Scope of taxation

For taxation purposes, an individual is classified as “resident” or “nonresident”. An individual is considered a resident taxpayer if staying in Indonesia for more than 183 days in any 12-month period, or if intending to reside in Indonesia. Naturally, if the individual comes from a treaty country, the determination of tax residency shall be based on the provisions of the relevant tax treaty.

Both resident and non-resident taxpayers are subject to national income tax (Indonesia has neither federal nor state income tax). Residents are taxed on their worldwide income and are generally allowed a credit for taxes paid abroad, whereas non-residents are taxed only on their Indonesian-source income.

Taxable Income

Any increase in economic prosperity received or accrued by a resident taxpayer, whether originating from within or outside Indonesia, that may be used for consumption or to increase the recipient’s wealth in whatever name and form is taxable. This includes wages, salary, commission, bonuses, lottery prizes, interest, dividends, etc.

Special tax treatment applies to the following income:

• Benefits-in-kind are not taxable unless provided by a body that is not an Indonesian taxpayer (e.g. a representative office).
• Interest income from Indonesian banks is generally subject to final withholding tax of 20%.
• Certain other income is also subject to final tax. This includes rental of land or buildings (10% final tax from the gross proceeds), capital gains from the sale of shares listed on an Indonesian stock exchange (0.1% final tax from the gross proceeds plus an additional 0.5 % for founder shares), and income from the sale of land or buildings (5% final tax from the gross proceeds).
• Lottery prizes are taxable in Indonesia at 25%.

Tax rates

Employees are subject to withholding tax from their remuneration. Those who are self-employed or who have other income, pay monthly estimated taxes as well. Previously, employees with only one source of employment income did not need to file a tax return. However, under the new laws effective 1 January 2001, an individual whose income exceeds the non-taxable threshold is required to file an annual personal tax return.

Below are the applicable individual tax rates:

Deductions from income

Individuals are allowed to deduct from their employment income occupational costs of 5% of gross income (up to a maximum of Rp. 6,000,000 {about US$600}) a year and contributions to an approved pension fund. No other deductions from employment income are allowed.

If an individual’s source of income is a personal business, the same general deduction rules apply as for a corporation, provided that the individual maintains adequate bookkeeping.

An individual is also entitled to an exemption for dependents. The exemption varies based on the number of dependents, as shown in the following table:

Tax benefit for foreigners

Payment to non-residents of the countries with which Indonesia has concluded a Double Tax Agreement (DTA) may be subject to a tax rate reduction or possible exemption.

To take advantage of treaty relief, the non-resident has to obtain from its own competent authority a Certificate of Domicile/ Certificate of Residence (COD/COR)and present it to the Indonesian taxpayer in order to enjoy a reduced withholding rate or exemption. Starting January 2010 every tax payers should use new form of COD/COR issued by the tax authorities.

Circular No. SE- 13/PJ.43/2000, dated May 30, 2000, requires foreign nationals residing in Indonesia to register and file income tax returns with the BADORA Tax Office and Tax Offices having jurisdiction over their domicile, respectively. It should be noted that under the new tax law, expatriates would effectively be required to register for tax and file individual income tax returns. The Tax Office will enforce the tax registration and filing of tax returns by individuals.

Tax Registration

Each taxpayer needs a Tax Identification Number (NPWP), which is a number issued to taxpayers by the tax office to identify taxpayers and assist them in fulfilling their tax obligations.

Taxpayer shall be obligated to register at the tax office in the district in which the taxpayer resides (Article 2- paragraph (1) law No. 28 Year 2007) by submitting the following documents:

• Registration and change of data form
• Copy of passport
• Copy of limited stay permit card (KITAS)
• Copy of work permit (for a taxpayer who is an employee)
• Copy of tax identification number of the employer (for a taxpayer who is an employee)
• Power of attorney (if his/her registration process is done by another party)
• Copy of business permit (for a taxpayer who is conducting business or is an independent professional)

An individual taxpayer who is an entrepreneur as referred to in the Decision of Director General of Taxation No. KEP-171/PJ/2002 is an individual who has several places of business activities, excluding selling of vehicles, and restaurants. He/she is obligated to register his/her place of business activities as follows:

• A taxpayer who has several places of business activities in one operational area of the tax office must register each place of business with said tax office.
• Taxpayers who have several places of business activities located in the districts of several tax offices must register each place of business with each related tax office.

Social security

JAMSOSTEK is a compulsory provision to employees of a company with a minimum of 10 employees or for employees receiving a salary of Rp. 1,000,000 net or more. This covers (compulsory) % per month:

(c.) Work accident insurance: 0.24 to 1.74 % (5 different tariffs depending on work safety conditions)

(d.) Death insurance: 0.30 %

(e.) Old age insurance: 3.70% paid by company and 2.00% paid by the employee (taken from his net salary) * currently this old age scheme is no longer compulsory for foreigners

(f.) Health insurance: 3.00 % for personal coverage; 6.00 % for family [not compulsory]