Corporate Income Tax in Indonesia

Tax rate 

Indonesia’s corporate income tax rate is set at 22 percent for the 2023 fiscal year.

Contributing Advisor

Meizaroh

Assistant Manager, Corporate Accounting Services

Entities that pay corporate income tax in Indonesia can receive certain facilities based on established conditions:

• Companies that are listed on the stock exchange that offer the minimum requirement of 40 percent of total share capital are subjected to a three percent tax cut from the standard rate;
• Companies that have an annual turnover of 50 billion rupiah (US$3.5 million) are eligible for a 50 percent tax cut from the standard rate, which is imposed proportionally on the part of the gross turnover of up to 4.8 billion rupiah (US$336,000); and
• Companies with gross turnover of no more than 4.8 billion rupiah (US$336,000) are subject to a 0.5 percent tax on total turnover.

Tax residency

A company is treated as a resident in Indonesia if it is incorporated and conducts business in the country. A foreign company conducting business through a permanent establishment will be subject to the same tax rates as a resident company. A non-resident company is incorporated overseas but generates revenue from Indonesia.

Tax payments and deadlines

Resident taxpayers must pay their tax liabilities either by direct payments, third party withholdings, or through a combination of both.

The deadline for the annual corporate tax payment is on the fourth month after the financial year-end. Furthermore, income tax returns must be filed by the end of the fourth month after the end of the company’s reported tax year.

Businesses in Indonesia commonly use the calender year as the tax year i.e., 1 January to 31 December. However, the tax year will follow the company’s financial year as declared in the article of association.

Tax incentives

Companies that invest a certain amount in one of the 246 business lines that are deemed a ‘priority sector’ by the government will be afforded fiscal and non-fiscal incentives.

Fiscal incentives include a 50 percent corporate income tax reduction for investments between 100 billion rupiah (US$6.6 million) and 500 billion rupiah (US$33.3 million) for a period of five years and 100 percent CIT reduction for investments over 500 billion rupiah (US$33.3 million) for a period between five and 20 years.

To classify as a priority sector, business enterprises must meet the following criteria:

• Must be labor intensive;
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• Must be capital intensive;
• Must be part of a national project/program;
• Must be export-oriented;
• Must involve a pioneer industry (renewables, oil refining, metals, etc.);
• Must utilize advanced technologies; and
• Must implement research and development activities.

Deductible expenses

As part of the CIT calculation, businesses must understand what deductible expenses they are entitled to. Business expenses related to the collecting, earning, and maintain of income are deductible.

These include:

• Expenses related to business activities such as salary expenses, royalties, rent, and material expenses;
• Promotion expenses such as for electronic and print media; and
• Donations for charities, research and development initiatives, or educational facilities. However, the institution that receives the donation must be a registered taxpayer, the donation is documented, and should not be more than five percent of the previous year’s fiscal profit.

What are considered disallowed deductions?

Disallowed deductions include:

• Private expenses;
• Income tax payments;
• Tax penalties;
• Employer contributions for health and life insurance unless these contributions are treated as part of the taxable income of the employees;
• Non-business donations/gifts; and
• Compensation received by partners in a partnership.