Indonesia’s growing economy and attractive investment climate make it a prime location for businesses looking to expand. However, understanding the country’s corporate tax system is crucial for any successful venture. In this comprehensive guide, we will answer some of the fundamental questions of company tax in Indonesia, covering key concepts, rates, incentives, and deductions to help you navigate the financial landscape with confidence.

Tax Nuances in Indonesia

Indonesia’s tax system, while evolving, is based on clear principles and regulations. Before diving into specifics, let’s address a fundamental question:

What Companies in Indonesia are Tax Residents?

Tax residency in Indonesia is determined by a company’s establishment or domicile within the country. Simply put, any company formed or headquartered in Indonesia is considered a tax resident. Consequently, if you legally establish a business in Indonesia, your business is subject to Indonesian corporate income tax on their worldwide income, regardless of where it’s generated.

Do Foreign companies pay corporate income tax in Indonesia?

Foreign companies conducting business activities through a permanent establishment in Indonesia are eligible taxpayers that should submit monthly or annual tax payments as resident taxpayers.

In the case of foreign companies operating in Indonesia without a permanent establishment, the Indonesian party responsible for paying their income will withhold the income tax (referred to as Article 26 income tax). This withholding tax serves as the final settlement for their income tax obligations.

What is the Company Income Tax Rate in Indonesia (CIT)?

The standard corporate income tax (CIT) rate in Indonesia is a flat 22%. This rate applies to the majority of companies operating in Indonesia. However, publicly listed companies meeting certain criteria can benefit from a 3% tax reduction, effectively lowering their CIT rate to 19%. This incentive encourages companies to go public and access Indonesia’s capital markets.

Legal Basis for Company Income Tax Rate in Indonesia

The CIT rate and its regulations are enshrined in Law No. 7 of 1983 regarding Income Tax, as amended by Law No. 7 of 2021 (the Income Tax Law). These laws outline the tax obligations of companies, including the applicable tax rates, filing deadlines, and available deductions.

What Are Corporate Tax Rates for 2024?

As of 2024, the corporate tax rates in Indonesia remain consistent with previous years. The standard CIT rate is still 22%, with a potential 3% discount for eligible publicly listed companies. While there have been discussions about further reductions, these have yet to materialise.

Meeting a minimum listing requirement of 40% and fulfilling other conditions allows public companies to receive a 3% tax reduction from the standard rate, resulting in an effective tax rate of 19%. Small enterprises, i.e. corporate taxpayers with an annual turnover of not more than IDR 50 billion, can receive a 50% discount of the standard tax rate that is proportionally imposed on taxable income of the part of gross turnover up to IDR 4.8 billion. Certain enterprises with gross turnover of not more than IDR 4.8 billion are subject to Final Tax at 0.5% of turnover.

How Much is the Company Tax Rate in 2024?

To reiterate, the company tax rate for the majority of businesses in 2024 is 22%. Publicly listed companies fulfilling specific requirements can enjoy a reduced rate of 19%. However, certain industries or specific activities may be subject to special tax regimes with varying rates. It’s always advisable to consult a tax professional or a reputable business advisory firm like Lets Move Indonesia for personalised guidance on your specific situation.

What are Tax Incentives in Indonesia?

Indonesia offers a range of tax incentives designed to attract foreign investment and stimulate economic growth. These incentives can significantly reduce the tax burden for eligible businesses, making Indonesia an even more attractive investment destination. Some of the key tax incentives include:

• Tax Allowances: These allow companies to deduct a certain percentage of their investment in fixed assets, such as machinery and equipment, from their taxable income over a specified period.
• Tax Holidays: These provide full or partial exemptions from corporate income tax for a certain number of years, typically for new investments in pioneer industries or specific regions.
• Import Duty Exemptions: Companies may be eligible for exemptions or reductions in import duties on machinery, equipment, and raw materials used for production.

These tax incentives can significantly enhance the financial viability of your business operations in Indonesia.

When is Corporate Income Tax Paid and Filed?

Corporate income tax in Indonesia is an annual obligation. Companies are required to file their tax returns and make the corresponding payments within four months after the end of their fiscal year. Adhering to these deadlines is crucial to avoid penalties and late payment interest, which can accumulate and impact your business’s financial health.

Can Your Business Leverage Indonesia’s Tax Incentives?

The eligibility for tax incentives in Indonesia depends on several factors, including your industry, the location of your business, and the size of your investment. To determine if your business qualifies for any incentives and to explore the potential tax benefits, it’s highly recommended to consult with a tax professional or a reputable business advisory firm like Lets Move Indonesia. They can guide you through the application process and ensure you maximise the available incentives.

What Deductible Expenses are Companies Entitled to?

Indonesian tax law allows companies to deduct various expenses from their taxable income, helping to reduce their overall tax burden. These deductible expenses include:

• Operating Expenses: Costs directly related to running your business, such as salaries, rent, utilities, and marketing expenses.
• Depreciation and Amortisation: Expenses for the gradual wear and tear of tangible and intangible assets, allowing you to spread the cost of these assets over their useful life.
• Interest Expenses: Interest paid on business loans or debts can be deducted, subject to certain limitations.
• Research and Development Costs: Expenses incurred for research and development activities aimed at creating new products or improving existing ones.
• Donations and Contributions: Specific charitable donations and contributions may be deductible, subject to certain limits and conditions.

What Expenses are Not Deductible?

While Indonesian tax law provides for various deductions, some expenses are specifically non-deductible. These include:

• Personal Expenses: Costs unrelated to your business operations, such as personal travel or entertainment, cannot be deducted.
• Fines and Penalties: Any fines or penalties imposed for violating laws or regulations are not deductible.
• Excessive Entertainment Expenses: Entertainment expenses that exceed a certain limit or are not directly related to business purposes are not deductible.
• Certain Taxes: Some taxes, such as Value Added Tax (VAT) and land and building tax, are not eligible for deduction.

Understanding these deductible and non-deductible expenses is crucial for accurate tax reporting and optimising your company’s tax efficiency.

Navigating Indonesia’s corporate tax system can be complex, but with the right knowledge and support, it’s possible to streamline your tax obligations and leverage available incentives. By understanding the tax residency rules, applicable rates, and potential deductions, you can ensure your business operates in a tax-efficient manner and maximises its profitability.

Lets Move Indonesia: Your Partner in Tax Compliance and Business Success

At Lets Move Indonesia, we offer comprehensive tax and accounting services tailored to the needs of foreign investors in Indonesia. Our team of experienced consultants can assist you with:

Tax Planning and Advisory

We’ll develop a customised tax strategy to optimise your tax obligations and leverage available incentives.
Tax Compliance and Reporting: We’ll ensure your company adheres to all tax regulations and submits accurate tax returns on time.

Accounting and Bookkeeping

We’ll provide reliable accounting and bookkeeping services to maintain accurate financial records and facilitate informed decision-making.

Auditing Services

We’ll conduct audits to verify the accuracy and completeness of your financial statements and ensure compliance with accounting standards.

Partner with Lets Move Indonesia to navigate the complexities of Indonesian taxation and unlock your business’s full potential. Contact us today for a free consultation and let us help you achieve your financial goals in Indonesia!