Corporate tax returns for the financial year must be filed within three months of the end of the financial year. Generally, an extension will be granted if a request is lodged before the due date and the provisional final tax payment (on an estimated basis) is made by the 25th of the third month following year-end. The extension period can range from three to six months. Any underpayment of the final tax instalment is subject to an interest charge of 2% per month. Returns can be amended within two years of the end of the tax year. Subject to certain conditions, a tax return may be amended after the two-year period and prior to a tax audit. Where an amendment results in an increase in the tax liability, interest penalties are applied.
Books of account must be maintained for at least ten years. Approval (a formality) is required for use of English by foreign enterprises. At the end of every financial year, a balance sheet and an income statement must be drawn up in accordance with Indonesian accounting principles or the recognized equivalent.
A tax return is normally accompanied by audited financial statements and selected additional supporting schedules. Under the self-assessment system, a return is final within ten years of filing a “complete” return. If a tax audit is conducted within this period and an assessment is issued, it must be paid within 30 days unless the Director General of Taxation approves postponement of payment during the process of appeal.
PAYMENT AND COLLECTION
Under the prepayment system, companies make monthly instalment prepayments of their income taxes. The basis of the taxpayer’s monthly payment is 1/12 of the amount of the tax due as reflected in the previous year’s return, after deduction of the amount of tax withheld by other parties. Where tax assessments have been issued within the last two years, they are used as the basis. A procedure is available to apply for reduction of instalments or for exemption or relief from the various other forms of withholding tax. A request for a reduction of the monthly instalments can be filed after the fourth month of a tax year, provided the projected income tax liability for the year is less than 75% of the income tax liability used as the basis to calculate the current month’s instalment.
The obligations of taxpayers are as follows:
- Payment must be made by the 15th day of the next month;
- The forms supporting the monthly payment must be lodged with the State Treasury by the 20th day of the next month;
- Within three months after the end of a tax year, the taxpayer is required to calculate final tax liability, i.e., to calculate the amount of tax that has already been prepaid and to determine the balance of tax still payable;
- When the final calculation and payment are completed, a tax return (SPT) must be filed with the Tax Service Office three months after the year-end unless an extension has been granted; and
- If previous prepayments fall short of the amount due, the taxpayer is obliged to pay the difference to the State Treasury by the 25th of the third month following the tax year-end.
Where prepayments exceed the total tax liability for the year, a tax refund should be requested. Prepayments may not be offset against other current tax obligations, but they may be used to satisfy outstanding prior-year tax assessments. The law provides that a decision on the request for a refund should be made within 12 months from the date of filing of the return on the basis of an investigation or audit. If after 12 months no decision has been made, the full amount of the refund is granted. If the refund is not realized within 13 months from the date the return was filed, interest at 2% per month accrues to the taxpayer on the amount owed by the government.
Withholding tax is normally due on the 10th of the month following the month of the accrual or payment, whichever is earlier.
Taxpayers are required to lodge monthly returns setting out the taxpayer’s liability with respect to withholding tax withheld on behalf of other taxpayers.
Companies are required to submit monthly and annual returns with respect to income tax paid on behalf of employees.
Companies are required to report VAT to the Government on a monthly basis.
TAX DISPUTES PROCESS
Taxpayers may object to an assessment by filing an objection with the Director General of Taxes. Objections must be lodged within three months after the issue date of the Tax Office’s document (e.g., assessment or collection notice) and must be submitted in Bahasa Indonesia. Filing an objection does not normally stop or postpone the obligation to pay the tax in question. After receiving an objection from a taxpayer, the Director General must issue a decision on the appeal within 12 months of the date of the filing of the objection. If the Director General does not issue a decision within 12 months, the objection is deemed successful.
Where a taxpayer disagrees with the objection decision of the Director General of Taxes, an appeal can be lodged with the Tax Court within three months of the objection decision. One appeal letter is allowed for each objection decision, and this letter must clearly state the reasons for the appeal.
The Tax Court will only process an appeal if the tax due and payable by the taxpayer has been fully paid. The Tax Court must finalize the appeal within 12 months of receiving the appeal letter. The decision of the Tax Court is final. Any overpaid tax is refunded plus interest of 2% per month.
To date, the Tax Court has not formally or publicly reported cases. However, an unofficial line of precedents is slowly emerging, and this should provide investors with increased certainty.