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Frequently Asked Question (FAQ) > Income Tax
 
 
Income Tax
 
1. What is the legal base of the imposition of Income Tax in Indonesia?
2. Who are the tax subjects?
· Resident tax subjects
· Non-resident tax subjects
·Definition of permanent establishment
3. What is the Tax Object?
·Definition of income
·Tax object of a permanent establishment
·Exclusion of tax object
4. How is the method of the calculation of Taxable Income?
·Permissible deduction
·Depreciation and amortization
·Loss Compensation
·Untaxed Income
·Non tax deductible items
5. How much is the Tax Rate of Income Tax?
·Tax rate for resident individual taxpayers
·Tax rate for resident corporate taxpayers and permanent establishment
·Tax rate for non-resident taxpayers
6. Other questions?
Income Tax
Legal Base
Income Tax in Indonesia is governed by
* Law Number 7 Year 1983 concerning Income Tax. This Law was amended by Law Number 7 Year 1991
* Law Number 10 Year 1944
* Law Number 16 Year 2000
Those laws (hereinafter Income Tax Law 1984) are applicable either for corporate or individual taxpayers.

 
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Tax Subject
Tax subject consists of
a. statutory bodies,
b. individuals,
c. inheritances not yet dived as a unit, in lieu of rightful heirs,
d. permanent establishments.
The statutory body is defined as group of persons, and/or capital that constitutes an unit carries on or not carries on businesses, covering limited liability companies, limited partnership companies, other companies, state or regional owned state companies in any names and forms whatsoever, firms, joint companies, cooperatives, pension funds, partnerships, groups, foundations, mass organizations, social and political organizations of the same type, institutions, permanent establishments and other forms of statutory bodies.

The statutory body is defined as group of persons, and/or capital that constitutes an unit carries on or not carries on businesses, covering limited liability companies, limited partnership companies, other companies, state or regional owned state companies in any names and forms whatsoever, firms, joint companies, cooperatives, pension funds, partnerships, groups, foundations, mass organizations, social and political organizations of the same type, institutions, permanent establishments and other forms of statutory bodies.

 
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The permanent establishment is defined as a business entity used by individual not reside in Indonesia or present in Indonesia for less than 183 days within any 12 month period, or statutory bodies not established or not domiciled in Indonesia to carry on business or activities in Indonesia,
Which can be in the form of :
* place of management,
* branches of companies,
* representative offices,
* office buildings,
* factories,
* workshops,
* mining,
* fishery,
* animal husbandry,
* agriculture or forestry
* construction,
* installation or assembling projects,
* services performed by employees or other persons as long as the services are provided for over 60 days within any 12 month period, individuals or statutory bodies acting as dependent agents,
* agent or employees of foreign insurance companies.

 
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Tax subject is categorized into two groups; those are resident tax subject and non-resident tax subject.
Parties who are considered as resident tax subject are:
* an individual who resides in Indonesia;
* an individual who is present in Indonesia more than 183 days in any twelve-month period;
* an individual who is present in Indonesia during a tax year and intends to reside in Indonesia;
* a statutory body that is established or domiciled in Indonesia.
Parties who are considered as non-resident tax subject are:
* an individual who does not reside in Indonesia, but he/she receives or earns income from Indonesia;
* an individual who is present in Indonesia for no more than 183 days in any twelve-month period, but he/she receives or earns income from Indonesia;
* a statutory body that is not established or domiciled in Indonesia, but carries on business through a permanent establishment in Indonesia or receives or earns income from Indonesia not resulting from carrying on business in Indonesia
The permanent establishment is considered as a non-resident tax subject.

 
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Tax Object
 
Definition of Income
To determine income, which is subject to Income Tax, Indonesia adopts the so called "economic accretion concept". Under Income Tax Law 1984, income is defined as any economic ability received or accrued by a taxpayer, derived from both Indonesia or outside Indonesia, which can be used for consumption or to add the wealth of such taxpayer, in any names and forms whatsoever.
Tax object of a permanent establishment is:
a. any income from business or activities of such permanent establishment and from the asset owned or controlled;
b. any income of the head office from business or activities, sales of goods, or services rendered in Indonesia of the same type as performed or conducted by the permanent establishment in Indonesia;
c. any income as stated in Article 26 of Income Tax Law 1984 received or accrued by head office, as long as there is an effective connection between the permanent establishment the assets or activities providing such income.
The basis for calculating income of a resident taxpayer is worldwide income, which is income derived by the taxpayer from Indonesia and from outside Indonesia.
 
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The tax objects shall exclude from:
a. donations including tithe (zakat), granted assets,
b. inheritance,
c. assets including cash payment received by any statutory bodies as compensation for shares or capital participation,
d. reimbursement or compensation connected with jobs or services received or accrued in kind and/or fringe benefit,
e. payment from insurance firms to individuals related to health, personal accident, life, dual function, and scholarship insurances,
f. dividend or portion of profits received or earning by limited liability companies as a resident taxpayers, cooperative, and state/regional owned companies, that fulfil requirements stipulated in the law,
g. contribution received or accrued by a pension fund whose establishment approved by the Minister of Finance,
h. income from capital invested by a pension fund in certain fields,
i. portions of profits received or accrued by members from limited partnership companies whose capital is not divided into shares, partnerships, groups, firms, and joint business,
j. interest of bonds received or accrued by mutual funds for the first 5 years as from the date of establishment of companies,
k. income received or accrued by any venture capital company that fulfil requirements stipulated in the law.
 
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Taxable Income

For resident taxpayers and permanent establishments, the taxable income is calculated by deducting gross income with the following permissible deductions:
a. cost for obtaining, collecting and maintaining income,
b. depreciation of expenditure to acquire tangible assets and amortization of expenditure to obtain rights and other costs having a useful life of more than 1 year,
c. contributions to a pension fund whose establishment has already validated by the Minister of Finance,
d. losses due to the sales or transfer of assets owned by and used in enterprises, or owned for obtaining, collecting and maintaining income,
e. costs of research and development of enterprises performed in Indonesia,
f. expenses of scholarship, apprenticeship and training,
g. bad debt claims that fulfil requirements stipulated in the law.
 
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The Depreciation and Amortisation
The depreciation shall start from the month of realization of expenditure, while the depreciation of under construction assets shall start from the month of the completion of construction of the assets. In order to calculate depreciation, taxpayers may opt straight line method or declining balance method, except for building can only be used straight line method. For amortization, taxpayers may also opt straight-line method or declining balance method.

 
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Loss Compensation

In the case of gross income after the deduction resulting in losses, the losses shall be compensated for income starting from the following tax year up to 5 years consecutively.
 
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Non Taxable Income
The deduction in a form of untaxed income shall be granted to resident individual taxpayers. The non-taxable income is as follows:
a. IDR 13,200,000.00 for individual taxpayers;
b. IDR 1,200,000.00 as addition to married taxpayers;
c. IDR 13,000,000.00 as addition to a wife whose income is combined with income of husband;
d. IDR 1,200,000.00 as addition to each family member of the same blood or by marriage in a straight descent line, including any adopted child, who is a fully dependent, at a maximum of 3 individuals per family.
The amount of untaxed income to be claimed shall be determined by conditions in the beginning of tax year or part of tax year.
 
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The net income of certain types of income, such as income from sipping and airlines derived by foreign companies, income from construction services derived by small-scale enterprises, are determined by the Minister of Finance.

In order to determine amount of taxable income of resident taxpayers and permanent establishment, the following items may not be deducted as cost:
a. distribution of profits in any names and forms whatsoever;
b. cost charged or spent in personal interest of shareholders, partner or members;
c. the establishment or accumulation reserve fund unless the reserve fund of bad debts for banking and leasing with option, reserve fund of insurance business, and reserve fund of reclamation cost of mining business;
d. premium of certain types of insurance;
f. reimbursement or compensation connected with jobs or services provided in the form in kind and fringe benefit;
g. any amount exceeding the reasonable paid to a shareholder or any party having a special relationship as compensation in connection with the work performed;
h. any asset granted, aid or donation, and inheritance;
i. income tax;
j. cost charged or spent for personal interests of individual taxpayers or their dependents;
k. salaries paid to members of partnerships, firms, or limited partnership companies whose capital is not divided into shares;
l. administrative sanctions in the form of interest, fine , and raise as well as criminal sanctions in the form of fines connected with the implementation of taxation laws.
 
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Income Tax Rate
a. Tax rate for resident individual taxpayers:

Brackets of Taxable Income Tax rate
5% Up to IDR 25,000,000.00
10% Over IDR 25,000,000.00 up to IDR 50,000,000.00
15% Over IDR 50,000,000.00 up to IDR 100,000,000.00
25% Over IDR 100,000,000.00 up to IDR 200,000,000.00
35% Over IDR 200,000,000.00
b. Tax rate for resident corporate taxpayers and permanent establishments:
Brackets of Taxable Income Tax rate
10% Up to IDR 50,000,000.00
15% Over IDR 50,000,000.00 up to IDR 100,000,000.00
30% Over IDR 100,000,000.00
c. Tax rate for non-resident taxpayers:
* Income in the form of dividend, interest, royalties, rents and other kinds of income in connection with the use of assets, compensation in connection with services, works and activities, prizes and awards, pensions and other kinds of periodical payment : 20% of the gross income.
* Income from the sales of assets in Indonesia: 20% estimated net income determined by the Minister of Finance.
* Taxable income after tax of a permanent establishment (branch profit): 20% of taxable income after tax.
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