General Taxation Summary In Indonesia

This topics is to briefly discussing the calculation of general rule of tax in Indonesia:

1. Indonesia operates a self-assessment taxation system which is similar to many other countries, this will be based on trust for tax payer to report their taxes. Only at some cases there will be audit conducted to check on the self-assesment result i.e. when tax payers admitting tax overpayment or loss result in their business.
   
2. Tarrif is progressive to highest of 30% from the taxable income for corporate (3 layers)
   
3. Tarrif is progressive to highest of 35% from the taxable income for individual tax (5 layers).
   
4. For corporate tax : To calculate taxable income you have to review your expenses as not all expenses are deductible as per tax regulation. eg. benefit in kind (eg. apartment provided for expatriates, car expenses for personal for expatriate or local etc). This is not apply to individuals, no expenses need to be kept and reported as the non taxable income is fixed on yearly basis as per tax regulation.
   
5. Anything received in cash or allowances should be considered as additional income to employee, but as this considered as allowance then the principle of taxable (in employee personal tax) and deductible (in company income tax) applies.
   
6. Some examples of non deductible expenses (for corporate tax):
   - Benefit in kind - something that is given to anyone not as allowance (cash) but as benefit. This applies to any benefit that company pays on behallf of the employee, eg apartment rent, car rent, etc
   -Any tax penalties or other tax (not in form of tax allowances) is not operating expenses per tax.
   -Any vacation, airfaires for family (not paid in cash / not allowance)
   -Any other benefit that no treated as allowance or given not in cash, eg. staff insurance cost.
   
7. Anyone whether a company or personal must pay tax installment (article 25-tax regulation), the installment is based on your previous year tax divided by 12 months. This assuming business model whereby anyones income will not be lessed than previous year. Taken into account (excluding any IRREGULAR income).
   
8. Some services subject to withholding tax article 23, so if you pay suppliers or a suppliers of the positive list of service this withholding tax applies. eg. consultant fee subject to this tax, if you are a consultant, the party paying you will withhold tax of 15% x net income estimation as per Tax Circular Letter of Director General of Taxation. This changes from time to time.
   
9. Indonesia has Tax Treaties with some countries. Tax Treaty is agreement between countries on how or what to tax or not to tax on some income to avoid double tax on the same subject. This is created as General Priciple of Tax is applies to any revenue/income generated from any source (meaning from anywhere in the word as well)
   
10. How does this tax treaty works? To get benefit of this tax treaty the suppliers (income generator) must provide evidence from their respective Competent Authority - normally tax office where they are registered - a document called Certificate of Domicile. Without this document the payers should withhold 20% from the gross invoice amount of the service vendor, or if having the document at a lower % depend on the tax treaty. eg. 20% applies to all income paid to overseas service vendor, but should be lower to 15%/10% at some Tax Treaties if the document provided. Will be RISKY for the payer to just lower it down the % of tax without having the document because address of the vendor is not HARD evidence that they are resident in the country of their residence.