This guide is about corporate income tax in Indonesia.
The rates for corporate income tax for Indonesian companies has been reduced over the years, and will continue to reduce in the next coming years. It is important for companies to know the tax rates, when to file them and the available tax incentives.
Let’s get started.
Year of assessment and corporate tax return
When is the year of assessment for Indonesian companies?
The most common tax year in Indonesia is the same as the calendar year, which is 1 January to 31 December. However, the tax year will follow the company’s financial year as stated on the article of association.
When is corporate income tax paid and filed?
Companies in Indonesia have to pay corporate income tax by the end of the fourth month after the year-end and must file the corporate income tax returns by the end of the fourth month after the end of the reported tax year.
The tax payment can be made through a tax-payment bank to the State Treasury bank. A copy of the tax payment receipt should be attached with the annual tax returns. Extensions may apply for a maximum of two months if you submit a written notice to the Directorate General of Tax before the tax return deadline.
Tax rate and basis of taxation
Corporate income tax rate of Indonesian companies
The corporate income tax (CIT) rate in Indonesia is 25%. For fiscal year 2020/2021, the CIT rate is 22%, and for the year 2022 onwards, the CIT rate will be 20%.
Public companies that have a minimum listing requirement of 40% and other specific conditions are eligible to a 3% cut off from the standard CIT rate.
For the 2020 fiscal year, the reduction will be at 3%, giving fiscal year 2020/2021 a CIT rate of 19%.
For the year 2022 and onwards, the CIT rate will be 17%.
For small companies, for example, corporate taxpayers with an annual revenue of not more than IDR 50 billion will be qualified for a 50% proportionate tax discount from the standard CIT rate.
Some small and medium-sized enterprises (SMEs) with gross revenue of not more than IDR 4.8 million are subject to a CIT rate of 0.5%.
In general, the CIT will be calculated based on the fiscal profit (taxable income). However, the 0.5% CIT rate for SMEs is calculated from the gross revenue.
What companies are tax residents?
A company in Indonesia is considered as a tax resident if the company is incorporated or the domicile is in Indonesia.
A foreign company conducting business activities through a permanent establishment (PE) is subjected to the same tax rates as resident taxpayers with additional Branch Profit Tax obligation.
Industries that are eligible to tax holidays
Corporates that make new capital investment under the pioneer industry category are subject to a tax holiday on its corporate income tax. The industries include:
- Upstream base metal industry
- Oil and gas purification and/or refinery industry
- Petrochemical industry, based on petroleum, natural gas or coal
- Inorganic base chemical industry
- Organic base chemical industry
- Pharmaceutical raw material industry
- Manufacturing of irradiation equipment, electromedical or electrotherapy technology
- Manufacturing industry of electronic and telematics device’s main components such as semiconductors wafer, backlight for liquid crystal display, electrical driver or display
- Manufacturing industry of main components for industrial engines and main components for engines
- Manufacturing industry of robotic components, which support the engines manufacturing industry
- Manufacturing industry of main components for electrical power generation engines
- Manufacturing industry of vehicle and main components for vehicles
- Manufacturing industry of main components for ships, trains, aircraft and other supporting aircraft industries
- Agricultural, plantation or forestry
- Economic infrastructures
- Digital economy that includes data processing, hosting and other related activities
Tax holiday criteria
The industries listed above are eligible to tax holiday under the following conditions:
New capital investment
|IDR||Tax holiday facility||Tax holiday period|
|More than or equal to IDR 100 billion but not more than IDR 500 billion||50%||Five years|
|More than or equal to 500 billion but not more than 1 trillion||100%||Five years|
|More than or equal to 1 trillion but not more than 5 trillion||100%||Seven years|
|More than or equal to 5 trillion but not more than 15 trillion||100%||10 years|
|More than or equal to 15 trillion but not more than 30 trillion||100%||15 years|
|More than or equal to 30 trillion||100%||20 years|
Tax allowances available in Indonesia
Companies that are investing in specific business sectors or areas that are less developed areas which are high priority on a national scale can be permitted tax allowance in the form of:
- Additional net income reduction up to 30% of the amount of investment in tangible fixed assets which will be charged at 5% per year for six years
- Accelerated depreciation and amortisation
- The period of loss carry forward being extended up to ten years
- Withholding tax on dividend distributed to foreign shareholders at 10% unless relevant tax treaties provide a lower tax rate
Additional incentives in Indonesia
Other tax incentives that are available to Indonesian companies are:
- 60% additional cost recovery for new asset acquisitions or business expansion in a business sector which is:
- A labour-intensive industry sector
- Not eligible for another tax allowance or tax holiday incentive
- 200% deduction for apprenticeship, internship and/or teaching activities to develop human resources based on certain competencies, which are to increase human resources quality through work practice, internship and/or strategic teaching to achieve human resources effectiveness and efficiency.
- 300% reduction for specific R&D activities conducted in Indonesia.
What deductible expenses are companies’ entities to?
Business expenses that are related to earning, collecting or maintaining income are deductible. These expenses include:
- Expenses directly or indirectly related to business activities, such as material expenses, salary expenses, travelling expenses and interest, rental and royalty
- Promotion and selling expenses such as advertising in electronic media, print media or other media costs, costs for product exhibition, costs of introducing new products and sponsorship costs, subject to fulfilling certain requirements and submission of nominative list.
- The cancellation of uncollectible receivables for certain transactions with the non-related party. The following conditions must be met:
- The cancellation must have already been booked as expenses in the commercial income statement of the creditor
- The taxpayer must submit a list of uncollectible receivables to the Indonesian Tax Authority (ITA)
- The collection case has been brought to the district court or government, there is a written agreement on the nullification of the receivables, or it has been announced in general or special publications
- Donations and expenses for natural disaster management, R&D, educational facilities and sports development as long as the donations were made through relevant authorised institutions and the requirements are satisfied:
- The past year’s CIT return must be in a fiscal profit position
- The donation is supported with documentation
- The institution that receives the donation must be registered as a taxpayer
- The donations should not be more than 5% of the previous year’s fiscal profit
What expenses are not deductible?
Non-deductible expenses include:
- Benefit in-kind from an employer to the employees
- 50% reduction for the operation and maintenance costs for cars and mobile phones provided to the employees
- Gifts and donations excluding those that are listed above
- Income tax
- Tax penalties
- Expenses related to income that is subject to final tax regime
- Salary received by partners in a partnership
Filing and paying corporate income tax in Indonesia is an important step all companies must complete.
To ensure your corporate income tax filings are accurate and on time, we recommend seeking guidance from Acclime. We have a professional tax team who will assure that your tax is compliant with the Indonesian law.
Share this article