonesia. Non-resident companies are those which are incorporated overseas, but receive or accrue income from Indonesia. Nonresidents are obliged to register for tax purposes if they have a permanent establishment (PE) in Indonesia. Representative Offices of foreign companies are also required to register as taxpayers, even though they may not be a PE. This is necessary as the Representative Office will have to withhold tax on payments to employees and third parties and lodge relevant tax returns.Companies are required to self-assess and lodge annual corporate income tax returns. The annual corporate tax returns must be lodged with the relevant Tax Office within four months after the end of the calendar year or tax year, and this deadline may be extended for two months by notifying the Director General of Taxation.Withholding tax is imposed at 20 percent on various amounts payable to non-residents (e.g. dividends, interest and royalties), unless the non-resident has a permanent establishment in Indonesia, whereby the rates applicable to payments to residents apply.The withholding tax rate may be reduced where the foreign resident is exempt or eligible for a reduced rate by virtue of a tax treaty. In order to qualify for any relief under a relevant tax treaty, non-residents must provide a certificate from the tax authority in their country of residence (Form DGT1 for most taxpayers). In most cases, the withholding liability arises when the expense is incurred, not when the payment is made.Permanent Establishment’s of foreign enterprises are also subject to an additional 20 percent Branch Profits tax on their after-tax income, unless eligible for a reduced rate by virtue of a tax treaty.
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Corporate Income Tax
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Tax Rate
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Normal rate
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25%
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Public company with >40% of its shares traded on the
IDX
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20%
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Companies with a gross turnover below IDR 50 billion
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12.5%
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Companies with a gross turnover below IDR 4.8 billion
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1%
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Dividends paid from an Indonesian resident subsidiary to a non-resident parent will be subject to 20 percent withholding tax or a reduced rate if the non-resident parent resides in a tax treaty country and can meet the requirements to utilize the tax treaty provisions. Capital gains, regardless of the reason for the disposal of the asset, are taxable. Certain tax treaties provide an exemption on capital gains on the sale of unlisted shares by the non-resident shareholders, provided that Form DGT-1 is available. In the case that no exemption is available, the sale of unlisted shares is subject to five percent withholding tax on the total transaction value (gross proceeds) and in this case, an independent appraisal report is required to demonstrate that the transaction value is an arms-length price.Losses can be carried forward for a period of five years. However, in certain circumstances this may be extended to 10 years under special facilities available for certain regions and/or industries. Changes in shareholders do not affect the validity of the carried forward losses. Capital losses are treated the same as operating losses provided that the losses are reasonable based on sound market practice. No foreign losses can be included in the tax computation. There are no loss carry back provisions in Indonesian tax law. |