Resident companies are taxed on worldwide income. Non-resident companies are taxed only on income sourced in Indonesia including income attributable to a permanent establishment in the country.

Taxable net income is defined as assessable income less tax-deductible expenses.

Taxable business profits are modified by certain tax adjustments. Generally, a deduction is allowed for all expenditures incurred to obtain, collect, and maintain taxable business profits. A timing difference may arise if an expenditure recorded as an expense for accounting cannot be immediately claimed as a deduction for tax.

A company is treated as a resident of Indonesia for tax purposes by virtue of having its establishment or its domicile is in Indonesia. A foreign company carrying out business activities through a Permanent Establishment (PE) in Indonesia will generally have to assume the same tax obligations as a resident taxpayer.

Generally, a flat corporate tax at 22% is applied starting from 2022 fiscal year. Variations apply as part of the incentives scheme (please see section 2.9)

Companies engaged in upstream oil and gas and geothermal industries typically must calculate Corporate Income Tax (CIT) in accordance with their production sharing contracts (PSCs). Certain companies engaged in metal, mineral and coal mining are governed by a contract of work (CoW) for the CIT calculation. Different provisions may apply to them pertaining to corporate tax rates, deductible expenses and how to calculate taxable income.

Generally, the year of tax assessment is January to December. However, a corporate taxpayer can elect to file a corporate tax return based on the company’s book year other than the calendar year of January to December. The approval from Minister of Finance is required if taxpayer intends to change the fiscal periods.

The following business have deemed profit margins for tax purposes:

* The EITR is calculated using the old tax rate of 30% because the MoF has not revised the decrees which regulate deemed profit margins. 

Tax is withheld from dividends as follows:

• Resident recipients
  Dividend income received by resident corporate taxpayers is exempted from the income tax object if the dividends come from Indonesia. However, if the dividend come from outside of Indonesia, in order to qualify for an exemption, it must follow the following conditions:
  • Equity investments in stock exchanges outside of the jurisdiction of Indonesia: must be invested or used for business activities in Indonesia under a certain time limit.
  • Equity investments in a non-listed company outside of the jurisdiction of Indonesia: must invest in Indonesia at a minimum of 30% of earnings before tax as long as a tax assessment letter is not issued.

The type of investments qualified for the exemption as well as the time limit are regulated.

• Non-resident recipients 
  20% (or lower for treaty countries referring to 6.2 for reduced rates based on tax treaties) final withholding tax is due on dividends paid to a non-resident recipient.
• The Controlled Foreign Corporation (CFC) 

Certain income (dividend, interest, rental income, royalty, and gain from sale or transfer of assets) are subject to deemed dividend rules in Indonesia. The deemed dividend rules are applied for:

• • Indonesian company that has a foreign subsidiary/branch and owns at least 50% of shares in that offshore company.

Rule exemption: this rule does not apply only when the Company’s shares are listed on a stock.

exchange.

Capital gains are taxable as ordinary income and capital losses are tax-deductible. Gains from certain transactions are taxed under a special regime (e.g. gains from the disposal of land and/ or building properties are subject to a final tax at 2.5% rate from the transaction value).

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 is subject to 20% final tax.

Interest on bonds other than that payable to banks operating in Indonesia and to government-approved pension funds is subject to 15% final tax. If the recipient is a mutual fund registered with Indonesia Financial Services Authority (Otoritas Jasa Keuangan/OJK), the tax rate is 5% for 2011-2013 and 15% thereafter. If the recipient is a non-resident tax payer, the tax rate is 20% (or a lower treaty rate).

Interest and other benefits including premium or discount which is the interest between loans received or obtained by the Corporate Taxpayer are assessable to the company earning the interest at the ordinary corporate tax rate alongside the company’s other income. Interests are subject to withholding tax at 15%. The amount withheld constitutes a prepayment of the CIT liability for the company earning the interest.

Losses may be carried forward for 5 years following the year the loss was incurred (this period may be extended on certain industries and for operations in remote areas who obtained the tax facilities). Losses are not allowed to be carried back.

a. Tax cut for public companies

The public companies are granted a 3% corporate tax cut off the standard rate, giving an effective rate of 19% for 2022 fiscal year and onwards. A 3% corporate tax cut can be granted to public companies which satisfy the following conditions:

• At least 40% of their paid-in shares are listed for trading in the IDX. Shares owned by certain related parties and treasury shares cannot be counted for this purpose; and
• The public should consist of at least 300 individuals, each holding less than 5% of the paid-in shares.

These two conditions must be maintained for at least 6 months (183 days) in a tax year.

b. Income Tax for mediumenterprises

The Companies with an annual turnover of not more than Rp50 billion, are entitled a 50% discount of the standard corporate tax rate of 22% which is imposed proportionally on taxable income of the part of gross turnover up to Rp4.8 billion.

c. Income Tax for small enterprises

Companies (exclude permanent establishments) with an annual turnover less than 4.8 billion are subject to 0.5% final income tax on the gross sales turnover. This final tax is paid on monthly basis. It can only be applied for 3 fiscal years for Limited Liability Company (“Perseroan Terbatas”), and 4 fiscal years for cooperative, limited partnership (“CV”), or fellowship partnership (“firma”). 

The above final tax rate cannot be applied for the certain taxpayers, such as taxpayers who are subject to other final tax such as construction services, land and building rental, those who choose the normal corporate tax calculation, or those who obtain certain Tax Facilites.

d. Tax holiday

The corporate taxpayers who are engaged in certain 18 sectors of pioneer industries, and makes new investment at least IDR 100 billion, may enjoy a reduction of Corporate Income Tax (“CIT”):

1. 100% of CIT payable – for new investment value at least IDR 500 billion;

The period of tax holiday is:

• 5 years – for new investment value at least IDR 500 billion to less than IDR 1,000 billion
• 7 years – for new investment value at least IDR 1,000 billion to less than IDR 5,000 billion
• 10 years – for new investment value at least IDR 5,000 billion to less than 15,000 billion
• 15 years – for new investment value at least IDR 15,000 billion to less than 30,000 billion
• 20 years – for new investment value at least IDR 30,000 billion

After the above period is ended, the taxpayer will be granted the reduction 50% of CIT payable for the following 2 fiscal years.

2. 50% of CIT payable – for new investment value at least IDR 100 billion.

The period of Tax holiday is: 5 years

After the above period is ended, the taxpayer will be granted the reduction 25% of CIT payable for the following 2 fiscal years.

Tax holidays may be granted for taxpayers conducting main activities in Special Economic Zones (Kawasan Ekonomi Khusus/KEK). 

e. Direct tax incentives for new enterprises

Under the Capital Investment Law and certain tax provisions, the new foreign and local direct investment Enterprises may apply for an exemption from the income tax payable on the importation of capital goods and raw materials. The exemption is granted for capital goods indicated in the Master List and the request must be applied for each importation. Furthermore, new Enterprises should secure an exemption certificate from the Directorate General of Taxes (DGT) where the new enterprise is registered.

f. Tax facilities on investment in certain business and or certain regions

The tax facilities are available for the limited liability companies (Perseroan Terbatas) who make investment in main business activities, both new investment and expansion of existing business, or the expansion of the existing business which does not include replacement and/or addition of machines and/or equipment carried out in a production line that is already in commercial production.   

The criterias are:

• high investment value or for export purposes;
• labor intensive;
• high local content

The tax facilities are in the forms of:

1. 30% (thirty percent) net income reduction of the total investment value in the form of tangible fixed assets including land, which is used for Main Business Activities, is charged for 6 (six) years each 5% (five percent) per year;
2. Accelerated depreciation of tangible fixed assets and accelerated amortization of intangible assets acquired in the context of investment, with the useful life and depreciation/amortization rate, as follows: 

Depreciation

Amortization

3. A reduction of the withholding tax rates on dividends paid to foreign taxpayers other than a permanent establishment in Indonesia to 10% (or a lower rate according to the applicable double tax avoidance agreement).
4. The tax loss carried forward that are longer than 5 (five) years but not more than 10 (ten) years, with the certain conditions applied.

The tax facilities request must be submitted before the start of commercial production. In

the implementation of the tax facilites will be evaluated no longer than 2 years after the Government Regulation is released.

addition, the implementation of the tax facilites will be evaluated no longer than 2 years after the Government Regulation is released.

Dividends – Based on the new Tax Regulations Harmonization Law, starting from the 2022 fiscal year, in general dividends are non-tax-objects. This was in the contrary of the previous regulations of which dividends were tax objects. To qualify for non-tax-objects, dividends paid by a domestic corporate taxpayer to a resident individual must be invested in Indonesia for a certain period. If not met, a 10% final withholding tax is imposed on dividends paid to a resident individual.

If dividends paid by a domestic corporate taxpayer to a non-resident, dividends are subject to a final 20% withholding tax (or a reduced treaty rate).

If dividends were paid by a domestic corporate taxpayer to a domestic corporate taxpayer, it is exempted as tax objects without any investment requirements (non-taxable).

Dividends paid from foreign corporate taxpayer to a domestic individual and/or domestic corporate taxpayer must be invested in Indonesia for a certain period and at least 30% must be invested in Indonesia and before the DGT issues any tax assessment letters on the dividends.

Interests - Interest paid to a non-resident is subject to a 20% withholding tax (or a reduced treaty rate). Interest paid by a domestic taxpayer to a resident is subject to a 15% withholding tax, which represents an advance payment of tax liability.

Royalties - A 20% withholding tax is imposed on royalties remitted abroad (or a reduced treaty rate). For tax purposes, royalties refer to any charge for the use of property or know-how in Indonesia, as well as the transfer of a right to use property or know-how in Indonesia.

Royalties paid by a domestic taxpayer to a resident are subject to a 15% withholding tax, with the payment representing an advance payment of tax liability.

Technical service fees and rental - A 2% withholding tax applies on gross payments made by a domestic taxpayer to a resident taxpayer for technical, management and consulting services and rentals (except for land and building rentals). For the land and building rental is subject to 10% Final Income Tax.

Under the domestic tax law, a 20% withholding tax (or a reduced treaty rate) is imposed on technical service fees remitted abroad.

Branch Profit Tax - Permanent establishments are subject to a 20% branch profits tax (or a reduced treaty rate) on after-tax profits.

Related parties are defined as:

1. Taxpayer has capital participation directly or indirectly at least 25% upon another taxpayers; the relationship between taxpayers through ownership at least 25% upon two or more taxpayers; or relationship between two or more taxpayers mentioned later;
2. Taxpayer controls the other taxpayer or two or more taxpayers are under the same control, either directly or indirectly; or
3. There are family relationship either blood relationship or by marriage in vertical and/or horizontal lineage of one degree.

Transactions between related parties must be consistent with the arm’s length principle. If the arm’s length principle is not followed, the DGT has the authority to recalculate the taxable income or deductible costs arising from such transactions applying the arm’s length principle.

Taxpayers under certain criteria are required to prepare TP documentation, i.e. Master file, Local file, and Country-by-Country Report (CbCR). The Master file and Local file must be available if requested by the DGT while the detailed TP disclosures are required in the CITR, which include:

• The nature and value of transactions with related parties;
• The TP methods applied to those transactions and the rationale for selecting the methods; and
• Whether the company has prepared TP documentation.

The notification of the CbCR obligation and the CbCR itself (if required) must be submitted to the ITO within 12 months after the end of a tax year.

Transfer Pricing Documentation, if required, must consist of an overview of the taxpayer’s business operation and structure, its transfer pricing policy, comparability analysis, selected comparable, and an explanation of how the arm’s length price or profit was determine (including the transfer pricing methodology), etc.