Direct taxation of businesses
Generally, the flat tax rate of 25 per cent of net income applies for all businesses that take the form of an entity (regardless of whether they are incorporated). There are some exceptions, including:
- a public company that satisfies a minimum listing requirement of 40 per cent and other requirements can obtain a 5 per cent reduction from the standard rate;
- corporate taxpayers with gross revenue up to 50 billion rupiah are entitled to a 50 per cent reduction of the standard tax rate imposed on the taxable income for gross revenue up to 4.8 billion rupiah;
- companies engaged in upstream oil and gas and geothermal industries must calculate their corporate income tax pursuant to the terms of their production-sharing contracts; and
- companies engaged in mining activities that are parties to the contract of work with the government must calculate their corporate income tax pursuant to the terms of the contract of work.
There are also businesses that have deemed profit margins for tax purposes. For such businesses, their respective deemed profit on gross revenue and effective income tax rate are, inter alia, domestic shipping operations (4 per cent; 1.2 per cent) and foreign shipping and airline operations (acting through a permanent establishment (PE) in Indonesia) (6 per cent; 2.64 per cent).i Tax on profitsDetermination of taxable profit
Indonesian tax residents are taxed on their worldwide income, and foreign tax credits are available for the foreign income of tax residents subject to certain criteria. The taxable profit is calculated based on the gross income deducted with allowed expenses. Pursuant to the Income Tax Law, deductible expenses are expenses for the purposes of earning, collecting or maintaining income, including:
- expenses that are directly or indirectly related to the business activities, such as material expenses, salaries, wages, allowances, interest, royalties, travelling expenses, waste management expenses, insurance premiums, promotion and selling expenses, administration expenses and taxes (except income tax);
- depreciation and amortisation expenses;
- contributions to the pension fund;
- losses; and
- expenses for research and development conducted in Indonesia.
Non-deductible expenses include:
- distributions of profit in any form, such as dividends;
- expenses for personal interests of shareholders, partners or members;
- establishment of reserves or provisions, with some exceptions, such as provisions for doubtful accounts for banking and financing companies, reclamation provisions for mining companies, forestation provisions for forestry companies, and provisions for closure and maintenance for industrial waste processing businesses;
- benefits in kind; however, meals and drinks provided to all employees, or benefits in kind in certain remote areas, are deductible as regulated by a Minister of Finance regulation;
- income tax payments; and
- tax penalties.
Pursuant to Article 11 of the Income Tax Law, expenditure incurred in relation to tangible assets with a useful life of more than one year (except for land titles) can be depreciated. Depreciation is commenced from the month of the acquisition of the assets by using the straight-line method or the declining method consistently. Buildings can be depreciated by using the straight-line method only.
Pursuant to Article 11A of the Income Tax Law, amortisation for expenditure to acquire intangible assets, including expenses for extension of land titles and goodwill having a useful life of more than one year, can be carried out by the straight-line method or declining method during the useful life by way of applying an amortisation tariff for such expenditure or on the remainder of the book value; provided this is done consistently, it is all amortised at the same time at the end of the useful life. The amortisation is commenced in the month in which the expenditure is incurred, except for in certain business sectors that are regulated further by a Minister of Finance regulation.
Basically, taxable profits are based on accounting profits. However, for the calculation of the tax obligation, some adjustments may be required, since certain expenses are not tax-deductible. Profits are taxed on an accruals or receipts basis, depending upon which book method the taxpayer has adopted. The book method must be conducted consistently by the taxpayer. A change of the book method must obtain the approval of the Director General of Tax.Capital and income
In practice, there is still a distinction between the taxation of income and capital gain (profit). Currently, the income tax on income arises from the sale of shares in the stock exchange, and is a final tax of 0.1 per cent of the gross amount of the sale of shares. In the case of the sale of shares by founding shareholders in publicly listed companies, there is an additional tax of 0.5 per cent of the sale transaction value.
Tax on capital gains from the sale of shares in closely held companies by a foreign shareholder is 5 per cent of the value of the sale transaction, unless provided otherwise by a relevant tax treaty if the taxing authority is not Indonesia.Losses
Pursuant to Article 6(2) of the Income Tax Law, losses may be carried forward for a maximum of five years. For a limited category of businesses in certain regions, or businesses subject to certain concessions, however, the period can extend up to 10 years. The carry-back of losses is not allowed. Losses can survive a change in shareholders of the PT.Rates
Pursuant to Article 17 of the Income Tax Law, the flat tax rate for tax-resident entities (whether corporate or non-corporate) is generally 25 per cent. For individual tax residents, the tax rates are as follows:
|Up to 50 million rupiah||5 per cent|
|Over 50 million rupiah but not exceeding 250 million rupiah||15 per cent|
|Over 250 million rupiah but not exceeding 500 million rupiah||25 per cent|
|Over 500 million rupiah||30 per cent|
Businesses must pay tax and file tax returns for particular taxes either monthly or annually, depending on the tax obligation in question. For example, for many withholding taxes, the tax payment deadline is the 10th day of the following month, and the tax return filing deadline is the 20th day of the following month. For corporate income tax, the tax payment deadline is at the end of the fourth month after the book year-end before filing the tax return, and the deadline for filing the tax return is the fourth month after the book year-end.
There are two kinds of tax authorities: at the national level (i.e., the Directorate General of Tax and the Directorate General of Customs and Excise, both under the Ministry of Finance: this chapter focuses on the authority of the Directorate General of Tax only) and at the local (regional) level.
The tax authorities may audit businesses from time to time at random to check the compliance of taxpayers. If a business requests a tax refund, this will always trigger a tax audit.
In practice, it is possible to obtain guidance or clearance from the tax authorities where there is uncertainty as to the correct tax treatment or if the tax treatment could apply in a way that would not seem to be intended. Normally, the tax authorities follow the written guidance or clearance they have issued to the taxpayer in treating such taxpayer. Since some of this written guidance and clearance has been made publicly available, taxpayers who believe that such guidance or clearance may also be beneficial to them usually attempt to rely on such documents in convincing the tax authorities that they are eligible for the same tax treatment.
In cases where a taxpayer does not agree with a tax position taken by the tax office as stipulated in the tax assessment letter, the taxpayer has the right to submit an objection application to the Director General of Tax to annul the tax assessment letter within three months as of the sending date of the tax assessment letter. If the taxpayer is not satisfied with the objection decree of the Director General of Tax, the taxpayer can ask for an appeal against such an objection decree to the Tax Court within three months as from the receipt of the objection decree.
Under the Tax Court Law of 2002, Tax Court decisions are final and binding, but are still subject to an extraordinary legal remedy for civil review to the Supreme Court based on limited grounds as provided for in the Tax Court Law. Under Article 91 of the Tax Court Law, those grounds are:
- if the Tax Court decision is based on a lie or fraud by the counterparty that is known after the rendering of the decision, or based on evidence that later is declared forged by the criminal judge;
- if there is new written evidence that is important and decisive that, if it is known in the proceedings at the Tax Court, will result in a different decision;
- if something is granted that was not claimed, or that is more than what was claimed by a party;
- if it concerns a part of the claim that has not been decided without considering the causes; or
- if there is a decision that is clearly not in accordance with the provision of the prevailing laws and regulations.
Looking at the Supreme Court level, and from decisions of the Supreme Court on tax disputes on the Supreme Court website, the ground in (e) above is always used in civil review applications. Other grounds are very rarely used, and if they are, they are used only as an additional ground.
Pursuant to Article 93 of the Tax Court Law, the Supreme Court examines and renders a decision within six months as from the date the dossier is received by the Supreme Court in the event that the Tax Court has rendered its decision through an ordinary procedure examination; or within one month if the Tax Court has rendered its decision through an expediting procedure examination.
In recent practice, it is often that the Supreme Court renders its decisions within those timelines. However, there are still delays that are caused particularly by the administrative processing and sending of case dossiers by the Tax Court to the Supreme Court.Tax grouping
There are no group tax relief provisions available in Indonesia. As a result, members of a group of companies are taxed individually.ii Other relevant taxes
Other taxes relevant for businesses are, inter alia, VAT and luxury goods sales tax, land and building tax, income tax on land and building transfers, duty on the acquisition of land and building rights and stamp duty.
VAT is imposed on the transfer of taxable goods or the provision of taxable services in the Indonesian customs area. The current VAT rate is 10 per cent, as provided for in the VAT Law. Pursuant to the VAT Law, a government regulation can provide for a VAT rate ranging from 5 to 15 per cent.
In addition to VAT, certain goods regarded as luxury goods are subject to an additional luxury goods sales tax ranging from 10 to 75 per cent. Pursuant to the VAT Law, the rate of the luxury goods sales tax may be increased by the government up to 200 per cent.
Land and building tax (PBB) is divided into two categories, as follows:
- PBB on general area: this PBB is imposed annually on property in the form of land or a building based on an official assessment issued by the head of the region. The rate of this PBB is to be determined by the regional regulation, but it should not be more than 0.3 per cent. The tax due is calculated by applying the tax rate on the tax object sale value (NJOP) deducted with non-taxable NJOP, which is set at a minimum of 10 million rupiah. Any change to the non-taxable NJOP must be stipulated in a regional regulation.
- PBB on plantation, forestry and mining areas: this PBB is imposed annually on property in the form of land or a building based on an official assessment issued by the Director General of Tax. The rate of this tax is 0.5 per cent, and the tax due is calculated by applying the tax rate on the taxable sale value (NJKP). The NJKP is a predetermined portion of the NJOP. Currently, the NJKP is 40 per cent of the NJOP. The government can increase the NJKP rate by up to 100 per cent of the NJOP. The NJOP rates are determined by the Director General of Tax on behalf of the Minister of Finance. They may be adjusted every year or every three years, depending on the economic development of the region.
Income tax on land and building transfers is imposed on the seller for the transfer of land and buildings. The rate of this tax is 5 per cent of the gross transfer value unless such value is lower than the NJOP of the object. In the latter case, the tax base is the NJOP. The tax paid is a final tax.
Duty on the acquisition of land and buildings is imposed on the buyer to acquire land and buildings. The rate of this duty is 5 per cent of the acquisition value of the object, unless such value is lower than the NJOP of the object. In the latter case, the tax base is the NJOP.
Stamp duty of 6,000 rupiah is imposed for each of the documents prepared with the purposes of being used as an evidence instrument concerning an act, fact or situation that is civil in nature, such as agreements, notarial deeds and their copies, and every document to be presented as evidence before the courts.