ACCOUNTING & CORPORATE TAX

Law Number 7 of 1983 regarding Income Tax as amended several times, lastly by Law Number 6 of 2023 Corporate Income tax is a key obligation for companies operating in Indonesia. Understanding the latest regulations, risks, reporting periods, penalties, and filing process can help businesses stay compliant and avoid unnecessary costs. This guide will cover all the essential aspects of corporate income tax in Indonesia as of 2024.

Overview of Corporate Income Tax in Indonesia

Corporate income tax, or Pajak Penghasilan Badan (PPh Badan), applies to both local and foreign companies operating within Indonesia. Resident companies are taxed on their worldwide income, while non-resident companies are only taxed on Indonesian-sourced income. Compliance is mandatory, and strict enforcement means that even minor oversights can lead to significant penalties.

Latest Corporate Income Tax Regulations in Indonesia

The Indonesian government frequently updates tax regulations to stay aligned with economic policies and international standards. As of 2024, the main points include:

• Resident corporate taxpayers and permanent establishments (PEs) in Indonesia are generally subject to a corporate income tax rate of 22%. However, public-listed companies that meet certain criteria—such as having at least 40% of their shares traded on the Indonesian stock exchange—are eligible for a reduced tax rate of 19%.
• Resident corporate taxpayers with annual gross revenue of IDR 50 billion or less can apply for a 50% reduction in the income tax rate (from 22%) under Article 31E of the Income Tax Law. This reduced rate is applied to a proportion of taxable income, with the benefit extending to the first IDR 4.8 billion of gross revenue.
• Micro, small, and medium enterprises (MSMEs) with gross revenue below IDR 4.8 billion, a final income tax rate of 0.5% on gross turnover may be applied for up to three years for limited liability companies, or four years for cooperatives, partnerships without share capital, or firms.

These regulations are managed by Indonesia’s Directorate General of Taxes (DGT), which continually revises rules to ensure fairness and compliance.

Corporate Income Tax Reporting Periods

Companies are required to report their corporate income tax on both a monthly and annual basis. Key deadlines include:

• Monthly Tax Reporting: Companies must file a monthly tax return (SPT Masa Pajak) by the 20th of the following month. This report includes any income tax payments and withholdings for the period.
• Annual Tax Reporting: The annual corporate income tax return (SPT Tahunan Pajak Badan) is due by the end of the fourth month after the fiscal year ends (usually April 30).

Penalties for Non-Compliance

Failure to comply with Indonesia’s tax regulations can result in significant financial penalties, including:

• Late Filing Penalty: A fine of IDR 1.000.000 applies for late filing of the annual tax return, while a delay in submitting the monthly report incurs a fine of IDR 100,000.
• Underpayment Penalty: If the DGT determines that taxes are underpaid, a penalty of 2% per month is applied on the unpaid amount.
• Interest Penalty: Delays in monthly tax payments incur interest charges on the outstanding tax balance.

Regular audits are conducted by the DGT, and penalties are strictly enforced, making timely and accurate reporting essential.

Risks and Challenges for Companies in Indonesia

The corporate income tax landscape in Indonesia presents several risks and challenges:

• Complex Tax Code: With multiple rates, exemptions, and sector-specific incentives, Indonesia’s tax code can be complex to navigate, particularly for foreign companies unfamiliar with local practices.
• Audit Risks: Indonesia’s tax authority frequently conducts audits, particularly for sectors that attract foreign investment. Audits often scrutinize transfer pricing practices, and companies must provide detailed documentation.
• Risk of Double Taxation: For companies with income streams in multiple countries, there is a risk of double taxation. Indonesia has established tax treaties with over 60 countries to mitigate this risk, but treaty application requires careful adherence to the specific terms.

Best Practices for Compliance

To ensure compliance and avoid penalties, companies in Indonesia should:

• Maintain Accurate Records: Keep thorough records of all income, expenses, and tax payments. This ensures accurate reporting and provides necessary documentation for audits.
• Leverage Tax Advisory Services: Tax professionals can help navigate complex tax codes, ensuring accurate filing and identifying potential deductions.
• Stay Informed on Tax Changes: Regularly review updates from Indonesia’s tax authority to ensure adherence to new regulations or rate adjustments.

Navigating corporate income tax obligations in Indonesia can be complex, but with a proactive approach, companies can remain compliant and minimize risks. Staying updated on the latest tax regulations, maintaining accurate records, and filing reports on time are crucial steps to avoid costly penalties. For companies unsure about the tax landscape, partnering with a tax advisor is highly beneficial.

Disclaimer

The information provided here is based on our long experience. The process or requirement may vary depending on the specific facts and conditions. Besides, the law and regulations in Indonesia subject to frequent changes. Please contact us as your consultant to get an up to date information and accurate advice. More Information click here and You can also follow our social media accounts to see the latest information posts. please click on the following links: Facebook, Instagram, Linkedin, and Twitter.