Withholding tax in Indonesia.

Withholding tax in Indonesia

This is the ultimate guide to withholding tax in Indonesia.

There are specific provisions regarding withholding tax in Indonesia that individuals must follow in order to comply with the Indonesian laws and regulations.

Let’s get started.

What is withholding Tax in Indonesia?

Tax in Indonesia is based on a self-assessment system combined with a withholding tax regime. Income tax is collected through withholding taxes, which the payer must withhold and submit the tax to the tax offices on a monthly basis.

The monthly payment deadline is 10th of the following month, and the monthly filing deadline is the 20th of the following month.

Withholding tax under Article 21

Under the income tax (Pajak Penghasilan – PPh) law, Article 21 states that employers have to withhold tax from the salary and severance payments paid to employees and pay the tax to the State Treasury on the employee’s behalf.

The employer must file the article 21 withholding tax by the 10th and 20th of the following month when the withholding tax is due. Withholding tax article 21 on salary is final and the tax withheld can be claimed as a tax credit in the employee’s annual personal income tax return.

A tax resident without a taxpayer identification number (NPWP) is subject to a higher tax rate of 20% from the normal tax rates.

Withholding tax under Article 22

Withholding tax under Article 22 is based on companies importing goods, receiving income from the State Treasurer/state-owned enterprises, buying certain specified products or purchasing extravagant luxury products.

For companies importing goods, a rate of 2.5% of withholding tax is imposed for registered importers, while a rate of 7.5% is imposed for unregistered importers. Companies domiciled in the Free Trade Zone are exempted from withholding tax under article 22 on the importation of capital goods and raw materials.

Sales of goods to the government requiring payment from the State Treasury with the tax base being the selling price and sale of goods to state-owned enterprises and some of their subsidiaries with the tax base being the selling price are to withhold income tax at 1.5%.

The withheld tax of 1.5% is non-final and can be claimed as a tax credit in the annual corporate income tax return as long as the withholding tax slips are valid. The local purchase of certain products is also subject to Article 22 of the withholding tax.

The withholding tax rate on the transactions include:

TransactionTax rates
Purchasing of oil fuel by state-owned gas stations or private gas stations0.25% or 0.30% based on the selling price
Purchasing of oil fuel by parties other than state-owned gas stations or private gas stations0.30%
Purchasing of gas fuel0.30%
Purchasing of lubricants0.30%
Manufacturers of cement, steel, automotive goods, paper and cigarettes0.1% to 0.45% when selling to agents or distributors

Goods that are classified as very luxurious are subjected to a withholding tax rate of 5% based on the selling prices.

Very luxurious goods include:

  • Cruisers and yachts
  • Private aircraft and helicopters
  • Houses and land
  • Apartments or condominiums
  • Four-wheel automobiles, such as sedans, jeeps, SUVs, MVPs and minibuses
  • Two or three-wheel motorcycles

Exemptions under withholding tax article 22 include:

  • Import of goods concerning donations for disaster relief
  • Import of goods for nature conservation
  • Import of goods used in upstream oil and natural gas activities by certain production sharing contractors
  • Payments for purchase of goods using School Operational Assistance (Bantuan Operasional Sekolah) funds
  • Payment by a state-owned enterprise for a maximum of IDR 100 million and not being a separate payment
  • Import of science and technology books
  • Payments made by a government body acting as a withholding tax collector

A tax resident without a taxpayer identification number (NPWP) is subject to a higher tax rate of 100% from the normal tax rates.

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Withholding tax under Article 23

According to Article 23, specific types of income paid to tax residents are subject to withholding tax at a rate of either 2% or 15%.

Payments subject to 15% are:

  • Dividends
  • Interest
  • Swap premiums
  • Loan guarantee fees
  • Royalties
  • Prizes and awards
  • Bonuses

Payments subject to 2% of withholding tax are:

  • Rental of property other than land and buildings
  • Remuneration for technical, management, construction, consulting services and other services such as actuarial services, legal services, accounting services, design services, waste management services and cleaning services

A tax resident without a taxpayer identification number (NPWP) is subject to a higher tax rate of 100% from the normal tax rates.

Withholding tax under Article 26

Income received by a non-Indonesian taxpayer is subject to a rate of 20% final withholding tax.

Article 26 is applied on the following income:

  • Dividends
  • Interest
  • Royalties
  • Compensation
  • Prizes and awards
  • Swap premiums

The tax rate can be reduced based on the applicable tax treaty if the non-resident taxpayer is a resident of the tax treaty partner country, subject to fulfilling certain requirements.

Final withholding tax under Article 4(2)

Transactions that are subjected to final withholding tax under Article 4 paragraph 2 include:

  • Rental of land and buildings
  • Transfer of land and building rights
  • Construction services
  • Additional tax on sale of Founder shares at IPO price
  • Interest on time or savings deposits and on Bank Indonesia Certificates (SBI)
  • Interest or discount on bonds
  • Lottery prizes
  • Dividends paid to individuals

Withholding tax under Article 15

Transactions in relation with shipping and airline services provided by local and/or foreign companies are subject to article 15 withholding tax as per below tax rates:

ServicesTax rates
Charter of local airline1.8%
Local shipping company1.2%
Foreign shipping and airline2.64%

Conclusion

Let Acclime take care of your withholding tax obligations and help you stay compliant with the tax payments and filings.

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