Finance

Everything You Should Know About Indonesia Corporate Tax Rate

Trường Lăng

October 22, 2024

Finance

Everything You Should Know About Indonesia Corporate Tax Rate

Trường Lăng

October 22, 2024

Indonesia is not a country to look away from, considering it one of the growing business hubs in Southeast Asia. Understanding the Corporate Tax Rate of a country is important for local as well as foreign investors, but the journey of understanding the tax systems can be pretty tricky, especially in companies willing to extend their business to Indonesia.

In this blog, go through a detailed overview of Indonesia’s corporate tax rates, factors that affect the calculation of corporate tax, and the reporting requirements of taxes.

Key Takeaways:

  • Understanding the Corporate Tax Rate of a country is important for local as well as foreign investors, but the journey of understanding the tax systems can be pretty tricky, especially in companies willing to extend their business to Indonesia.
  • The Corporate Tax Rate in Indonesia is a tax payment collected from companies. 
  • Corporate income tax in Indonesia is payable by the end of the fourth month following the close of the fiscal year, while corporate income tax returns are due to be filed on or before the end of the fourth month after the close of the fiscal year.

What is the Corporate Income Tax Rate in Indonesia?

indonesia corporate tax rate

The Corporate Tax Rate in Indonesia is a tax payment collected from companies. Corporate income tax in Indonesia is payable by the end of the fourth month following the close of the fiscal year, while corporate income tax returns are due to be filed on or before the end of the fourth month after the close of the fiscal year. The amount is based on net income they obtain while exercising their business activity, usually during one business/fiscal year.

Indonesia’s Current Corporate Income Tax for 2024

According to the Government In accordance with Government-side revision of Article 2 of Regulation Of The Minister of Finance of The Republic Of Indonesia Number 40 of 2023, the government has confirmed and declared that the rate of Corporate Income Tax for Tbk Companies shall be 22% instead of the previous 25%.

Public Company Corporate Income Tax Rate

There are different tax rates for Public Company Corporate Tax Rate. If the public company meets the minimum listing requirement of at least 40% and other requirements, it gets a 3% discount on the standard rate, resulting in an effective rate of 19%.

Small and Medium Enterprises (SME) Corporate Tax in Indonesia

PWC is among the Big 4 accounting firms in Indonesia that shares just how Small and Medium Enterprises have tax relief (PWC, 2024).

Small businesses, i.e., corporate taxpayers whose annual turnover is less than 50 billion Rupiah, enjoy a 50% discount from the standard rate, levied pro rata on taxable income for total turnover up to Rp4.8 billion. Companies, whose total turnover is less than Rp4.8 billion, are charged a final income tax of 0.5% of their turnover.

PPh Foreign Companies in Indonesia

Based on Klikpajak.id, there are some of the obligations of taxation of foreign companies in Indonesia.

Income Tax (PPh)

Annual PPh for PE Companies: annual income tax rate of 22% from the income obtained.

PPh Article 26: Collected if the foreign company derives income from certain transactions such as dividends, interest including premiums and discounts and compensation in connection with debt collateral return, and others according to the provision. The income tax rate for foreign companies differs depending on the tax object. 

Value Added Tax (VAT)

In addition, foreign corporate taxpayers also have to be charged with value-added tax concerning the procurement or provision of taxable goods or services.

Presently, 11% is being used as the VAT rate. Pursuant to the HPP Law, the government intends to raise the rates in succeeding years.

As a taxpayer who conducts transactions of taxable goods or services, you must manage value-added tax, starting from invoicing for tax, depositing the amount that must be paid, up to filing SPT Masa PPN. 

You might also like: A Complete Guide to Business Licenses in Indonesia for New Companies

Factors Affecting Corporate Tax Calculation

Understanding the different factors that affect corporate tax calculation in Indonesia will help foreign companies to optimize their tax liabilities. Here’s a closer look at key elements that impact corporate tax assessments.

Taxable Income vs. Gross Income

Difference Between Taxable Income and Gross Income

Gross income simply refers to the total revenue generated by a business prior to subtracting something. On the contrary, taxable income refers to the net income, which shall be levied against tax upon application of allowable deductions. Basically, taxable income will reveal an actual representation of the income earned by a company that must be levied to taxation.

How Indonesia Defines and Calculates Taxable Income

In Indonesia, taxable income arises from the gross income deducted by allowable expenses. The DJP has very stringent laws on what constitutes income and is hence subject to taxations. The business should keep accounting books to correctly and accurately record its income and any allowable deductions. For further details, visit the DJP website.

Double Taxation Treaties

How Double Taxation Treaties (DTTs) Reduce Tax Liabilities

Indonesia has signed numerous agreements related to the avoidance of Double Taxation Treaties with various countries, and such income shall not be subject to tax in more than one jurisdiction. These treaties also allow foreign investors to enjoy withholding tax rates on dividends, interest, and royalties at lower rates. By utilizing DTTs, companies can greatly reduce their overall tax liability.

Please refer to the DJP Double Taxation Agreement page on the official website for an exhaustive list of Indonesia’s DTTs and their specific provisions.

What deductible expenses are companies’ entities to?

Business expenses incurred for deriving income may also be deductible. This cost includes:

Depreciable/amortizable assets

The cost of the extension of rights of construction use, rights of business use, rights of usage, and a goodwill with a useful life more than one year, excluding the land held and used for business purposes

Organization and start-up expenditures

The organization’s incorporation and capital expansion expenses are fully deductible in the year the expenditure was incurred or may be amortized at the above rates using either the straight-line or declining-balance methods.

All expenditures that have a useful life longer than one year, contracted prior to the beginning of business operations, are capitalized and amortized using the above rates.

Interest Expense

Interest paid in the ordinary course of business is deductible up to a limit if the loan is used for business purposes. Those methods which are commonly used overseas-the debt-to-equity ratio or the proportion of EBITDA-are appropriate for the limitation of the deduction of interest.

Interest on loans secured by time deposits are not deductible; this is because such income is subjected to final taxation.

It is also not deductible to pay interest on loans used in acquiring shares in which the dividends are not taxable as income.

Other Deduction

  • Bad debts
  • Charitable contributions
  • Benefits in kind
  • Fines and penalties
  • Taxes
  • Net operating losses
  • Payments to foreign affiliates

You can check detailed deduction expenses on the PWC website, here.

Corporate Tax Compliance and Reporting Requirements

indonesia corporate tax rate viettonkin

Of course, the need to understand corporate tax compliance and reporting in Indonesia becomes important. Particularly, foreign companies have to ensure that they are compliant with relevant legislation, thereby trying to avoid fines by knowing the exact requirements and deadlines.

See below for tax compliance and reporting in Indonesia.  

Filing Corporate Taxes in Indonesia

Annual Reporting Obligations

In Indonesia, filing a corporate tax return is required annually, typically by April 30th of the subsequent fiscal year. To support an Annual Tax Return [], the company needs to be prepared with documents that serve as proof of income received and deducted, including their tax dues. Companies are highly required to keep proper records to support reports. For more information, please see DJP Tax Reporting Requirements here.

Penalties for Non-filing

There are substantial penalties for failing to file on time. Corporate late filings can be assessed penalties of 2% to 4% per month, depending on the time elapsed, of the unpaid tax. Interest and additional taxes will also be owed on penalty filings that were filed incorrectly .

e-Filing and Internet sites

With the implementation of an electronic filing system that allows businesses to submit their tax return electronically, Indonesia has entered the digital era regarding tax administration. This platform has smoothened the filing process, whereby in turn, will ease things up for companies to comply better with the filing process.

See here for a Guide on Income Tax Return Filing by MSME Taxpayers.

How Does Indonesia Compare with Other ASEAN Countries?

In 2023, Indonesia’s corporate income tax rate is 22%. For the other ASEAN countries, it is as follows, accordingly:

  • Malaysia: 24%
  • Singapore: 17%
  • Thailand: 20%

Tax Incentives and Holidays for Foreign Investors

Corporate Income Tax Incentives for Foreign Investor

Tax withheld or paid abroad by resident taxpayers in respect of income derived abroad may be credited against the tax payable in Indonesia within the same fiscal year.

Tax Holidays and Other Incentives

Tax Holiday

Capital investments up to IDR 500 billion may be allowed a tax holiday by MoF, whereby 100% of CIT may be exempted for five to twenty years. A company enjoys a 50 percent reduction of CIT for two years beyond the holiday period.

Businesses can also receive a five-year, 50% CIT discount for investments that total less than IDR 500 billion but over IDR 100 billion. For such companies, there is a follow-on reduction of 25% over the following two years.

Tax Allowance

The MoF can grant tax holidays to PT firms whose investments fall within specific areas. Benefits include:

A 30% reduction of net taxable income derived from investments in tangible fixed assets, apportioned over six years. The right to claim accelerated depreciation and amortization deductions. A reduced WHT rate of 10% on dividends paid to non-residents. An extended carry-forward for tax losses of up to ten years. CONDITIONS FOR APPLICATION: High value of investment or export-oriented. Generating a large number of jobs. High percentage of local value added content.

Applications for such benefits also need to be submitted through the OSS system and follow procedures for approval by the MoF.

Conclusion

In conclusion, understanding corporate tax rates is crucial for businesses looking to optimize their financial strategies and remain compliant with ever-evolving regulations. Whether you’re a local enterprise or a multinational corporation, navigating tax complexities requires expertise. Viettonkin Consulting offers tailored services to help companies manage their tax obligations effectively, ensuring compliance and offering insights on minimizing tax burdens. 

By partnering with experienced consultants, businesses can focus on growth while staying ahead of tax challenges. Visit our website to learn more.

You might also like: PT PMA Indonesia: A Gateway to Foreign Investors

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