Income Taxation Law & Administration


The current framework of Indonesia’s tax laws initiated in 1983 has been subsequently amended, most recently in 2008. Companies doing business in Indonesia are subject to income tax, withholding tax, value added tax (VAT) and various other indirect levies, such as tax on land and building, and stamp duty. Individual articles contained in the laws may be supported by the implementing regulations and decrees, such as: Government Regulations, Minister of Finance Regulations, and Decrees of the Director General of Taxation. The government is committed to a greater intensification of tax collection as well as increasing the number of registered taxpayers.

Fiscal year Yearly early and monthly tax periods

Tax collection is based on a self-assessment system which requires the taxpayer to calculate, pay and report its tax obligations.

The tax year is basically the calendar year. However, the taxpayer may choose its tax year based on the book year which may differ from the calendar year, subject to obtaining approval from the tax office. As from fiscal year 2008, annual corporate tax return must be filed by the end of the 4th month following the book year, with provision for extended filing for two months. The annual employee income tax return must be filed by March 31 of the following year.

Any shortfall of tax should be settled by the 25th day of the third month following the end of the book year. Overpayments of tax may be recovered, but only after a tax audit has been completed.
The monthly tax period is similar as monthly calendar. The monthly tax is due on the 10th day of the following month of the monthly tax period for most types of taxes, and on the 15th of the following month of the monthly tax period for Value Added Tax. While monthly tax returns must be filed by the 20th of month following the monthly tax period.


The tax law defines a tax subject to include:

  • an individual
  • an undivided estate as a unit
  • a corporation, including a limited liability corporation, a limited partnership, other forms of limited liability entity, a state-owned or regional enterprise in whatever name and form, a partnership, an association, a firm, a kongsi, a cooperative, a foundation or similar organisation, an institution, a pension fund and other forms of business entity
  • a permanent establishment is any establishment that is regularly used to carry on business in Indonesia by an organization not set up or domiciled in Indonesia.

Taxable income

Taxable income is calculated after allowable deductions. For individuals there are income tax exclusions which are set at relatively low income levels. Individuals are broadly liable to income tax on cash income. Benefits in kind provided by employers to employees are not taxable to individuals but are non-deductible against corporate taxable income. Employers are required to withhold income tax from employees and deposit each month with the State Treasury.

Payment of corporate income tax

Taxes are paid by monthly installments on a current year basis. The regular installment amount is based on the previous year’s filings after taking credit for withholdings at source. Any shortfall should be settled by the 25th day of the third month following the end of the financial year. The self-assessment principle, however, underpins Indonesian Income Tax Law. A substantial part of individual income is collected by way of withholding by third parties.

Residence and Sources

The law distinguishes between resident tax subjects and non resident tax subjects. A resident tax subject includes:

  • Any individual present in Indonesia for more than 183 (not consecutive)days in any 12 month period, or any individual present in Indonesia during a tax year and intending to reside in Indonesia
  • Any organisation registered or domiciled in Indonesia.

Residence of Individuals

Resident individual tax payers are taxed on their worldwide gross income less allowable deductions and nontaxable income. A resident individual who has no income other than related to his employment, on which tax is withheld by the employer, has no obligation to has income other than that related to his employment or who works for more than one employer is required to register as a taxpayer and lodge an annual tax return together with a payment for any tax due.

Residence of Companies

Resident Organizations and permanent establishments are required to register as tax payers, pay tax on their own income, withhold tax on payments to employees and third parties, and lodge the relevant tax return.

Sources of income

Resident companies deriving income from foreign source are entitled to a unilateral tax credit with respect to foreign tax paid on the income. The credit is limited to the amount of Indonesia tax otherwise payable on the relevant foreign income. Indonesia has a reasonably broad tax treaty network. To establish eligibility for the treaty rates, the nonresident payee should provide the payer with a certificate of domicile from the tax authority in the payee’s country of residence. A copy of this statement is filed with the Directorate-General of Taxation.

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