The Tax System in Indonesia

The tax system in Indonesia is very confusing and indeed complex. In this article, I want to present the main figures and examples of taxes in Indonesia. Based on these basic calculations, you can estimate your business model or reach out to us for further clarifications.

If you opened a company nominally for a KITAS or are operating a zero-activity company:

Accounting for a company with zero turnover

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You don’t need to read the entire article. In this case, you ONLY NEED TO TAKE A FEW NECESSARY ACTIONS EACH YEAR to fully protect your company from inspections. What you need to do after opening your company:

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If you're running or planning to run a business with turnover in Indonesia

Let's start with annual tax.

There are two main types of taxation in Indonesia. At the very beginning of your business, you can choose which system to use:

1 – Final Tax from Gross Income– Turnover Tax. This tax is 0.5% and is paid in the year following the reporting year. The annual tax report is submitted by April, similar to the system in Russia.

This tax is a benefit for new businesses and can be used in two cases:

Depending on which of these factors happens first, your eligibility to use the Final Tax from Gross Income ends.

2 – Annual Tax from Profit – Profit Tax. This tax has a progressive rate, ranging from 11% to 22%of net profit.

A complex formula is used to calculate this tax, but accountants in Indonesia generally estimate it at 16% on average. You can also use this figure to calculate your business model.

This tax system can be chosen when opening the business, and businesses are automatically switched to this system if:

Here’s an approximate breakdown of tax rates based on income:

Income up to 4,800,000,000 IDR – 11%

Income from 4,800,000,000 to 50,000,000,000 IDR – 11–22%

Income over 50,000,000,000 IDR – 22%.

Monthly Taxes

Tax Art 21 – Employee salary tax. This tax has a progressive rate from 5% to 35%, depending on the salary. The higher the salary, the higher the tax.

In Indonesia, just like in Russia, there is a "minimum wage" concept. It varies by region and is reviewed every year. For example, in Gianyar, where our company operates, the minimum wage is 2,900,000 IDR. Legally, you cannot pay less.

The maximum salary that is not taxed is 4,500,000 IDR per person per month.

Additionally, there are mandatory contributions for employees:

(BPJS Health)– Health insurance for the employee. The company pays 5% of the employee’s base salary each month (1% paid by the employee, 4% by the company).

(BPJS Ketenagakerjaan) – Insurance for retirement or accidents. It amounts to 6.24% of the employee’s base salary each month (2.54% paid by the employee, 3.69% by the company).

Tax Art 23 – Contractor tax. It ranges from 2% to 4% of the payment made to a contractor for services. If the contractor has a tax number and license, the tax will be 2%. If not, it will be 4%. This tax is not paid by the company but by the contractor. You only withhold it from the contract amount and pay it to the government. Your tax advisor can easily calculate this for you.

Tax art 26 – Tax for hiring foreign specialists – 20%. This is quite a high tax and is applied to any amount. Like the previous tax, it is paid not by the business but by the service provider, and you withhold it. However, it's never pleasant for someone to have 20% of their salary withheld as tax.

This tax is often used when a local business hires, for example, a sales manager based in Russia. In such cases, you can sign an official contract, for instance, for 30,000,000 IDR per month:

Tax Art 4 (2) – Tax on dividends/rent/lease – 10%. The money earned by the company is its property, so withdrawing net profit is always subject to a dividend tax. Dividends can be withdrawn at any time, and your accountant will typically coordinate the dividend payout when the company has actual profits.

If you rent an office/land for production/a building, the tax is also 10%. This tax is officially withheld from the landlord, but in practice, many locals don't pay this tax. They are often unwilling to give up 10% of their income, so you may have to bear the tax burden yourself.

You can reduce this tax by using a nominal lease agreement, but make sure the rent price is close to the real market value. Avoid setting a rent of 100,000 IDR when the actual market price is 5,000,000 IDR for a similar property. Such an agreement could trigger a tax audit.

VAT Overseas - Value-added tax (VAT) – 11%. This is similar to VAT in other countries. It is paid for using services from foreign companies, and it mostly affects businesses renting out properties on platforms like Booking or Airbnb.

This tax is withheld from the platform's commission, not from the rent price.

To avoid this extra cost and lower the platform's commission, use local services like Traveloka to attract clients instead.

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VAT (Value-Added Tax) – The primary tax of 11% on sales (excluding real estate sales). This tax is only applicable in two main cases:

In such cases, you are required to pay 11% on every sale. This is why it’s important to categorize business activities based on turnover. Sometimes, it’s more cost-effective to open a new company rather than paying an additional 11% on every sale. This tax is not withheld from the customer; it is paid directly by the business.

PHR - Local tax for hotels and restaurants – 10%. You’ve likely noticed a note at the bottom of the menu in warungs and cafes, marked with an asterisk. This is the local tax. As you may have guessed, this tax is collected from the customers and then paid to the government.

Café, restaurant, and hotel owners in Bali often include a service charge of 5%-7%. In some cases, I’ve seen service charges as high as 15%. This is not a mandatory payment to the government but a policy of the establishment. Businesses usually use these service charges to cover mandatory employee insurance under Tax Art 21.

In this article, I’ve only covered the main variations of taxes for the most common business types and primary expenses. Your business is undoubtedly unique.

If you want more detailed advice on:

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