7 Tax Misconceptions

Doing business in Indonesia offers real growth potential—but it also brings strict tax obligations. 

The Directorate General of Taxes (DJP) operates on a self-assessment system—but audits, data matching, and backdated penalties are very real. The DJP can cross-check monthly filings against banking records, booking platforms, and company expenses. Mistakes—even unintentional ones—can cost you heavily. 

This article dispels seven common misconceptions and explains what full compliance really looks like—before fines, interest, or reputational damage bite. 

1. “My business hasn’t made money yet — I don’t need to file taxes.” 

False. 

Even if your company is dormant or pre-revenue, you are still required to submit monthly and annual tax reports — including Nihil (zero) reports. Failing to do so can trigger fines or cause your company to be flagged as inactive. 

2. “I’ll just deal with taxes at the end of the year.” 

Also false. 

Indonesia operates on a monthly tax reporting system. You must submit and (if applicable) pay monthly instalments for: 

• VAT 
• Employee withholding tax (PPh 21) 
• Income tax instalments (PPh 25) 
• Final tax (PPh 4(2)) 

Waiting until the end of the year can lead to backdated penalties. 

3. “I’m just an investor — I don’t need to worry about personal taxes.” 

If you live in Indonesia for more than 183 days in a 12-month period, you may be classified as a tax resident. 

This means you are required to report your worldwide income, not just what you earn in Indonesia. 

4. “Using a nominee helps me avoid taxes.” 

Using a nominee (an Indonesian holding assets or shares on your behalf) doesn’t eliminate your tax responsibilities. In fact, nominee structures are not legally protected and may create double tax exposure or block access to tax credits and deductions. 

5. “No one will know about my rental income.” 

The Indonesian tax authority (DJP) has access to: 

• Property transaction data 
• Booking platforms, like Airbnb and Agoda 
• Local bank accounts 

If you are earning income in Indonesia, it’s best to report it transparently. 

6. “Taxes in Indonesia are low — compliance isn’t a big deal.” 

Corporate and personal tax rates may be competitive, but non-compliance can be expensive. Penalties include: 

• Interest charges 
• Fines up to 100% of tax owed 
• Even criminal prosecution for serious offences 

7. “I’ll register for VAT later.” 

Once your company exceeds IDR 4.8 billion in annual revenue, VAT registration is mandatory. 

If you miss the threshold and fail to register, the DJP can: 

• Backdate your VAT liabilities 
• Impose penalties for late reporting 
• Add interest for every missed month 

Also, payments for overseas services are subject to VAT JLN (11%) and Withholding Tax Article 26 (20%)—regardless of your VAT registration status. 

Understanding the Core of Tax in Indonesia 

1. Self-Assessment System: Indonesia’s tax regime is built on self-assessment—but DJP checks periodically through audits and third-party data verification. 
2. Income Tax Focus—with a Twist: Technically, Indonesia taxes income. But in practice, the obligation to withhold tax from certain expenses (non-trading transactions) makes tax compliance more complex. 
3. Why Expenses Can Trigger Tax Liabilities: All businesses (PT PMAs, PT Locals, CVs, Representative Offices, etc.) must withhold tax on payments to vendors or service providers. These are not your company’s taxes—but they are your responsibility to deduct and report correctly. Failure to do so can result in your company being liable for the vendor’s unpaid taxes. 

Final Thoughts 

Tax myths thrive on guesswork. Compliance thrives on facts.  

Now you know: 

• Dormant companies must still file 
• Residents report worldwide income 
• VAT and WHT apply to foreign service payments 
• And yes—expenses can trigger tax 

Stay ahead by meeting monthly deadlines, understanding your obligations, and planning for growth before the DJP comes calling. 

Need a seasoned guide? 

We provide end-to-end support—from monthly filings and reporting to VAT, WHT, and overseas transactions compliance—so you can focus on building your business with confidence. 

Ready to make tax one less worry?