Simple Tax Guide for Americans in Indonesia
US Expat Taxes - Indonesia
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Indonesia for over 8 years. Our clients hail from all parts of the country - Jakarta and Surabaya, Bandung and Bekasi, Medan and Tangerang.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Indonesia and know how to integrate your U.S. taxes into the local income taxes you pay. Any Indonesian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Indonesia for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Indonesian Tax System for the American Expatriates.
Individual income tax (Pajak penghasilan) rates in Indonesia are progressive up to30%, as follows:
|Taxable income (Rp)||Tax Rate|
|0 - 50,000,000||0 + 5% on excess|
|50,000,001 - 250,000,000||2,500,000 + 15% on excess|
|250,000,001 - 500,000,000||32,500,000 + 25% on excess|
|Above 500,000,000||95,000,000 + 30% on excess|
An additional 20% tax is imposed on the individuals, other than non-tax residents, who do not posses tax identification number (NPWP).
ALLOWABLE TAX DEDUCTIONS
In determining the annual taxable income of an individual, the following may be deducted from gross income:
- Occupational support: 5% of gross income, up to maximum of 6,000,000
- Pension: 5% of gross income, up to maximum of 2,400,000
- Non-taxable income:
. For the taxpayer 15,840,000
. Additional for a married taxpayer 1,320,000
. Additional for each lineal family member related by blood marriage who is a full dependent up to a maximum of three 1,320,000 each
A married female employee is only allowed non-taxable income for herself unless she has a certificate from the local authorities stating that her husband does not work.
Non-resident individuals are subject to a final tax of 20% where the payments represent compensation for work performed in Indonesian regardless of where paid.
Lump sump pension payments and severance pay on individual residents are subject to final tax on the gross amount at the following rates:
|Taxable income||Tax Rate|
|0 - 25,000,000||exempt/non taxable income|
|25,000,001 - 50,000,000||5% on excess|
|50,000,001 - 100,000,000||1,250,000 + 10% on excess|
|100,000,001 - 200,000,000||6,250,000 + 15% on excess|
|200,000,000 and above||21,250,000 + 25% on excess|
However, pension payments made to non-resident individuals are taxed under Article 26 of Income Tax Law at a rate of 20% on the gross amount.
Where home leave or education costs are reimbursed, the amount of the reimbursement is taxable in full on the employee.
Note that food and drink provided at the working area by the employer to the employees are not subject to tax but deductible for the employer.
Indonesians are taxed on their worldwide income. Non-residents are only taxed on income derived from Indonesia. An individual will be a resident of Indonesia if they are present in Indonesia for more than 183 days or reside in Indonesia during a fiscal year and intend to stay in Indonesia. Certain tax treaties modify the above rules.
Filing status - The family is considered a single economic unit; hence, joint filing is required. Separate filing is allowed only if there is a pre-nuptial agreement between the husband and wife.
Taxable income - Taxable income of individuals includes profits from a business, employment income and capital gains.
Capital gains - Capital gains derived by an individual are taxed as income at the normal rates; gains on shares listed in Indonesia are taxed at 0.1% (final tax) of the transaction value. (An additional tax of 0.5% applies to the share value of founder shares at the time of an initial public offering.) Gains on the disposal of land and/or buildings are taxed at 5% (final tax) of the transaction value.
Corporate Income Tax Rate in Indonesia
Indonesia company tax rate is 25%.
A company will be considered taxable in Indonesia if it has a presence and conducts business in that country. Resolution of this question depends on whether the entity has a 'permanent establishment' in Indonesia. This term is widely defined to include a place of management, branch, representative office, office building, agent, factory or workshop, construction or mining site. Where such a presence exists, the permanent establishment is taxable on its worldwide income. Where similar businesses as that carried on by the permanent establishment are conducted in Indonesia, care must be taken to ensure that the 'force of attraction' principle does not result in that business income being taxed in the permanent establishment.
Company tax is payable by monthly instalments. The collection of tax from interest, royalties, rentals and dividends, professional service fees, technical and management service fees, construction service fees, installation service fees, repair and maintenance service fees is by way of withholding tax. Where the recipient is a tax resident of Indonesia, the tax withheld is taken into account in determining the company's final tax liability (except for tax of interest from bank and space rentals which are treated as final tax). Where the recipient is not a resident, the tax withheld represents a final tax.
Under the Income Tax Law No. 36 Year 2008, which took effect from 1 January 2010, corporations are taxed at single rate of 25%. Corporations with an annual gross income up to Rp 50 billion are entitled to a tax discount of 50% of the standard rate on taxable income derived from the portion of gross income up to Rp 4.8 billion.
As for public companies, corporate tax deduction at 5% will be granted when meeting the following requirements:
1. Minimum listing requirement is 40%
2. The minimum public ownership is 300 individuals where each individual holds less than five percent of the paid-in shares
3. The above two conditions must be fulfilled at least in six months (183 days) in a tax year.
Residence - A company is a resident if it is established or domiciled in Indonesia.
Basis - Resident companies are taxed on worldwide income. Nonresident companies are taxed only on income sourced in Indonesia, including income attributable to permanent establishments in the country.
Taxable income - Taxable net income is defined as assessable income less taxdeductible expenses.
Taxation of dividends - Dividends paid by a domestic corporate taxpayer to a resident are subject to a 15% withholding tax and the payment represents an advance payment of tax liability. See also "Participation exemption".
Capital gains - Capital gains are taxable as ordinary income, and capital losses are taxdeductible.
Losses - Losses may be carried forward for 5 years following the year the loss was incurred (this period may be extended to 10 years for selected industries and for operations in remote areas). Losses cannot be carried back.
Surtax - No
Alternative minimum tax - No
Foreign tax credit - Resident companies deriving income from foreign sources are entitled to a unilateral tax credit with respect to foreign tax paid on the income. The credit is limited to the amount of Indonesian tax otherwise payable on the relevant foreign income.
Participation exemption - Dividends received or derived by a resident company from a participation in another Indonesian limited liability company are exempt from tax if the recipient holds at least 25% of the shares of the payor and the dividends are from retained earnings.
Holding company regime - No
Tax Incentives - Tax incentives are available to entities with capital investments in certain approved industry sectors, or those operating in certain geographic locations. Incentives include a 30% tax investment allowance (5% per year), accelerated depreciation, the carryforward of losses up to 10 years and a reduced withholding tax of 10% on dividends paid to nonresidents. An income tax reduction of 5% may be available to companies listed on the Indonesian stock exchange if certain conditions are satisfied.
Dividends - Dividends paid by a domestic corporate taxpayer to a nonresident are subject to a 20% withholding tax, which is considered a final tax. Tax treaties may reduce the rate, but to take advantage of a reduced rate, the payee must obtain a certificate of tax domicile from the tax authorities in its country of residence and be the beneficial owner of the dividends. The withholding tax on dividends paid to resident individuals is a 10% final tax.
Interest - Interest paid to nonresidents is subject to a 20% withholding tax, unless the rate is reduced by an applicable tax treaty. Interest paid by a domestic taxpayer to a resident is subject to a 15% withholding tax and the payment represents an advance payment of tax liability.
Royalties - A 20% withholding tax is imposed on royalties remitted abroad, unless the rate is reduced under an applicable tax treaty and the recipient submits a tax residence certificate from the tax authorities of its country of residence. For tax purposes, royalties refer to any charge for the use of property or know-how in Indonesia.
Royalties paid by a domestic taxpayer to a resident are subject to a 15% withholding tax and the payment represents an advance payment of tax liability.
The withholding tax on domestic payments for technical, management and consulting services and rentals (except for land and building rentals) varies from 1.5% to 4.5%.
Branch profits tax - Permanent establishments are subject to a 20% branch profits tax on after-tax profits. This rate may be reduced under a tax treaty.
Other taxes on corporations:
Capital duty - No, but various registration fees apply.
Payroll tax - Employers are required to withhold, remit and report income tax on employment income of their employees.
Real property tax - Land and building tax is payable annually on land, buildings and permanent structures. The rate is typically not more than 0.5% of the value of the property, although higher rates apply to certain high-value housing and large estates.
Social security - Employers must contribute to Indonesia's social security system if they employ 10 or more individuals or maintain a payroll expense of IDR 1 million per month. The employer's contribution rate for old-age compensation is 3.7%.
Stamp duty - Certain documents are subject to stamp duty at a nominal amount of IDR 3,000 or IDR 6,000.
Transfer tax - A land and building transfer duty of 5% is payable when a person or company obtains rights to land or a building with a value greater than IDR 60 million. Certain exceptions/reductions apply, including transfers in connection with a merger.
Other - Sales of shares listed on the Indonesian stock exchange are subject to a final tax of 0.1% of the transaction value; an additional tax of 0.5% applies to the share value of founder shares at the time of an initial public offering.
Transfer pricing - Related party transactions or dealings with affiliated companies (including profit-sharing by multinational companies) must be carried out in a "commercially justifiable way" and on an arm's length basis. Documentation is required.
Thin capitalisation - Indonesia does not have specific rules on thin capitalisation, but the general law authorises the Ministry of Finance to determine the debt-to-equity ratio of companies for tax calculation purposes.
Controlled foreign companies - The Ministry of Finance is authorised to determine when a dividend is deemed to be derived from a foreign company established in countries where an Indonesian resident taxpayer holds at least 50% of the paid-up capital of the foreign company or, together with other resident taxpayers, holds at least 50% of the paid-up capital. This applies only if the foreign company does not trade its shares on the stock exchange. If no dividends are declared or derived from the offshore company, the resident taxpayer must calculate and report the deemed dividend in its tax return; otherwise, the Ministry of Finance will do so. The dividend is deemed to be derived either in the fourth month following the deadline for filing the tax return in the offshore country or 7 months after the offshore company's tax year ends if the country does not have a specific tax filing deadline.
Disclosure requirements - Taxpayers must provide certain information regarding their transfer pricing transactions with related parties in an attachment to their annual tax returns. The information will be maintained by the tax authorities and may be tested by tax auditors in the course of a tax audit.
Administration and compliance:
Tax year - The tax year is generally the calendar year. A corporate taxpayer can elect to file a corporate tax return based on the book year.
Consolidated tax returns - Consolidated returns are not permitted; each company must file a separate return.
Tax Filing requirements - Tax collection operates under a self-assessment system, with tax due on the 15th day of the calendar month following the tax-assessment month. Tax returns (as opposed to actual tax payment) must be filed by the 20th of the following month. Annual corporate tax returns must be filed within 4 months of the end of the book year, and annual employment income tax returns (filed by the employer) must be filed by 31 March of the following year.
Penalties - Penalties vary depending on the situation, such as late tax payment, late filing, tax underpayment and voluntary amendment of returns. The most common penalty is 2% monthly interest on the tax underpaid.
Rulings - The Minister of Finance and the Director General of Taxation may issue rulings in certain cases, such as the determination of debt-to-equity ratios or the tax effects of a proposed transaction.
Indonesia VAT rates
The standard rate of VAT in Indonesia is 10%.
VAT at the general rate of 10% is imposed on importers, manufacturers, wholesalers and retails and on the provision of most services. While the VAT laws permit amendments of the rates for individual items, currently the products with a rate other than 10% are cigarettes and used cars. Services such as package deliveries and travel agents are taxed at 1%, while factoring is imposed at 5% on the fees received.
Exports are effectively excluded from VAT by being subject to a zero tax rate.
VAT is payable by the 15th of the month following the relevant transaction. Monthly tax returns must be submitted by the 20th of the following month. In the case of certain services rendered by non-residents of Indonesia, the recipient of these services has an obligation to self-assess, report and pay import VAT by the 15th of the following month.