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Taxation
 
Tax system
Indonesia’s taxation system is based on broad-based value-added tax on revenues combined with a self-assessment system. Taxes are imposed at regional and national levels. The Indonesian tax system classifies taxes into:

  • national taxes: including income tax, value-added tax, sales tax on luxury goods, stamp tax, property tax (on land and buildings), and fiscal departure tax
  • regional taxes: including development tax, motor vehicles tax, other minor taxes (household, entertainment, road, advertisement, radio and television taxes)
  • customs and excise taxes: including export duty, import duty, tobacco, sugar, beer and alcohol, and gasoline taxes.

The Ministry of Finance and the Director General of Taxation regulate compliance with the main taxation rules. Unfortunately, the Tax Court, which is the court of appeal on tax matters, does not make its decisions readily available. The Tax Court is a judicial institution with jurisdictional authority for taxpayers or tax guarantors seeking settlement of tax disputes. A request for re-examination of a decision of the Tax Court by the Supreme Court will only be granted where certain conditions are fulfilled.

A Large Taxpayer Tax Service Office was established in Jakarta in July 2002 and responsibility for “large” taxpayers were transferred to this office. It is common practice for the financial year of companies to follow the calendar year.

In September 2008 the Parliament passed a new income tax law which reduced the number of income tax brackets (from five to four) and lowered the maximum rate of income tax from 35 per cent to 30 per cent (for salaries of Rp500 million or greater). In addition, the then current corporate tax rates of 10 per cent, 15 per cent, and 30 per cent disappeared in 2009 in favor of a single corporate tax rate of 28 per cent. In 2010, this corporate tax rate fell to a flat 25 per cent.


 
Income taxes
The wide definition of income tax in Indonesia’s taxation law applies equally to both individuals and businesses operating through corporate structures. This definition of income tax includes such income sources as:

  • wages and salaries
  • interest and dividends
  • compensation for work performed
  • compensation for use of assets
  • commissions and bonuses
  • rent
  • pensions and royalties
  • lottery prizes and awards
  • bonuses and awards
  • foreign exchange gains
  • insurance and reinsurance premiums
  • capital gains on property.
Taxpayers are classified as:

  • resident taxpayers: this includes companies, partnerships and cooperatives domiciled or incorporated in Indonesia. If a foreign business has a “permanent establishment” (that is, an “establishment regularly used to carry on business in Indonesia by an organization or enterprise not set up or domiciled in Indonesia”), it is considered a resident for tax purposes. Any individual present in Indonesia for more than 183 days in any 12-month period or a person who intends to reside in Indonesia is also classified as a tax resident of Indonesia
  • non-resident taxpayers: a non-resident taxpayer is one who receives benefit from activities in Indonesia. Double tax treaties that Indonesia has signed with various countries can provide some relief.
 
Withholding taxes
Withholding taxes apply to:

  • payments made for a range of services performed within Indonesia
  • payment of fees to partnerships or individuals
  • payment to offshore funds (these include interest, royalties, technical service fees, dividends)
  • certain classes of income, including transfer of title to land/buildings, rent paid on land/ buildings and income from construction and construction consulting services.
 
Other taxes
Other taxes of relevance to foreign investors include:

  • land and building tax which is an annual tax on land, building and permanent structures. Taxpayers are those with the rights over the land or those who possess or control structures to obtain benefit from them
  • value-added tax applies to the supply of most goods and services in Indonesia
  • stamp duty on execution of certain documents (this is nominal and not an ad valorem tax)
  • foreigners’ tax, which is payable by companies for expatriate employees
  • fiscal tax on departure from the country (currently Rp1 million on each departure of Indonesians and foreign residents). From 2009, any person with an Indonesian tax file number (Nomor Pokok Wajib Pajak (NPWP)) is exempted from fiscal exit tax.