Personal taxation in Bali
Effective personal income tax rate
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A resident individual is taxed on his/her worldwide gross income, less allowable deductions and nontaxable income. A nonresident is taxed only on Indonesia-source income.
An individual is resident if he/she is present in Indonesia for 183 days or more in any 12-month period, or present in Indonesia in the fiscal year and intends to reside in Indonesia. An individual is nonresident if he/she is present in Indonesia for less than 183 days with no intention to reside in the country. A nonresident is not required to register for tax purposes.
The family is considered a single economic unit; therefore, joint filing is required. Separate filing is allowed only if there is a prenuptial agreement between the husband and wife.
Personal tax rates are 5% on the first IDR 50 million of annual taxable income; 15% on amounts exceeding IDR 50 million up to IDR 250 million; 25% on amounts exceeding IDR 250 million up to IDR 500 million; and 30% on amounts exceeding IDR 500 million.
Deductions and allowances
An individual who carries on a business may deduct expenses from business income. Expenses generally are deductible if they are incurred for the purposes of generating income. Allowances are provided for the taxpayer, the taxpayer’s spouse and up to three dependent children.
Taxable income includes profits from employment, a business, capital gains, etc.
Capital gains derived by an individual are taxed as ordinary income at the normal rates; gains on shares listed in Indonesia are taxed at 0.1% (final tax) of the transaction value. An additional tax of 0.5% applies to the share value of founder shares at the time of an initial public offering. Gains on the disposal of land and/or buildings are taxed at 5% (final tax) of the transaction value.
Other taxes on individuals
There are no taxes on capital or assets, apart from the land and building tax.
Real property tax
Land and building tax is payable annually on land, buildings and permanent structures. The rate typically is no more than 0.3% of the sales value of the property. The acquisition of land or a building is subject to a duty of 5% of the acquisition value. Each taxpayer is entitled to a nontaxable threshold of a minimum of IDR 60 million.
Employed resident individuals must make social security contributions (old age savings) in an amount equal to 2% of monthly compensation, and a pension plan contribution of 1%. An employed individual also must make a healthcare contribution of 1% of monthly compensation (subject to a monthly cap of IDR 4,725,000). An employee may add other family members, but he/she will be liable to an additional 1% contribution per family member per month.
Certain documents are subject to stamp duty at a nominal amount of IDR 3,000 or IDR 6,000.
Compliance for individuals
Penalties vary depending on the situation, such as late tax payment, late filing, tax underpayment and voluntary amendment of returns. The most common penalty is 2% monthly interest on the tax underpaid.
Filing and payment
Personal income taxes in Indonesia are levied only at the national level. The law makes employers responsible for calculating, deducting and remitting tax due on employees’ salaries and other remuneration. Most nonsalaried taxpayers assess their own taxable income and must file their taxes by 31 March after the close of the previous tax year. Individual taxpayers who conduct a business or independent profession may elect to be exempt from the accounting requirement and only maintain records of revenue. In that case, taxable income is assessed based on deemed profits.
Corporate taxation in Bali
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Resident companies are taxed on worldwide income. Nonresident companies are taxed only on income sourced in Indonesia, including income attributable to a permanent establishment (PE) in the country.
Taxation of dividends
Dividends generally are considered as ordinary income. See also “Participation exemption.”
A company is a resident if it is established or domiciled in Indonesia.
Losses may be carried forward for five years following the year the losses were incurred. Subject to approval from the relevant authority, this period may be extended to 10 years for certain industries and for operations in remote areas. The carryback of losses is not permitted.
Tax incentives are available to entities with capital investments in certain approved industry sectors or those operating in certain geographic locations, if certain conditions are satisfied. Incentives include a 30% tax investment allowance (5% per year), accelerated depreciation/amortization, an extended carryforward of losses up to 10 years and a reduced withholding tax rate of 10% on dividends paid to nonresidents.
The standard corporate tax rate is 25%. A corporate taxpayer (other than a PE) that earns or receives gross income that does not exceed IDR 4.8 billion within a fiscal year is subject to a reduced corporate income tax of 1% of gross income. Resident corporate taxpayers with gross revenue between IDR 4.8 billion and IDR 50 billion receive a 50% reduction in the corporate tax rate imposed on the taxable income that is attributable to gross revenue up to IDR 4.8 billion.
Dividends received or derived by a resident company from a participation in an Indonesian limited liability company are exempt from tax if the recipient holds at least 25% of the shares of the payer and the dividends are distributed from retained earnings.
Foreign tax credit
Resident companies deriving income from foreign sources are entitled to a unilateral tax credit with respect to foreign tax paid on the income. The credit is limited to the amount of Indonesian tax payable.
Taxable net income is defined as assessable income, less tax-deductible expenses.
Capital gains are taxable as ordinary income, and capital losses are tax-deductible. Certain transactions are taxed
Other taxes on corporations
Certain documents are subject to stamp duty at a nominal amount of IDR 3,000 or IDR 6,000.
Comprehensive social security schemes, i.e. a manpower scheme (BPJS Ketenagakerjaan) and a healthcare scheme (BPJS Kesehatan) are applicable for Indonesian nationals, as well as foreigners who work in Indonesia for at least six months. Contributions to the manpower scheme are intended to provide security insurance for work accidents, death, old age and pensions. The employer contributions are 0.24%-1.74% for work accident protection; 0.3% for death insurance; 3.7% for old age savings; and 2%, with a certain cap on the salary, for the pension plan. The employer contribution for the healthcare scheme is 4%.
The sale of shares listed on the Indonesian stock exchange is subject to a final tax of 0.1% of the transaction value; an additional tax of 0.5% applies to the share value of founder shares at the time of an initial public offering. The transfer of the shares of an unlisted resident company by a foreign shareholder is subject to withholding tax of 5% of the transfer value, unless an exemption applies under a tax treaty.
The acquisition of land or a building is subject to a duty of 5% of the acquisition value.
No, but various registration fees apply.
Real property tax
Land and building tax is payable annually on land, buildings and permanent structures. The rate typically is not more than 0.3% of the sales value of the property. The land and building tax for certain businesses (i.e. oil and gas, geothermal, mining, plantation, forestry) is regulated under a specific regime.
Compliance for corporations
Consolidated returns are not permitted; each company must file a separate return.
Penalties vary depending on the situation, such as late tax payment, late filing, tax underpayment and voluntary amendment of returns. The most common penalty is 2% monthly interest on tax underpaid.
The Minister of Finance and the Director General of Taxation may issue rulings in certain cases, such as on the tax effects of a proposed transaction.
The tax year generally is the calendar year, although a corporate taxpayer can elect to file a corporate tax return based on the book year.
The monthly tax installment system is a self- assessment system, with tax due on the 15th day of the calendar month following the tax-assessment month. Monthly tax returns must be filed by the 20th day of the following month. Annual corporate tax returns must be filed within four months of the end of the book year.
Other taxation in Bali
Value added tax
Filing and payment
A monthly VAT return must be filed by the end of the following month, while the monthly VAT payment deadline is before the VAT return is filed.
The standard rate is 10%. VAT on exports of taxable goods and certain taxable services is zero rated. Zero-rated export services are limited to: toll manufacturing services; repair and maintenance services attached to or for movable goods utilized outside the Indonesian customs area; and construction services attached to or for immovable goods located outside the Indonesian customs area.
VAT is levied on the “delivery” of taxable goods and the provision of taxable services. In general, delivery means sale, but this is not always the case. VAT also applies to intangible goods (including royalties) and to virtually all services provided outside Indonesia to
Controlled foreign companies
The Ministry of Finance is authorized to determine when a dividend is deemed to be derived from a foreign company established in another country, where an Indonesian resident taxpayer holds at least 50% of the paid-up capital of the foreign company or, together with other resident taxpayers, holds at least 50% of the paid-up capital. This applies only if the foreign company does not trade its shares on the stock exchange. If no dividends are declared or derived from the offshore company, the resident taxpayer must calculate and report the deemed dividend in its tax return; otherwise, the Ministry of Finance will do so. The dividend is deemed to be derived either in the fourth month following the deadline for filing the tax return in the foreign country, or seven months after the offshore company’s tax year ends if the country does not have a specific tax filing deadline.
A taxpayer must provide certain information regarding transfer pricing transactions with related parties in an attachment to the annual tax return. The information will be maintained by the tax authorities, and may be tested by tax auditors in the course of a tax audit.
Transactions between parties that have a special relationship must be carried out in a “commercially justifiable way” and on an arm’s length basis. Documentation is required, which should at least include an overview of the taxpayer’s business operations and structure, its transfer pricing policy, a comparability analysis, selected comparables and an explanation of how the arm’s length price or profit was determined (including the transfer pricing methodology). The Indonesian tax authorities have issued detailed transfer pricing guidelines, which, in principle, are in line with the OECD’s approach.
Starting from fiscal year 2016, a certain portion of interest arising from debt is nondeductible for tax purposes if the taxpayer’s debt-to-equity ratio exceeds 4:1, except for certain industries.
Foreign exchange control
The rupiah is freely convertible. However, approval of Bank Indonesia (the central bank) must be obtained before taking IDR 100 million (or its equivalent in foreign currency) or more out of the country. A person carrying IDR 100 million (or its equivalent in foreign currency) or more into the Indonesian customs territory must verify the authenticity of the funds with Indonesian customs upon arrival.
Accounting principles/financial statements
Indonesian GAAP applies.
Principal business entities
The limited liability company (Perseroan Terbatas, or PT) is the most common form of business entity in Indonesia. Foreign companies are allowed to set up a PT. Branches of foreign corporations normally are not permitted, except for in construction, oil and gas and banking services. Foreign companies should refer to the negative investment list for sectors that are closed (entirely or partially) to foreign investment.
Dividends paid to a nonresident are subject to a 20% withholding tax (which is considered a final tax), unless the rate is reduced under a tax treaty. Dividends paid by a domestic corporate taxpayer to a resident company are subject to a 15% withholding tax, which represents an advance payment of tax liability. A 10% final withholding tax is imposed on dividends paid to a resident individual.
Branch remittance tax
A 20% branch profits tax is imposed on the after-tax profits of a PE. This rate may be reduced under a tax treaty.
Technical service fees
A 2% withholding tax applies on gross payments made by a domestic taxpayer to a resident taxpayer for technical, management and consulting services and rentals (except for land and building rentals, which are subject to a 10% final withholding tax). Under domestic tax law, a 20% withholding tax is imposed on technical service fees remitted abroad. The rate may be reduced or an exemption may apply under a tax treaty.
Interest paid to a nonresident is subject to a 20% withholding tax, unless the rate is reduced under a tax treaty.
A 20% withholding tax is imposed on royalties remitted abroad, unless the rate is reduced under a tax treaty. For tax purposes, “royalties” refers to any charge for the right to use certain tangible or intangible assets, as well as the transfer of a right to use intangible assets.
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