Step 1
Defining your Business Activities
- Check on the Indonesian Standard Industrial Classification (KBLI) as stated in Regulation of the Head of the Bureau of Statistic No. 2 of year 2020 to define your business risk level.
- Ensure the foreign share ownership of your business activities Presidential Regulation No. 10 of year 2021.
- Prepare company details such as name, domicile, capital structure and other related information. Gov't Regulation No.43/2011 regulates matters in how to generate a name for Limited Liability Companies.
Step 2
Forming a Limited Liability Company (PT PMA)
- The establishment of a PT PMA is regulated by Law No. 40 Year 2007 regarding.
- Limited Liability (Company Law). PT PMA shall be categorized as a large business and shall comply with the minimum investment value requirement, except otherwise stipulated by prevailing laws and regulations.
- Minimum of 2 shareholders: individual and/or company.
- Minimum investment for PT PMA is IDR 10 billion (+/- AUD 1 million)
- Choose a local public notary to get your Deed of Establishment and Article of Association (Akta)
- Legalise the PT PMA through the Ministry of Law and Human Rights. All important documents required by the Ministry must be handed
- Register for Tax ID Number (NPWP)
Step 1
Getting Business Licenses through Online Single Submission Risk-Based Approach (OSS-RBA) System
Licenses/Permit Related to Investment Activity in Indonesia
- Business Identification Number (NIB)
- Business License
- Commercial/Operational License
Note
- NIB also serves as Import Identification Number (API), custom and duties access right, registration for health and labor social security (BPJS), and mandatory labor report for the 1stperiod.
- NIB, Business and Commercial licences will not be activated until the company fulfill all of its investment commitment
Step 2
Fulfilling Your Investment Commitment
Business license commitments based on the risk level assessment:
- Location permit
- Environment permit (PKPLH)
- Building permit (PBG/IMB)
Other requirements based on the type of commercial/operational licenses needed by the company
Note:
For businesses categorised as upper-middle risk and high risk, operational/commercial process strictly can only be started after business license have been issued and verified.
The government issued Regulation No. 78 year 2019 (GR 78/2019) on 12 November 2019. GR 78/2019 represents an amendment to the regulations on the tax allowances available for companies that invest in certain business sectors and/or regions. These companies are eligible for tax allowance in the form of the following benefits:
- A reduction in net income of 30% of the actual amount invested in tangible fixed
- assets including land, allocated over the six years of commercial production after
- receiving the tax allowance approval (at a rate of 5% per year);
- Accelerated depreciation and/or amortization of eligible fixed assets and intangible
- assets;
- A 10% reduced withholding tax rate on dividends distributed to non-residents
- (or a lower rate under a relevant tax treaty); and
- An enhanced tax loss carries forward period of greater than 5 years but no longer
- than 10 years under certain conditions.
Criteria for obtaining tax allowance includes:
- Has a high investment or is export-oriented
- Has a large workforce
- Has high local content
Companies are eligible to apply for this relief through OSS. Currently, there are 183 businesses that have been provisioned by the government as companies that are entitled to this relief.
Government Regulation No. 45 Year 2019 provides new tax incentives to Indonesian corporations to encourage investment in labour intensive industries, support job creation and employment in Indonesia, encourage involvement of business and industrysectors to develop high quality human resources, increase competitiveness, and encourage businesses to conduct research and development (R&D) activities.
- Labour Intensive Industry
- Domestic taxpayers who open a new business or expand their existing businesses in labour intensive sectors could enjoy a net income tax deduction of 60% of the capital they invested as fixed assets (MoF regulation No. 16/2020)
- Vocational training program
- Domestic taxpayers who conduct working program, internships and or educational activities to develop human resources based on certain competency could obtain a gross income tax deduction as high as 200% of the funds they had spend for the activities (MoF Regulation No. 128/2019)
- Research and Development
- Domestic taxpayers who conduct R&D in Indonesia could obtain a gross income tax deduction as high as 300% of the cost of their R&D activities (MoF Regulation No. 153/2020)
Mof Regulation No. 66/PMK.010/2015 Chairman of BKPM Regulation No. 16/2015 Criteria:
- Exemption of import duty on imported capital goods (machines) for 2 years during construction period.
- Exemption of import duty on imported goods and material for production for 2 years during initial production (or 4 years for companies using locally-produced machines min.30% from total value of machines for production).
- Equitable and Non-discriminatory treatment against country of origin
Following the regional regulations. Contact local Investment Board for more information.
Through Minister of Finance Regulation No. 130/PMK.010/2020 (‘PMK-130’) on tax holiday, a company that makes a new capital investment in a Pioneer Industry is eligible to obtain a reduction on its CIT for income earned from its Main Business Activities. The application for tax holiday incentive must be submitted before entering
commercial production. Under PMK-130, a company can obtain tax holiday if the meet the following criteria:
- It is a pioneer industry;
- Having status as Indonesian legal entity;
- Is making a new capital investment which has not been issued with any prior
- approval or rejection on an application to obtain: 1) tax holiday; 2) tax allowance;
- 3) income tax incentive for labor intensive industry (investment allowance); and 4)
- income tax incentives on the Special Economic Zone;
- It has new capital investment plan with a minimum value of IDR 100 billion;
- It meets the Debt-to-Equity Ratio requirement for tax purposes (which is currently
- 4:1 stated in MoF Regulation No 169/2015); and
- It commits to start realising its capital investment plan within a year after the
- issuance of tax holiday approval; and
- It meets Tax Clearance Certificate (SKF) requirement for its taxpayer shareholders.
- List of Pioneer Industry under PMK-130:
- Upstream basic metal;
- Oil and gas refinery;
- Petrochemicals from oil, gas, or coal;
- Organic basic chemicals from agriculture, plantation, or forestry products;
- Inorganic basic chemicals;
- Pharmaceutical raw materials;
- Irradiation, electro medical, or electrotherapy equipment;
- Main components of electronics or telematics equipment;
- Machinery and main components of machinery;
- Robotics components that support the creation of manufacturing machinery;
- Main components of power plant machinery;
- Motor vehicles and main components of motor vehicles;
- Main components of vessels;
- Main components of trains;
- Main components of aircraft and activities supporting the aerospace industry;
- Agricultural, plantation, or forestry-based processing that produce pulp;
- Economic infrastructure; and
- Digital economy which includes data processing, hosting, and related activities.
The details of the above pioneer industry scope are listed in Attachment 1 of BKPM Regulation No. 7 Year 2020 concerning Details of Business Sectors and Type of Production of Pioneer Industries and Procedures for the Granting of Corporate Income ax Reduction Facilities. Referring to the attachment, there are 185 business sectors (of the Indonesia Standard Business Classification/KBLI) entitled to tax holiday.
TAXATION
A company in Indonesia is considered as a tax resident if the company is incorporated or domiciled in Indonesia. A foreign company conducting business activities through a permanent establishment (PE) is subject to the same tax rates as resident taxpayers with additional Branch Profit Tax obligation.
The tax system that applies in Indonesia is self-assessment. It means that taxpayers are required to calculate, pay, and report their personal taxes. With an exemption on certain types of taxes, official assessment and withholding tax mechanisms apply. In running the tax administration system, each individual and company must have a Taxpayer Identification Number (NPWP), an official identity issued by the Directorate General of Taxes (DGT).
Taxation Indonesia
Tax policies in Indonesia are continually innovating by introducing tax incentives to support foreign investment and develop strategic sectors, aiming to boost national economic competitiveness on the global stage.
Tax Administration
Companies in Indonesia have to pay CIT by the end of the fourth month after the year-end and must file the CIT 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 DGT before the tax return deadline. One of the noteworthy elements in tax administration is note taking and bookkeeping or creating financial statements. Thus, the company ought to calculate tax obligations and fill out annual notices adequately in order to minimize disputes in the future.
Witholding Taxes
In addition to implementing a self-assessment tax collection mechanism, Indonesia also implements a withholding tax collection scheme, which is applied to several types of Income Tax (Pajak Penghasilan/PPh) namely. Any income or additional economic capabilities received by individual taxpayers (WPOP), whether from Indonesia or other countries, are entitled as tax objects. Individual taxpayers who are employees are subject to Income Tax (PPh) Article 21 which tax deduction is conducted by the company they work for. As for individual tax payers who establish independent business activities or are not bound by employment relationships as employees, it is mandatory to calculate, pay and report their own PPh, in accordance with the principle of self-assessment.
Tax Rate
The following details the Income Tax (PPh) rate level of individuals is based on Law No. 7 Year 2021, namely:
Taxable Income = Tariff
IDR 0 > IDR 60 million = 5%
IDR 60 million > IDR 250 million = 15%
IDR 250 million > IDR 500 million = 25%
IDR 500 million > IDR 5 billion = 30%
More than IDR 5 billion = 35%
Non-Taxable Income (PTKP)
The amount of non-taxable income for each individual is diverse depending on the number of dependents the individual taxpayer has, and on whether the husband and wife’s NPWP (Taxpayer Identification Number) are combined or not. The amount of the non-taxable income is stated on the Law No. 7 Year 2021.
Tax Administration
Individual taxpayers are required to submit an annual income tax notice, no later than 3 months after the tax year ends, or on March 31 in the following tax year. Individual taxpayer tax returns (SPT) could be submitted manually or electronically through an e-filing application. If the submission of the Annual Tax Return of personal persons is overdue, there will be a fine of IDR 100,000.
Value Tax
In terms of VAT (PPN) charges, the principle of withholding tax applied. It is where the producer or seller will collect taxes paid by consumers during the transaction, to then be deposited. Currently, the imposition of VAT in Indonesia adheres to a single tariff system of 10% of the selling value of goods. With the enactment of Law 7/2021, the VAT rate will increase to 11% (eleven percent) on 1 April 2022; and will be increased to 12% (twelve percent) as per 1 January 2025. Basically, VAT is entitled on all taxable goods (Barang Kena Pajak/BKP) and taxable services (Jasa Kena Pajak/JKP). However, the government provides exceptions for the VAT charges against the submission of certain BKP and JKP such as: food and beverage of which are served in the hotel, restaurant, food shop, shop, or the similar is desired, including dine in and take out food, including food and beverage of which are presented by catering company; and money, gold bullion, and securities. In addition, the government also excludes the VAT charges on the submission of certain JKP, including religious services, arts and entertainment services, hospitality services, services provided by the government, parking services, culinary or catering services.
Digital VAT
Since July 1 2020, the Government of Indonesia has regulated the VAT charges on the use of intangible goods or services originating from other countries through electronic systems or trading activities (PMSE). The PMSE VAT collection is carried out by an application provider company appointed by the government. This policy was issued in response to the increasing use of intangible goods or services in digital form, such as streaming services and other digital product transactions.
VAT Income Tax Credit
When levying VAT, sellers of BKP and JKP are obliged to issue proof of collection or tax invoice that can be used as income tax by the buyer. The input tax can be credited as an output tax at each of the same tax periods.
Land and Building Tax
Land and Building Tax (PBB) is a levy on land and building that provide economic and social benefits to an individual or corporation. PBB is generally classified into urban and rural
sectors (PBB P2) and PBB for mining, forestry and plantation (P3B) sectors. The PBB P2 collection activity has become the responsibility of the local government of either the Regency or Municipality. The PBB P3 collection is organized by the authority of the central government, through the DGT.
The owed-PBB calculation refers to the taxable selling value (NJKP), which is between 20% to 100% of the selling value of the tax object (NJOP), multiplied by the applied rate of 0.5%. The amount of NJOP is determined by the Minister of Finance every three years. Taxpayers are required to register the land and/or buildings ownership to Tax Office (KPP), Tax Services, Dissemination and Consultation Office (KP2KP) based on the __cpLocation of the taxable PBB object.
Stamp Duty
Starting in 2021, based on Law No. 10 Year 2020, stamp duty will be subject to a single tariff of IDR 10,000. The new law introduces a new form of electronic stamp duty for electronic documents. The new electronic stamp will contain unique codes and specific descriptions. The use of electronic stamp duty will be regulated in a new MoF Regulation. Several new documents now require stamp duty under the New Stamp Duty Law, among others:
- Securities transaction documents, including securities trading confirmations. However, the DGT has clarified that an implementing regulation will be issued on securities trading confirmations;
- Auction documents;
- Any document mentioning a value exceeding IDR 5 million, which may take the form of a receipt of payment or acknowledgement of a debt payment or settlement, whether entirely or partially; and
- Other documents to be stipulated in a government regulation.