Year-end payroll reporting in Indonesia explained.

Year-end payroll reporting is required for all legal entities employing workers in Indonesia. It ensures transparency by providing clarity and openness in a company’s financial operations, particularly concerning employee compensation. Moreover, it confirms the company’s responsibility to fulfil its tax obligations, contributing to data integrity by providing accurate statistical data that supports government planning and policy development.

This article will outline key components of year-end payroll reporting in Indonesia, including the reporting process, deadlines, and penalties for non-compliance.

Benefit-in-kind nominative list report

Issued on 27 June 2023, PMK 66/2023 governs the income tax treatment of compensation in the form of in-kind benefits. A benefit in kind (BIK) is any non-cash compensation provided to an employee in addition to their salary.

Effective from 1 July 2023, employers must withhold income tax on BIKs exceeding set thresholds while also offering allowances for tax deductions on qualifying expenses. This report to declare BIKs should include detailed records of all employees who have received other forms of remuneration during the tax year, including the following information for each employee:

• Full name
• National Identification Number (NIK) or Tax Identification Number (NPWP)
• Benefits received
• Total income and tax liability

However, taxpayers are advised to submit the report with the required information until an updated format becomes available in the CoreTax Administration System (CTAS).

Realised income tax report

Under Article 21 (PPh Pasal 21), employers are required to withhold income tax from salaries and service payments.

The monthly Effective Tax Rate (ETR) is applied to income tax calculations from January to November by multiplying the gross income received each month by the applicable ETR. These rates, which vary by income range and category, can be found on the Directorate General of Taxes website.

In December or upon an employee’s termination, a final tax calculation is made using the progressive tax rate outlined in Article 17 (1)(a) of the Income Tax Law. This final tax liability is determined by reconciling the total tax withheld from January to November with the recalculated amount for December.

Proof of tax withholding and payment

Accurate documentation of tax withholding and payments must be accurately maintained, including:

• Tax payment slips and transfer records (Bukti Penerimaan Negara, or “BPN”)
• Tax withholding slips
• Receipts confirming tax return submissions (Bukti Penerimaan Elektronik, or “BPE”)

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Reporting process

The year-end reporting is typically completed online through the e-SPT (Electronic Tax Return) system provided by the Directorate General of Taxes. Entities are required to submit e-SPT forms with accurate and complete data to ensure compliance.

Deadlines

Deadlines for tax payments and report submissions vary depending on the type of tax and the taxpayer’s status. The deadlines for Employee Income Tax (PPh Pasal 21) are as follows:

• Tax payments:
  • Monthly Employee Income Tax: 10th of the following month
• Report submissions:
  • Monthly Employee Income Tax: 20th of the following month
  • Annual Employee Income Tax Return (SPT 1721): 20th January of the following year

Additionally, employees are required to submit their personal Annual Income Tax Return (SPT 1770) by 30th March of the following year, including any income from sources beyond their employment.

Penalties for non-compliance

Failure to comply with year-end reporting obligations or providing inaccurate information may result in administrative and/or criminal penalties, which could include:

• Monetary penalties are calculated as a percentage of unpaid taxes or as a fixed amount
• Tax officials may conduct audits to verify the accuracy of financial records and tax calculations
• Severe violations may result in criminal prosecution for the entity or its representatives

Conclusion

Employers must comply with the requirements set by the Indonesian Directorate General of Taxes to avoid penalties. Businesses must stay current on regulations, such as reporting benefits in-kind and ensuring accurate income tax calculations. Employers can benefit from using accounting software and tax reporting tools to streamline the payroll reporting process and keep records of relevant payroll and tax reporting documents. Consulting with a tax expert or accountant is recommended to ensure accurate and timely compliance.

How Acclime can help

Staying compliant with Indonesia’s payroll regulations takes specialist knowledge that most businesses would rather not have to build in-house. Acclime Indonesia’s payroll compliance services cover everything from monthly reporting and income tax withholding to benefits in-kind, giving you the confidence that your obligations are being handled accurately and on time.