By special concession, Indonesian nationals are allowed the full use of non-taxable income allowances and the full benefit of the lower bands of tax rates. The following paragraphs list some of the significant grant and incentives opportunities.
Indonesia has ratified the law 13/2003 governs the bargaining power of workers, specifies minimum standards for working condition, and sets rules for severance and compensation payments. The government has issued several regulations that expand or modify labour laws, including the decrees on the employment of foreigners, occupational health and safety, work competency standards and overtime standards and pay.
Wages include a minimum wage, overtime pay, sick pay and holiday pay. Cash wages must constitute minimum 75% of the minimum wage, with the remainder typically allocated for food and transport.
- Bonuses, Income in the form of a production bonus, director’s remuneration, Lebaran and New Year bonuses and any other income which is regularly received are included in taxable income and taxes at normal rates. Non-taxable allowances and other deductions are not allowed to be applied against this type of income. The amount of tax to be withheld is determined by calculating the tax payable on normal income plus the bonus, and subtracting from it the amount of tax payable on normal income only.
- Honorarium or other payments received as remuneration for services performed in Indonesia by resident taxpayers is subject to income tax at the normal scale rates on the gross amount of the payments.
A workers insurance scheme including occupational accident, health and life insurance, exists for companies with more than 10 employees or a monthly payroll exceeding IDR 1 million. Jamsostek, the state-run workers insurance fund, administers the scheme. Other than the retirement plan, employer contributions entirely fund benefits. For healthcare coverage through Jamsostek, employers contribute 6% for married employees and 3% for unmarried workers. For the retirement scheme, the employer contributes 3.7% of wages, and the employee contributes 2%. If the participant dies before retirement for any reason except occupational accident, beneficiaries may claim a life-insurance benefit and a burial allowance.
Research and Development (R&D)
Under the Government Regulation No. 35 / 2007 (from the Research & Technology Dept), a company that finance its own research activities to improve the ability of doing certain kind of business can earned incentives in such form as tax incentive, custom or technical assistance in research and development.
Tourism Overseas Promotion Scheme
The Government is constantly trying to attract the world attention through some promotion activities about indonesian tourism. Last year (2008) the Ministry of Tourism held an event such as “Indonesia Visit Year” is about promoting every part of the nation to the world include many discount on many hotels and airline fare. The Government also issued some regulation to widener the foreign tourist access to every part of Indonesia, such as (Government Regulation No. 75/ 2005) about visa on arrival for 63 countries.
Tariffs and Bounty Payments
Customs Duties and Taxation
Imports are subject to: Import Duty – Import duty is payable at the rates from 0% – 150% on the customs value of imported goods. Customs value is calculated on the cost, insurance and freight level (CIF). Value Added and Luxury Sales Tax – VAT is typically imposed at 10% CIF value of importers. This can be reduced or increased by a government regulation to 5% or 15%. Certain manufactured taxable goods may be subject to luxury sales tax (LST) ranging from 10-75%. To ascertain whether a particular item is subject to LST and to identify the LST rate, reference should be made to the Customs book in light of the relevant harmonised system (HS) doe.
Income Tax – Taxpayers are obliged to make a prepayment of their annual tax obligation by a withholding of 2.5% (7.5% if the company does not possess an import permit) of CIF value of imports.
State Government Incentives
Investment incentives include:
- 30% net income reduced from capital investment amount for 6 (six) years period (equal to 5% per annum)
- Accelerated amortization & depreciation up to 10 years
- 10% Income tax charged for overseas tax-payer on dividend bill or lower tariff according to the Double Taxation Agreement
- Loss compensation with the period between 5 to 10 years with some specific stipulations.
Investment Allowance (IA): Corporate income tax base is deducted by 30% of investment realization. Total 30% deduction is given in 6 years (5% deduction p.a).