Running a PT PMA (Limited Liability Foreign Owned Company) in Indonesia presents unique challenges, particularly in navigating the dynamic tax landscape. Understanding your tax obligations is crucial for maintaining compliance and optimizing your tax liabilities in Indonesia. Whether you are new to the Indonesian market or looking to refine your tax strategy, this guide will help you stay informed and compliant.
For expert tax advice and personalised assistance, contact us today. Our team handles the calculation and reporting of all types of taxes, allowing you to focus on your business with confidence in its tax compliance.
Indonesia’s tax system uses a withholding system to collect various income taxes, which you must submit monthly. The payer generally holds responsibility for withholding the taxes.
Employers must withhold tax from their employees' remuneration, pay the tax to the State Treasury, and report it accordingly. The same withholding tax is applicable to payments to non-employee individuals – e.g. fees payable to individual consultants or service providers – however the tax calculation is based on 50% of the income per month.
Article 21 withholding tax covers the income tax obligations of individuals. Specifically, Indonesia levies this tax on income earned by resident taxpayers from employment, services, or other similar activities. Employers are responsible for deducting this tax from their employees' salaries and wages before disbursing the payment. The rates of Article 21 withholding tax vary depending on the amount of income earned see tax rates below:
| Taxable Yearly Income | Rate |
| Up to IDR 60 M | 5% |
| Above IDR 60 M up to IDR 250 M | 15% |
| Above IDR 250 M up to IDR 500 M | 25% |
| Above IDR 500 M up to IDR 5 B | 30% |
| Above IDR 5 B | 35% |
Effective 1 January 2024, the new Government Regulation 58 (GR-58) mandates using an effective tax rate (ETR) for the monthly Article 21 withholding tax calculation from January to November, while the annual calculation in December must use the normal Article 21 progressive income tax rate as regulated under Article 17(1)(a) of the Income Tax Law.
The final tax underpayment will be based on the December recalculation amount, minus the tax withheld from January to November. GR-58 applies the ETR to the gross income received by the individual in a particular month without applying any annualization calculation or deduction on the gross income, as the ETR already accounts for applicable deductions such as non-taxable income, occupational expense, and pension contribution/expense.
There are three categories of Effective Tax Rates, as follows:
Category A for individuals with a marital status of:
Category B for individuals with a marital status of:
Category C for individuals with a marital status of:
The applicable monthly ETR for each range of income under each category is as follows:
There is a daily ETR applied on income received by a non-permanent employee on a daily/weekly/unit/piece rate basis. If the income is not paid daily, the tax base on which the daily ETR is applied is the average daily income based on the number of working days.
The applicable daily ETR and daily income range are as follows:
At this stage, GR-58 does not regulate the applicable ETR nor whether the ETR is applicable for daily income above IDR 2,500,000.
Businesses in the importing sector or companies receiving payments for certain types of products – such as sales to the government, very luxurious goods, and fuel - are obliged to withhold tax. The tax rate depends on the type of goods, business license, and registration (or not) of the taxpayers at the Tax Office. Article 22 tax rates can be found here.
Article 23 addresses interests and royalties for resident taxpayers. Certain types of income paid or payable to resident taxpayers are subject to Article 23 at the following rates of the gross amounts:
Article 25 refers to the monthly instalments of income tax prepayments that a taxpayer must make throughout the fiscal year. These prepayments are calculated based on the taxpayer’s previous year’s income tax liability and are credited against the final income tax due at the end of the year. The main purpose of Article 25 is to ensure a steady flow of tax revenue throughout the year and to prevent a large lump-sum payment at year end.
When income is paid to foreign taxpayers, the payer withholds income tax. Proof of withholding tax for Article 26 must be provided to the foreign taxpayer as proof of tax withholding. Passive income related to non-resident taxpayers such as interests, royalties, and dividends shall be subject to the following withholding tax rates:
20% withholding tax on payments to non-residents for:
*Or rate based on International Tax Agreements. You can find a complete list of Indonesia’s Double Taxation Agreements here.
To avoid the additional 20% withholding tax, becoming a tax resident in Indonesia might be advantageous. This allows you to benefit from the resident taxpayer rates listed in Article 23. Find out how you can optimize your taxes:
Resident companies, Permanent Establishments, representatives of foreign companies, organizations, and appointed individuals must withhold final tax from the following gross payments to resident taxpayers and Permanent Establishments:
| Description | Tax Rate |
| Rental of land and/or buildings | 10% |
| Proceeds from transfers of land and building rights | 2.5% |
| Fees for construction work performance | 1.75/2.65/4% |
| Fees for construction consulting | 3.5/6% |
| Fees for integrated construction work | 2.65/4% |
| Interest on time or saving deposits and on Bank Indonesia Certificates (SBIs) other than that payable to banks operating in Indonesia and to Government-approved pension funds | 20% |
| Interest on bonds other than that payable to banks operating in Indonesia and Government pension funds | 10% |
| Proceeds from sale of shares on Indonesia Stock Exchange (IDX). To use this rate, founder shareholders must pay tax at 0.5% of the market price of their shares upon listing, otherwise, gains on subsequent sales are taxed under normal rules. | 0.1% |
| Income from lottery prizes | 25% |
| Certain income received by individuals and corporations (except Permanent Establishments) with gross turnover of not more than IDR 4.8 B in one fiscal year | 0.5% |
| Certain dividends received by certain non-resident taxpayers under the cooperation with State Wealth Fund | 7.5% |
| Dividends received | 10% |
You also must be aware of the Hospitality Tax, also referred to as PB1. This tax applies to businesses operating in the hospitality sector, such as Hotels, Restaurants, and Entertainment.
These hospitality taxes are charged to the customers, and they must be inscribed on the invoice. This tax replaces the Value Added Tax (VAT), so both taxes cannot be applied simultaneously.
Each Regional Government sets their own PB1 rates, with the most common rate being 10% of the service. You must make payments monthly, and the tax rate varies depending on the regional tax office.
In the case of Badung Regency in Bali, the following rates apply:
At the end of 2023, the Badung Regency Government announced that they would be increasing the PB1 tax to 40% in certain industries in 2024. However, this new tax rate has not yet been implemented due to the backlash it received from business owners.
Indonesia imposes an annual regional tax called Pajak Bumi dan Bangunan (PBB) on property owners. The tax rate varies depending on the location and type of property, but typically ranges from 0.5% to 2% of the property’s taxable value per year.
Value Added Tax is due no later than the end of the month immediately following the end of the tax period.
Self-Building VAT (known as VAT KMS or Pajak Pertambahan Nilai atas Kegiatan Membangun Sendiri in Bahasa Indonesia) applies to self-built buildings. It ensures that self-build and commercially built structures contribute equally to the tax system. This VAT applies to buildings that exceed 200 meters squared (m2) either at initial build or within 2 years of completion. For instance, if you finish building a 150m2 first floor and 30m2 second floor home in January 2024, no VAT KMS applies. However, if you build a 100m2 pool in December 2026, within the 2-year window), a 2.2% VAT KMS applies. If you were to wait until January 2027 to build the 100m2 pool, the 2.2% VAT KMS would not apply.
The Luxury Goods Sales Tax (LGST) is due no later than the end of the month immediately after the tax period ends.
In addition to VAT, sales, deliveries or imports of certain goods are subject to LGST. For example, motor vehicles and luxury residences. Our team will provide information on the goods subject to the LGST upon request. The LGST rates are currently between 10% and 75%, but the law allows for a maximum LGST rate of 200%.
You must account for LGST every month along with VAT. The importer or manufacturer of the goods is responsible for settling the LGST, knowing that each item is charged LGST only once and reselling LGST goods does not incur LGST again.
There are a few exceptions to LGST, such as yachts and luxury boats dedicated for tourism activities. The nature of LGST exemption is by application, so one must first apply for LGST tax to be able to enjoy the exemption.
Settle corporate income taxes (CIT) annually. Taxpayers can avoid large year-end liabilities by ensuring all required prepayments are made throughout the year.
The general flat rate of CIT is 22%. Qualified public companies receive a 3% tax cut, reducing their effective CIT rate to 19%.
However, companies with a yearly turnover of less than IDR 4.8 B are subject to a reduced CIT rate of 0.5% on turnover for the first three (3) fiscal years of the activity. The fiscal year runs from 1 January until 31 December.
Then, they are entitled to 11% tax rate that applies on profit if their yearly turnover is below IDR 4.8 B, or between 11% and maximum 22% if their yearly turnover is above IDR 4.8 B. If the yearly turnover is above IDR 50 B, then everything is taxed at 22%.
Government Regulation 55 applies for the first three fiscal years if the enterprise's annual turnover is under IDR 4.8 B. Exceptions include income that is already subject to final tax like real estate transactions, land leases, and interest income.
If the taxpayer's advance tax payments (Articles 22, 23, and 25) are less than the CIT due, they must settle the shortfall before filing the CIT return, known as Article 29 income tax.
Taxpayers must calculate and pay personal income tax (PIT) annually based on their total income for the fiscal year.
Annual PIT returns are due no later than 31 March. The tax rate depends on the taxable income, as follows:
| Taxable Annual Income | Rate |
| Up to IDR 60,000,000 | 5% |
| Above IDR 60,000,000 up to IDR 250,000,000 | 15% |
| Above IDR 250,000,000 up to IDR 500,000,000 | 25% |
| Above IDR 500,000,000 up to IDR 5,000,000,000 | 30% |
| Above IDR 5,000,000,000 | 35% |
Allowable deductions, depending on the taxpayers’ personal circumstances, are available for resident taxpayers only, as follows:
Employers must cover their employees under the social security program, Badan Penyelenggara Jaminan Social (BPJS). Employers collect employees' contributions through payroll deductions and pay them along with their own contributions. All employees, including expatriates working in Indonesia for over six months, are required to join BPJS. The current premium contributions are as follows:
| Areas covered | As a percentage of regular salaries | |
| Borne by employers | Borne by employees | |
| Working accident protection | 0.24-1.74% | - |
| Death insurance | 0.3% | - |
| Old age savings | 3.7% | 2% |
| Health care* | 4% | 1% |
| Pension** | 2% | 1% |
At Smart Advisory Solutions, we specialize in providing comprehensive tax advisory services tailored to your specific needs. Our team of tax experts can help you optimize your taxes, ensuring that you meet all compliance requirements. We offer personalized solutions to enhance your financial efficiency and minimize tax liabilities.
Contact us today to optimize your corporate and personal taxes and ensure compliance with Indonesian tax regulations.
Let us help you achieve your financial goals with our expertise and commitment to excellence.
As Bali gears up for the gubernatorial election on November 27, 2024, two prominent candidates are vying for the chance to shape the island’s future. This election highlights critical issues facing Bali, from infrastructure development to sustainable tourism and environmental management. Here’s a breakdown of the candidates, their platforms, and what’s at stake in this […]
When hiring in Indonesia, companies must navigate specific employment laws to ensure compliance, particularly when it comes to employment contracts. Employers in Indonesia typically choose between Definite-Time Employment Contracts (PKWT) and Indefinite-Time Employment Contracts (PKWTT). Both contract types come with their own set of rules, advantages, and obligations. This guide offers an overview to help […]
Value Added Tax (VAT) in Indonesia is a consumption tax applied at each stage of the supply chain, where value is added to a product from production to the final sale. It applies to many goods and services traded within the Indonesian Customs Area. Companies in Indonesia must register as VAT taxpayers if their business […]
