|Corporate Income Tax Rate (%)||25 (a)|
|Capital Gains Tax Rate (%)||— (b)|
|Withholding Tax (%)|
|Dividends||10 / 15 / 20 (c)|
|Interest||15 / 20 (c)|
|Royalties from Patents, Know-how, etc.||15 / 20 (c)|
|Land or buildings||10 (d)|
|Other Payments for the Use of Assets||2 (e)|
|Fees for Services|
|Payments to Residents|
|Technical, Management and Consultant Services||2 (e)|
|Construction Contracting Services||2 / 3 / 4 (f)|
|Construction Planning and Supervision||4 / 6 (f)|
|Other Services||2 (e)|
|Payments to Non-residents||20 (g)|
|Branch Profits Tax||20 (h)|
|Net Operating Losses (Years)|
|Carryforward||5 to 10 (.i)|
a) This rate also applies to Indonesian permanent establishments of foreign companies. See Section B.
b) See Section B for details concerning the taxation of capital gains.
c) A final withholding tax at a rate of 20% is imposed on payments to nonresidents. Tax treaties may reduce the tax rate. Certain dividends paid to residents are exempt from tax if prescribed conditions are satisfied. If the exemption does not apply, a 15% withholding tax applies on dividends paid to tax resident companies and a 10% final withholding tax applies to dividends paid to tax resident individuals. A 15% withholding tax is imposed on interest paid by non-financial institutions to residents. Interest paid by banks on bank deposits to residents is subject to a final withholding tax of 20%.
d) This is a final withholding tax imposed on gross rent from land or buildings.
e) This tax is considered a prepayment of income tax. It is imposed on the gross amount paid to residents. An increase of 100% of the normal withholding tax rate is imposed on taxpayers subject to this withholding tax that do not possess a Tax Identification Number.
f) This tax is considered a final tax. The applicable tax rate depends on the type of service provided and the “qualification” of the construction companies. The “qualification” is issued by the authorities with respect to the business scale of a construction company (that is, small, medium or large).
g) This is a final tax imposed on the gross amount paid to nonresidents. The withholding tax rate on certain types of income may be reduced under double tax treaties.
h) This is a final tax imposed on the net after-tax profits of a permanent establishment. The rate may be reduced under double tax treaties. The tax applies re gardless of whether the income is remitted. An exemption may apply if the profits are reinvested in Indonesia.
i) Losses incurred by taxpayers engaged in certain businesses or incurred in certain areas may be carried forward for up to 10 years (see Section B).
Taxes on corporate income and gains
Corporate income tax. Companies incorporated or domiciled in Indonesia are subject to income tax on worldwide income. Foreign tax may be claimed as a tax credit subject to a limitation rule (see Foreign tax relief). Branches of foreign companies are taxed only on those profits derived from activities carried on in Indonesia. However, income accruing from Indonesia to a foreign company having a permanent establishment in Indonesia is taxed as income of the permanent establishment if the business generating the income is of a similar nature to the business of the permanent establishment. This is known as the “force of attraction” principle.
Rates of corporate tax. Corporate tax is imposed at a flat rate of 25%. This rate applies to Indone sian companies and foreign companies operating in Indonesia through a permanent establishment. The tax rate is reduced by five percentage points for listed companies that have at least 40% of their paid up capital traded on the stock exchange. Small and medium-scale domestic companies (that is, companies having gross turn over of up to IDR50 billion) are en titled to a 50% reduction of the tax rate. The reduced rate ap plies to taxable income corresponding to gross turnover of up to IDR4.8 billion.
Branch profit tax. The net after-tax profits of a permanent establishment are subject to branch profit tax at a rate of 20%. This rate may be reduced under a double tax treaty. Branch profit tax applies regardless of whether the income is remitted to the head office. An exemption may apply if the profits are reinvested in Indonesia.
Tax Allowance Incentive. Tax incentives under the Tax Allowance Incentive are granted to certain qualifying resident companies investing in certain types of businesses or regions. The Tax Allowance Incen tive consists of the following:
- Accelerated depreciation and amortization.
- Extended period of 10 years for the carryforward of a tax loss (normally 5 years), subject to certain conditions.
- Reduced tax rate of 10% (or lower rate under a double tax treaty) for dividends paid to nonresidents.
- Investment allowance in the form of reduction of net income by 30% of the amount invested in land and buildings, and plant and equipment. This allowance is claimed at a rate of 5% each year over a six-year period.
To qualify for the above tax incentives, the investment must be a new investment or an investment for the purpose of expanding a current business. Under a government regulation, 66 categories of business sectors and 77 other categories of industries in certain areas may qualify for the tax incentives. The designated areas and provinces are generally outside Java. They are primarily the northeastern provinces and provinces located in Sulawesi.
Certain restrictions apply to the use and transfer of fixed assets that benefit from the incentives. These restrictions apply for the first six years of commercial production or for the prescribed useful life of the assets for tax purposes. The incentives are revoked with a penalty if these rules are violated. Implementation of the government regulation is evaluated within two years from the date on which the approval is granted. A monitoring team is established for this purpose.
Tax Holiday Incentive. Certain taxpayers engaged in a “pioneer industry” may seek a tax incentive commonly known as the Tax Holiday Incentive, which was introduced in 2011 and renewed in August 2015. The Tax Holiday Incentive offers a corporate income tax reduction from 10% up to maximum of 100% (effectively a tax exemption) for a period of 5 years to 20 years from the beginning of commercial production. An extended period of the tax incentive for up to 20 years may be granted by the Minister of Finance on consideration of the interest in maintaining competitiveness of the national industry and the strategic value of certain industries.
To qualify for the Tax Holiday Incentive, taxpayers must fulfill all of the following criteria:
- They must be a new taxpayer.
- They must be engaged in a “pioneer industry.”
- They must have new investment plans approved by the relevant authority in the minimum amount of IDR1 trillion (approximately USD75 million).
- They must satisfy the thin-capitalization ratio required by the Minister of Finance for income tax purposes.
- They must submit a statement confirming the ability to deposit at least 10% of the total investment plan in the Indonesian banking system without any withdrawal until realization of their investment.
- They must be in the form of an Indonesian legal entity established after 15 August 2011.
Currently, the following nine sectors qualify as “pioneer industries:”
- Upstream-metal industry
- Oil-refining industry
- Oil and gas-based organic chemical producing industry
- Machinery industry that produces industrial machines
- Agricultural, forestry and fishery products-based processing industry
- Telecommunication, information and communication industries
- Marine transportation industry
- Processing industry constituting the main industry in the Special Economic Zone (KEK)
- Economic infrastructures other than those using the scheme of Partnership between the Government and Business Entities (Kerjasama Pemerintah dengan Badan Usaha, or KPBU)
Taxpayers that have received tax incentives for investments in certain types of businesses or regions are not eligible for the Tax Holiday Incentive and vice versa.
A recommendation from the head of the Coordinating Board for Capital Investment is required for obtaining the Tax Holiday Incentive. The recommendation should be submitted before 15 August 2018.
Special tax rates. Special tax rates granted to certain companies are described below.
Petroleum. Tax rates applicable to petroleum companies are those applicable when the petroleum companies’ contracts were signed and approved. In addition, foreign petroleum companies are subject to branch profit tax of 20% on their taxable income, except as otherwise provided in an applicable tax treaty.
Mining. Income tax applicable to general mining companies may depend on generation of the concessions granted (that is, when the concession is granted). Holders of earlier concessions are taxed at the rates ranging from 30% to 45% (the tax rates are the rates prevailing at the time the concession was granted). Holders of the more recent concessions are taxed in accordance with the prevailing tax laws (current rate is 25%). Although withholding tax on dividends paid overseas is generally imposed at a rate of 20%, some earlier concessions provide a reduced rate of 10%. These rates may be subject to reduction under certain tax treaties.
Construction companies. Construction companies are subject to corporate income tax with tax rates ranging from 2% to 6% of the contract value. The income tax applies to complete or partial construction activities. The applicable tax rate depends on the business qualification of the respective company and/or the type of services performed. The tax is considered a final tax. Conse quent-ly, no corporate income tax is due on the income at the end of a fiscal year. For eign construction companies operating in Indonesia through a branch or a permanent establishment are subject to further branch profit tax of 20% on the taxable income (accounting profit adjusted for tax) after deduction of the final tax. The rate is subject to applicable tax treaties. Exemption from branch profit tax may apply in the circumstances described above (see Branch profit tax).
Foreign drilling companies. Foreign drilling companies are subject to corporate income tax at an effective rate of 3.75% of their gross drilling income, as well as to branch profit tax of 20% on their after-tax taxable income. The branch profit tax may be reduced under certain tax treaties. Branch profit tax may be avoided in the circumstances described above (see Branch profit tax).
Nonresident international shipping companies and airlines. Nonresident international shipping companies and airlines are subject to tax at a rate of 2.64% of gross turnover (inclusive of branch profit tax). As a result of the reduction of the corporate tax rate in 2010, the effective tax rate may change. However, this has not yet been confirmed through the issuance of a tax regulation.
Small and medium-sized entities. Individual and corporate taxpayers (except permanent establishments) with annual gross turnover of less than IDR4.8 billion are subject to income tax at a rate of 1% of monthly gross turnover. This income tax is final.
The following taxpayers are excluded from this final tax:
- Individual taxpayers performing trading and/or service activities who use assembled infrastructure and a public facility that is not intended for commercial use
- Corporate taxpayers that have not yet started commercial operations
- Corporate taxpayers that have gross revenue over IDR4.8 billion from commercial operations in a year.
For purposes of the above measure, business income does not include income from independent professional services, such as, among others, services provided by lawyers, accountants, medical doctors and notaries.
Taxpayers qualifying for a different final tax regime, such as construction services companies, are not eligible for this 1% final tax.
Capital gains. A 0.1% final withholding tax is imposed on proceeds of sales of publicly listed shares through the Indonesian stock exchange. An additional tax at a rate of 0.5% of the share value is levied on sales of founder shares associated with a public offering. Founder shareholders must pay the 0.5% tax within one month after the shares are listed. Founder shareholders that do not pay the tax by the due date are subject to income tax on the gains at the ordinary income tax rate.
Capital gains derived by residents are included in taxable income and are subject to tax at the normal income tax rate. Capital gains derived by nonresidents are subject to tax at a rate of 20%. The law provides that the 20% tax is imposed on an amount of deemed income. The Minister of Finance established the deemed income for sales of unlisted shares. The deemed income equals 25% of the gross sale proceeds, resulting in an effective tax rate of 5% of the gross sale proceeds. This rule applies to residents of non-treaty countries and to residents of treaty countries if the applicable treaty allows Indonesia to tax the income.
In addition to sales or transfers of shares, Indonesian tax applies a 20% tax rate to an estimated net income of 25% on sales or transfers of certain assets owned by non-Indonesian tax residents that do not have a permanent establishment in Indonesia. The assets are luxury jewelry, diamonds, gold, gemstones, luxury watches, antiques, paintings, cars, motorcycles, yachts and/or light aircraft. This results in an effective tax rate of 5%. The purchaser must withhold the tax. A tax exemption applies to transactions with a value of less than IDR10 million. The provisions of tax treaties override the above regulation.
The sale or transfer by nonresidents of shares in conduit companies or special purpose companies established or resident in tax-haven jurisdictions that have a special relationship with an Indonesian entity or an Indonesian permanent establishment of a foreign entity is deemed to be a sale or transfer of shares of the Indonesian entity or the permanent establishment. The relevant regulation provides that the Indonesian income tax applicable to the transaction is 5% of the gross sale proceeds. The 5% rate is derived from the application of the 20% cross-border withholding tax under Article 26 of the Income Tax Law to a profit that is deemed to be 25% of the gross sale proceeds. A provision in an applicable tax treaty overrides the above rule if the seller of the shares is a tax resident in a country that has entered into a tax treaty with Indonesia.
Sellers or transferors of the right to use land or buildings are subject to tax at a rate of 5% of the higher of the transaction value and the government official value for the purpose of land and building tax. Purchasers or transferees must pay a transfer duty of 5%, which may be reduced to 2.5% for transfers in business mergers approved by the Director General of Taxation.
Administration. The annual corporate income tax return must be filed by the end of the fourth month following the end of the fiscal year. The deadline can be extended for two months. The balance of annual tax due must be settled before filing the annual tax return.
Corporate income tax must be paid in advance through monthly installments, which are due on the 15th day of the month following the relevant month. The tax installment equals 1/12 of tax payable for the preceding year (after exclusion of non-regular income) or tax payable based on the latest tax assessment received.
Dividends. In general, dividends are taxable.
Dividends paid domestically to Indonesian resident corporate taxpayers are subject to withholding tax at a rate of 15%. This tax is an advance payment of the dividend recipient’s tax liability. Tax exemption may apply if the dividends are paid from retained earnings and if the recipient’s share ownership in the payer of the dividends represents 25% or more of the paid-in capital. Dividends exempted from tax are not subject to the 15% withholding tax. Dividends received by Indonesian resident individuals are subject to a final tax of 10%.
Dividends remitted to overseas shareholders are subject to a final 20% withholding tax, unless an applicable tax treaty provides a lower rate.
Foreign tax relief. A credit is allowed for tax paid or due overseas on income accruing to an Indonesian company, provided it does not exceed the allowable foreign tax credit. The allowable foreign tax credit is computed on a country-by-country basis.
Determination of trading income
General. Income is broadly defined. It includes, but is not limited to, the following:
- Business profits
- Gains from sales or transfers of assets
- Interest, dividends, royalties and rental and other income with respect to the use of property
- Income resulting from reorganizations, regardless of the name or form
- Gains from sales or transfers of all or part of a mining concession, funding participation or capital contribution of a mining company
- Receipt of refund of tax that has been claimed as a tax deduction
- Income earned by syariah-based businesses (syariah refers to businesses conducted in accordance with Islamic law)
- Interest compensation
- Surplus of Bank Indonesia
Certain income is not taxable or is subject to a final tax regime. Interest earned by resident taxpayers on time deposits, certificates of deposit and savings accounts is subject to a 20% withholding tax, representing a final tax on such income. A final 20% (or lower rate provided in a tax treaty) withholding tax is imposed on interest earned by nonresidents.
Taxpayers are generally able to deduct from gross income all expenses to the extent that they are directly or indirectly incurred in earning taxable income. Nondeductible expenses include the following:
- Income tax and penalties
- Expenses incurred for the private needs of shareholders, associates or members
- Donations (except for donations for national disasters, grants in the framework of research and development activities in Indonesia, grants for the development of social infrastructure, grants in the form of education facilities [for example, books, computers, chairs, tables and other educational resources] and grants for the development of sport)
- Benefits-in-kind, which include a subsidy, aid, gift or award given to an employee or a related party
- Reserves and provisions for certain industries
Business losses incurred overseas are not deductible.
Foreign-exchange gains and losses are treated as taxable income and deductible expenses in accordance with the generally accepted accounting procedures in Indonesia that are consistently adopted.
Inventories. For tax purposes, inventories must be valued at cost using either the first-in, first-out (FIFO) or average-cost method. The last-in, first-out (LIFO) method is not allowed.
Provisions. Provisions are generally not deductible for tax purposes.
Certain taxpayers that may claim bad debt provisions as deductible expenses include banks and certain nonbank financial institutions, such as other corporate entities providing loan facilities, insurance companies, leasing companies that lease assets under finance leases, consumer financing companies, and factoring companies. The following companies may also claim tax de ductions for reserves or provisions:
- Social insurance providers: reserves of social funds
- Forestry companies: reserves for reforestation
- Mining companies: reserves for reclamation of mining sites
- Industrial waste treatment companies: reserves for closure and maintenance of waste treatment plants
Taxpayers may claim tax deductions for bad debts if all of the following conditions are satisfied:
- The costs have been claimed as corporate losses in commercial financial reports.
- A list of the names of the debtors and totals of the bad debts is submitted to the Director General of Taxation.
- A legal suit for collection of the debt is filed with the public court or government institutions handling state receivables. Alternatively, taxpayers may publicize the bad debt in a general or specialized publication or obtain acknowledgment of the write-off of the bad debt from the relevant debtor.
The write-off of receivables from a related party is not deductible for tax purposes.
Depreciation and amortization allowances. Depreciation is calculated on the useful life of an asset by applying the straight-line method or declining-balance method. In general, depreciation is deducted beginning with the month the expenditure is incurred. However, for assets under construction, depreciation begins with the month in which the construction of the assets is completed. Buildings are depreciated using the straight-line method. The following table provides the useful lives and depreciation rates for depreciable assets.
|Class of asset||Useful life (Years)||Depreciation method|
|Straight-line (%)||Declining-balance (%)|
Intangible assets with more than one year of benefit, including leases of tangible property, are amortized according to their useful lives using the same percentages applicable to fixed assets. Special depreciation and amortization rules apply to assets used in certain businesses or in certain areas (see Section B).
Revaluation of assets for tax purposes. Subject to approval of the Directorate General of Taxation, increments resulting from revaluation of tangible fixed assets is subject to final income tax at the following rates:
- 3% for applications submitted from 15 October 2015 through 31 December 2015
- 4% for applications submitted from 1 January 2016 through 30 June 2016
- 6% for applications submitted from 1 July 2016 through 31 December 2016
- 10% for applications submitted in the 2017 fiscal year
The final tax is applied to any excess in value of the tangible fixed assets’ revaluation or revaluation forecast over the tangible fixed assets’ tax written-down value. This tax must be settled before the application is submitted. The value of tangible fixed assets being revalued should be the fair market value of the tangible fixed assets as determined by a licensed appraisal company. The Directorate General of Taxation may re-determine the fair market value of the relevant tangible fixed assets.
Revaluation of fixed assets can be conducted on all of the tangible fixed assets owned by the company or certain selected tangible fixed assets if the assets are physically located in Indonesia and are used to earn, collect and maintain taxable income. The tangible fixed assets revaluation can only be performed every five years, and any breach of this period results in the imposition of additional tax. A tangible fixed asset that has been revalued is depreciated based on a new revalued cost base and is treated as having the same useful life as a new asset.
Revalued tangible fixed assets in Classes 1 and 2 (see Depreciation and amortization allowances) that are transferred before the end of their useful lives, as well as revalued tangible fixed assets in Classes 3 and 4, and land and buildings that are transferred within 10 years of their revaluation approval, are subject to additional tax.
Relief for losses. Tax losses may not be carried back. They may generally be carried forward for five years. Tax losses incurred by certain businesses or incurred in certain areas may be carried forward for up to 10 years (see Section B).
Groups of companies. The losses of one company may not be used to reduce the profits of an affiliate.
Other significant taxes
The following table summarizes other significant taxes.
|Nature of tax||Rate (%)|
|Value-added tax (VAT), on delivery of taxable
goods, on imports of goods and on services
(including services furnished by foreign
taxpayers outside Indonesia if the services
have a benefit in Indonesia), unless
|Export of goods or certain services||0|
|Sales tax on luxury goods, imposed in addition
to the VAT on the delivery of luxury goods
manufactured in or imported into Indonesia;
rate depends on the nature of the goods
|10 to 200|
|Transfer duty on land and buildings||5|
Foreign-exchange controls. No exchange controls affect the repayment of loans and the remittance of dividends, interest and royalties. Remittance of funds of USD10,000 or more must be notified by the remitting bank to Bank Indonesia. Foreign loans must be reported to Bank Indonesia to enhance the monitoring of the country’s foreign exchange reserves.
Debt-to-equity rules. Under the tax law, the Minister of Finance may determine an acceptable debt-to-equity ratio. In September 2015, the Minister prescribed a maximum debt-to-equity ratio of 4:1, effective from the 2016 tax year. This rule applies only to Indonesian resident companies, which are companies that are established or incorporated in Indonesia or domiciled in Indonesia and that have their equity made up of shares. It does not apply to permanent establishments. Certain taxpayers are exempted from the rule.
Under the Minister of Finance Regulation regarding the debt-to-equity ratio, if a taxpayer breaches the ratio limit, the Directorate General of Taxation is entitled to adjust the taxpayer’s borrowing costs based on the debt-to-equity ratio limit. For a taxpayer that has a nil or negative equity, all costs related to the borrowing are treated as nondeductible for corporate tax purposes. Foreign loans must be reported to the Directorate General of Taxation. Non-reporting of foreign loans result in the forfeiting of the deductibility of the interest.
Interest rates on related-party loans must be at arm’s length.
Transfer pricing. The law provides that the following methods may be used to determine arm’s-length pricing:
- Comparable uncontrolled price method
- Resale-price method
- Cost-plus method
- Profit-split method
- Transactional net margin method
The Indonesian tax authority requires that related-party transactions or dealings with affiliated companies be carried out in a “commercially justifiable way” and on an arm’s-length basis. Tax payers must maintain documentation establishing that related-party transactions are conducted at arm’s length. The transfer-pricing study must be maintained for 10 years from the relevant tax year.
The Indonesian tax authority uses advance pricing agreements (APAs) to regulate transactions between related parties and to mitigate future transfer-pricing disputes with the Director General of Taxation. Broadly, an APA represents an advance agreement between a company and the Director General of Taxation regarding the determination of the acceptable pricing for a transaction between related parties. An APA provides the sales price for manufactured goods, the amount of royalties and other information. An APA may be entered into with the Director General of Taxation (unilateral) or between the Director General of Taxation and the foreign tax authority (bilateral).
Treaty withholding tax rates
Indonesia has introduced tough anti-treaty abuse rules. The Indonesian tax authority may ignore the provisions of a tax treaty if these rules are not satisfied.
The Indonesian tax authority may seek agreement with a tax treaty country for exchange of information, mutual agreement procedure and assistance with tax collection.
The following table shows withholding tax rates under Indonesia’s double tax treaties.
A . B
A . B
|Hong Kong SAR (d)||10||5||0/10||5|
|Papua New Guinea||15||15||0/10||15 (a)|
A . B
|United Arab Emirates||10||10||0/5||5|
|United Kingdom||15||10||0/10||10/15 (c)|
A Rate applicable to portfolio investments.
B Rate applicable to substantial holdings.
(a) Technical services are subject to the following reduced rates of withholding tax:
- Germany, 7.5%
- Luxembourg, 10%
- Pakistan, 15%
- Papua New Guinea, 10%
- Switzerland, 5%
- Venezuela, 10%
- Zimbabwe, 10%
b) If two rates are other than 0%, the higher rate applies to interest paid to companies in certain specified industries or to interest on certain bonds. The 0% rate applies if the beneficial owner of the interest is the government, except under the Singapore treaty, which provides that the 0% rate applies to interest on government bonds.
c) The rates vary according to the rights or information licensed.
d) The tax treaty allows each of the signatory countries to apply the domestic tax anti-avoidance rules.
e) On 30 July 2015, Indonesia and the Netherlands signed a new protocol to their tax treaty. This protocol provides reduced rates of 5% and 15% for dividends and 5% and 10% for interest (no tax exemption for interest paid to the Netherlands). The new protocol is subject to ratification of both countries before it becomes effective.
In addition to the above treaties, Indonesia has entered into agreements for the reciprocal exemption of taxes and duties on air transport with Bangladesh, Croatia, Laos, Morocco, Saudi Arabia and South Africa.