This is a brief overview of the calculation and payment of corporate tax in Indonesia.
1. Indonesia operates a self-assessed taxation system that is similar to many other countries.
2. Rates are stepped and top out at 30% of taxable income.
3. Expenses are deducted from revenue to arrive at taxable income.
4. Indonesian GAAP (Generally Accepted Accounting Principles) is very similar to those of other countries.
5. Revenues are revenues in any language and should be declared and can be subject to tax audit. Reimbursements are not considered as revenue, but any mark-up will be.
6. Expenses are normal operating expenses of a company but there are some expenses that cannot be included for tax purposes:
7. Fringe Benefits (What the company pays on behalf of the employee that the employee would normally pay for himself/herself).
8. Fines and interest for late reporting/payment of taxes.
9. Vacation airfares, housing and schooling for expatriate staff and families.
10. There are also some strange interpretations by the tax office on other expenses that need knowledge of the relevant rules to argue against.
11. Taxes are paid throughout the year to maintain even flow of funds into the State treasury and maintain a reasonably even cash flow for the company.
12. One twelfth of the tax due for the previous year is paid each month in the current year less corporate tax withheld by third parties.
13. When you import into Indonesia there is corporate tax withheld by Customs and paid to the Tax Office on your behalf.
14. When customers pay you for services there is corporate tax withheld and paid to the Tax Office on your behalf.
15. Likewise when you make payments to your suppliers there may well be corporate tax that you withhold and pay on behalf of your supplier.
16. These rates of withholding tax vary dependent upon internal Indonesia, external Indonesia and what type of service/supplies was concerned.
17. The aim of the company is to finish the year in a tax underpayment situation as to receive a tax refund or carry forward means a tax audit must be performed. Good planning ensures this.
18. On top of corporate tax there is a wide-ranging VAT/GST system mainly rated at 10% and some items will also attract a luxury sales tax. Exports are rated 0% but refunds must undergo a field audit by the tax office.
19. VAT/GST allows for monthly offsets of inputs over outputs and excess inputs can be carried forward to the subsequent months. Or a refund claimed.
20. All tax payments are made via the banking or the postal system to receive credit for them.
21. Proof must be given or received where withholding tax is involved to obtain the credit.
22. Of course there are variations in taxes within certain industries with tax facilities that are too detailed to be listed here.
23. Indonesia has Double Tax Treaties with a number of countries and with good planning your firm may well be able to utilize available benefits.
24. Tax withheld by Indonesian resident companies to overseas will be treated as prepaid tax in the recipient country.
How to find a tax consultant
Most of the large international accounting firms have staff that can help you to prepare your taxes, both Indonesian and foreign.