Tax returns and compliance

Tax rates

Residence rules

Termination of residence

Economic employer approach

Types of taxable compensation

Tax-exempt income

Expatriate concessions

Salary earned from working abroad

Taxation of investment income and capital gains

Additional capital gains tax (CGT) issues and exceptions

General deductions from income

Tax reimbursement methods

Calculation of estimates/prepayments/withholding

Relief for foreign taxes

General tax credits

Sample tax calculation

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Income tax information based on the Indonesian Income Tax Law No 17 Year 2000, Income Tax Law No 36 Year 2008, Regulation of the Directorate General of Taxation PER-43/PJ/2011 and PER-16/PJ/2016, Regulation of the Minister of Finance No 250/PMK.03/2008, 252/PMK.03/2008 and 101/PMK.010/2016 and provided by PT KPMG Advisory Indonesia, the Indonesian KPMG member firm on KPMG International.

When are tax returns due? That is, what is the tax return due date?

The monthly Indonesian individual tax return is due for payment and lodgment by the 15th and 20th of the following month, respectively.

The annual Indonesian individual tax return should be lodged by 31 March of the following year. Any tax payable should be settled before the tax return is lodged.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Indonesia?  

Indonesian tax residents are required to file annual individual tax returns when their total income derived from sources in and out of Indonesia exceed the minimum threshold, which is between IDR54,000,000 for a single individual and IDR72,000,000 for a married individual with three children/dependents effective per 1 January 2016.

Spouses may choose to file jointly or separately. The law requires couples with separate Tax Identification Number to calculate the tax payable based on the combined family gross income, then report the tax payable in each tax return based on the prorated income.

The obligation to withhold, remit, and report tax on cash compensation paid in connection with employment rests with the local employing entity. Income tax withheld by employers must be remitted on a monthly basis by the 10th of the following month and reported by the 20th of the following month.

The obligation to remit and report tax on income received from non-employment sources for a calendar year (such as interest, dividend, rental income, and capital gain) rests with the individual.

An individual taxpayer is obliged to comply with the following procedures:

• registration
• payment of monthly installments
• lodgment of an annual individual income tax return
• deregistration.

In order to file a tax return, an individual must register to obtain a tax identification number (NPWP). The documents required for registration of an expatriate are:

• a copy of passport
• a copy of work permit (IMTA)
• a copy of limited stay permit (KITAS)
• the completed registration form
• a letter of authority for tax professional/representative to conduct the registration process.
• A copy of the sponsoring company’s NPWP (required by some tax offices)

The individual is required to calculate the provisional monthly income tax installments for the current fiscal year in his/her annual income tax return based on the previous year’s income (local employment income taxed at the source and certain irregular income can be excluded for this purpose). The monthly tax payment should be settled by the 15th of the following month, and filed by 20th of the following month. For example, the January 2016 provisional tax has to be paid by 15 February 2016, and filed by 20 February 2016. 

Late payment will be subject to 2% interest penalty per month while late filing will be sanctioned with a penalty of IDR 100,000.

It should be noted that tax refunds are paid only after conducting of a full tax audit. Therefore, care is required to avoid overpayment of taxes.

The monthly installments should be determined based upon taxable offshore income for each month, and taking into account the income tax already paid offshore. This includes investment income such as dividends, interest, and so on, and any employment compensation received overseas.

It is advisable to be conservative when calculating the estimated amount of tax to be paid since any overpayment of tax by the individual on his/her annual (final) return will be subject to an immediate tax audit.

Filing

The annual individual tax return should be filed by 31 March of the year following the end of the calendar year. If there is any amount due, the payment has to be made before the tax return is lodged.

The penalty for late filing of the annual tax return is IDR100,000. Late payment of tax is subject to an administrative penalty of 2 percent per month, calculated from the payment due date.

Extension of time to file the annual individual income tax return

Taxpayer who is unable to submit the annual individual tax return on time may request an extension of time to file the return up to 31 May (Form 1770-Y) by attaching a “tentative” current year taxable income. However, obtaining an extension of time to file does not provide an extension of time to pay and there is no certainty that the tax office will approve the request for an extension.

Attachments

The following documents are to be attached to the annual income tax return (Form 1770/1770S):

• tax payment slip to show that the balance of income tax payable according to the tax calculation has been paid
• list of assets and liabilities
• copy of Employers’ Certificate of Income Tax on Earnings (Form 1721-A1)
• list of taxpayer’s dependents
• letter of authority for tax consultant/representative (if the tax return is signed by proxy)
• supporting documents for foreign tax paid (such as copies of home country tax returns, tax payment vouchers, and so on)
• copy of work permit.

Non-residents are taxed on income from Indonesia only, at a final flat rate of 20 percent.

The obligation to withhold, remit, and report tax on cash compensation paid in connection with employment rests with the local employing entity. Income tax withheld by employers must be remitted on a monthly basis by the 10th of the following month and reported by the 20th of the following month.

Non-residents do not have an obligation to register for an NPWP or file any individual income tax return.

What are the current income tax rates for residents and non-residents in Indonesia?

Income tax table for 2015

Non-residents are taxed at a flat rate of 20 percent.

For the purposes of taxation, how is an individual defined as a resident of Indonesia?

Resident taxpayers are defined as:

• any individual present in Indonesia for more than 183 days in any 12-month period or
• any individual present in Indonesia during a tax year with the intention of residing in Indonesia.

Generally, individuals who come to Indonesia with an intention to work and reside in Indonesia with a valid work permit and stay permit would be treated as tax residents of Indonesia from the date of arrival.

An expatriate is resident until the date of final departure from Indonesia. An Indonesian national is considered resident from birth unless he/she leaves Indonesian permanently. An Indonesian national working overseas for more than 183 days in a 12-month period is also considered as non-resident. He/She will only be taxed on his/her Indonesian-source income, provided that he/she has paid income tax on his/her offshore employment earnings and she/he has official proof of overseas residence (i.e. employment pass, stamped passport, overseas residency cards, certifications from Indonesian Embassy, etc.)

An individual who is present in Indonesia for tax purposes is required to file an individual income tax return if he/she obtains income which exceeds the personal deduction threshold (non-taxable amount) of between IDR54,000,000 (for a single individual) and IDR72,000,000 (for a married individual with three children/dependents) per year. In order to file a tax return, an individual must obtain a tax identification number (NPWP).

Twenty percent tax surcharge will be applied to the earnings of an employee who does not have an NPWP while earning income above the personal deduction threshold.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

None.

What if the assignee enters the country before their assignment begins?

There is no regulation which forbids an assignee to enter Indonesia before his/her assignment begins, however he/she should already have a valid working visa before he/she can start working in Indonesia.

Are there any tax compliance requirements when leaving Indonesia?

Upon leaving Indonesia permanently, an expatriate must submit an application to cancel his/her tax registration. The tax office will perform a tax audit on the taxpayer’s returns and supporting documents prior to granting approval to deregister. Therefore, the individual should ensure all tax related documents, including bank statements, foreign tax paid documents, salary slip, employment contract, and so on are readily available in anticipation of a tax audit

The following documents are required for deregistration:

• deregistration form
• a letter from individual requesting deregistration tax registration number for he/she is no longer working at the company and leaving Indonesia
• a statement letter from the company that the individual is no longer working at the company starting from the effective date
• original tax registration (NPWP) card
• copy of Exit Permit Only (EPO)
• letter of authority to enable the tax professional/representative to handle the tax deregistration.

What if the assignee comes back for a trip after residency has terminated?

The assignee may come back to Indonesia on a social or business visa, however, without a valid working visa; he/she is not allowed to work for the Indonesian entity. The business visa only allows the individual for promotional or research purposes, but not to exercise employment.

Do the immigration authorities in Indonesia provide information to the local taxation authorities regarding when a person enters or leaves Indonesia?

There were some cases in which the tax authorities received a notification from the immigration authorities regarding the arrival of expatriate assignees. However based on KPMG in Indonesia’s experience, currently, this exchange of information is not a regular occurrence.

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

The assignee will still have an obligation to file his/her final individual income tax return for the period of their residency in Indonesia (from 1 January to the date of their permanent departure from Indonesia). The final year tax return is due immediately after permanent departure.

Do the taxation authorities in Indonesia adopt the economic employer approach¹ to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Indonesia considering the adoption of this interpretation of economic employer in the future?

Currently the taxation authorities in Indonesia assume that the assignee’s employer is the entity that:

• sponsors the work permit and stay permit for the individual
• bears the total remuneration cost of the assignee
• has the control or authority over the assignee’s employment.

It is expected that the employer should be a resident entity.

Indonesia is not a member of the OECD. However, the tax authorities may adopt the economic employer approach if they believe that there is any tax avoidance or abuse. 

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days²?

Not applicable.

What categories are subject to income tax in general situations?

Income is defined as any economic benefit received or accrued by a taxpayer that is used for consumption or that increases the wealth of the taxpayer, in whatever name or form.

The following types of income are subject to tax:

• compensation or payments received or earned in connection with work or services
  1. An expatriate is taxed on his/her actual salary, although salary guideline levels are sometimes used by the tax office where there is evidence of undeclared or under declared income. (Expatriates working in the offshore oil drilling sector are subject to tax at statutory-deemed salary levels, not actual salary.)
• lottery, prizes, and awards
• gross profits from individual business activities
• gains from the sale or transfer of assets
• refunds of tax payments already deducted as expenses
• interest
• dividends, in whatever name or form, paid by a corporation, payments of dividends by an insurance company to policy holders
• royalties
• rents from property
• annuities received or accrued
• gains from cancellation or forgiveness of indebtedness.

Are there any areas of income that are exempt from taxation in Indonesia? If so, please provide a general definition of these areas.

The followings are the types of income which are exempt from tax:

• benefits-in-kind:
  1. unless these amounts are taken as a deduction in determining the taxable income of the employer and/or
  2. unless the employer is tax exempt or is subject to tax on a final tax or deemed profit basis.
• income tax borne by the employer (unless grossed-up)
• gift or assistance received from a close family member, and religious, educational, or social institutions or small scale entrepreneurs including co-operatives, unrelated to the business or profession of the parties involved
• inheritance
• payments from an insurance company because of accident, illness, or death of the insured, and payments of scholarship insurance
• scholarship with approval from the Ministry of Finance.

Are there any concessions made for expatriates in Indonesia?

None.

Is salary earned from working abroad taxed in Indonesia? If so, how?

Due to worldwide income reporting, any income earned during the period of residence in Indonesia is subject to income tax in Indonesia. If income tax is already withheld/paid overseas, the amount can be claimed against the Indonesian tax payable up to a certain maximum.

An Indonesian citizen working overseas for more than 183 days in a 12-month period may qualify as a non-resident, and consequently, would be exempted from reporting his/her foreign income in Indonesia, if he/she can prove that he/she does not reside in Indonesia.

The term ‘resides’ is defined as having “a place of residence in Indonesia”, either occupied by the individual alone, or together with his/her family, and either owned, rented or available for use as:

• residence (permanent dwelling place), which is not temporary and not for visits only 
• a place to perform his/her daily activities or habits (ordinary course of life) related to economic, financial or personal social activities in the community, membership of organizations, groups or associations in Indonesia 
• a place to perform his/her habits (place of habitual abode) as a hobby or favorite activity either routine, frequent or not. 

Additionally, as proof of their overseas residence, the individual should be prepared to provide official identification documents showing residence in the foreign jurisdiction, such as identity card, student card, employment pass, notification letter from an Indonesian Embassy, or page in the passport duly stamped by foreign immigration.

Are investment income and capital gains taxed in Indonesia? If so, how?

Capital gains are treated as normal income subject to income tax. However, sale of locally listed shares are subject to a final tax at 0.1 percent of gross sales proceeds, and sale of domestic real estate is subject to 5 percent final income tax of the sale price. Purchase of domestic real estate is subject to a 5 percent tax on transfer of title.

Timing of withholding tax imposition is heavily influenced by when the cost is recognized in the local employing entity’s records. Information in the below table assumes that the option is not cross-charged to the Indonesian entity.

Are there additional capital gains tax (CGT) issues in Indonesia? If so, please discuss?

Capital gains are taxed at normal resident tax rates.

Are there capital gains tax exceptions in Indonesia? If so, please discuss?

None.

What are the general deductions from income allowed in Indonesia?

An individual tax subject who is a resident of Indonesia is allowed the following deductions against employment income.

• Occupational expenses: 5 percent of gross employment income up to IDR6 million per year.
• Contributions to government-approved pension funds: 5 percent of gross income up to IDR2,400,000 per year.

These deductions are prorated according to the period of residence in the tax year. Additional deductions include the following.

• Personal allowance of between IDR54,000,000 (for a single individual) and IDR72,000,000 (for a married individual with three children/dependents) per year.
• Aids and donations, including the ones made to government-authorized religious organizations can be claimed as a deduction by enclosing a copy of the official receipt.

What are the tax reimbursement methods generally used by employers in Indonesia?

Information not available.

How are estimates/prepayments/withholding of tax handled in Indonesia? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on. 

Employee income tax is automatically withheld, paid, and reported by the company on a monthly basis as withholding tax obligation rests at the payer. 

For personal income, the first year assignee may calculate a conservative amount of monthly income tax to be self paid and reported to the tax authorities. For second and following years’ assignees, the amount of monthly installment should be paid according to the amount of tax calculated in the previous year’s tax return.

When are estimates/prepayments/withholding of tax due in Indonesia? For example: monthly, annually, both, and so on.

The monthly employee withholding tax should be paid and reported by the 10th and 20th of the following month, respectively.

The monthly individual income tax should be paid and reported by the 15th and 20th of the following month, respectively.

Is there any Relief for Foreign Taxes in Indonesia? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Indonesian tax can be reduced by tax paid or due abroad on income received or accrued abroad by an individual in the same fiscal year. The permitted foreign tax credit for such year shall be limited to the total Indonesian income tax due on foreign income.

Note that the Indonesia tax authority uses the ordinary-credit-per-country approach where tax credits can only be claimed against tax due on income from the relevant country. For example, foreign taxes paid in the United States can be claimed only against tax due on U.S.-source income. 

What are the general tax credits that may be claimed in Indonesia? Please list below.

In the case of a registered resident taxpayer, tax due for a tax-year may be reduced by the following:

• withholding of tax on income from employment
• collection of tax on income from business
• withholding of tax on income in the form of interest, dividends, royalties, rents, and other remuneration
• prepayments made by the taxpayer himself for such tax year
• tax paid or due abroad on income received or accrued abroad by the taxpayer in the same year.

This calculation³ assumes a married taxpayer resident in Indonesia with two children whose three-year assignment begins 1 January 2016 and ends 31 December 2018. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

Exchange rate used for calculation: USD1.00 = IDR14,000.00.

• All earned income is attributable to local sources.
• Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
• Interest income is not remitted to Indonesia.
• The company car is used for business and private purposes and originally cost USD50,000.
• The employee is deemed resident throughout the assignment.
• Tax treaties and totalization agreements are ignored for the purpose of this calculation.
• The employee has obtained a tax identification number and thus there is no 20 percent tax surcharge.

Calculation of taxable income

* Assume received after leaving Indonesia.

Calculation of tax liability

Exchange rate used for calculation: USD1.00 = IDR14,000.00.

¹Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

²For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

³Sample calculation generated by PT KPMG Advisory Indonesia, the Indonesian member firm of KPMG International, based on the Indonesian Income Tax Law No 17 Year 2000, Income Tax Law No 36 Year 2008, Regulation of the Directorate General of Taxation No PER-16/PJ/2016, Regulation of the Minister of Finance No 250/PMK.03/2008, No 252/PMK.03/2008 and No 101/PMK.010/2016.