Once you have registered a company, it will be subject to various corporate taxes in Bali depending on your business activities and financial performance.
Taxes are a polarising topic. Some foreign business owners in Bali don’t take them seriously until they run into trouble with the local tax authorities. Other aspiring entrepreneurs are so worried about the tax complexities that it prevents them from even opening a company.
In this article, we cover the main types of corporate taxes a company in Bali is subject to. You’ll see that with some planning and proper practices they are neither overly complicated nor time-consuming.
Tax planning prior to launching your business in Bali
Set up good bookkeeping practices
Just like in every other country, there are various universal bookkeeping practices that make recording and paying taxes significantly easier in the long run, such as:
- Keep your personal and company expenses separate
- Use accounting software
- Classify your revenue and expenses in a way that allows you to make management decisions (chart of accounts)
- Track your accounts payable and receivable (another reason to use accounting software from the beginning)
- Record transactions frequently and consistently
Don’t worry if that doesn’t sound like a lot of fun, that’s what professional tax planners are for. Reach out to Emerhub to set up good practices for your company as soon as you start your operations.
In fact, a well set up chart of accounts becomes a powerful tool for running your business – you’ll be easily able to track the profitability of various activities in your business.
Which expenses can you record as a shareholder in Bali?
As a shareholder of a company in Bali, you can record various expenses as your investment into the company. For example, you may buy tools or equipment for conducting your business. Just make sure that you make those expenses from an account that belongs to you and then report it in the quarterly investment report.
If you pay for company goods from your own pocket but expect to get the money back, then make sure that you receive a receipt for the purchase.
If you get a receipt, then the item can be recorded as a reimbursement. However, without the receipt it becomes an allowance and thus you’ll have to pay personal income tax on it.
Common tax planning mistakes
There are two common myths about tax planning in Bali – that it’s either not necessary for small businesses or that it’s very expensive.
In fact, not only is tax planning fairly inexpensive, the earlier it’s done, the more money it will save you in the long run. And perhaps more importantly, well organized bookkeeping and tax reporting allows you to spend much less time worrying about taxes and lets you focus on your core business.
Here are some of the common issues our tax team helps our clients with:
- Transactions are not recorded consistently which leads to incorrect financial reports and can even trigger a tax audit
- Income tax is calculated incorrectly
- Reporting deadlines are missed
- Missing receipts
- Data is scattered between spreadsheets – unclear which invoices have been paid, which clients owe the client money, ec.
Now that you have a general understanding of what to prepare for, let’s look at the two most important taxes companies must pay in Bali – the income tax and the withholding tax.
Corporate income tax in Bali
Any company domiciled in Bali is subject to paying corporate taxes in Bali. Your company is a tax resident regardless of where it generates its income.
Reduced income tax rate for new companies in Bali
New companies in Bali can pay a flat 0.5% income tax (also called the Final tax) from their gross annual revenue as long as they meet the following criteria:
- The company was registered no more than three years ago
- The gross annual revenue is below Rp. 4,8 billion
If your company meets those requirements, the income tax calculation is very simple. You take your gross annual revenue and pay 0.5% of it as income tax. Note that it doesn’t matter whether your company made a profit or not – the tax is calculated from the revenue.
Standard corporate income tax
In 2020, the Indonesian government announced the reduction of corporate income tax rates. While the income tax used to be 25% from the net profit, it was reduced to 22% for the fiscal year of 2021 and to 20% for the fiscal year of 2022.
The corporate income tax is calculated from the net income (profit) of the company.
Reduced income tax for companies with less than Rp. 50 billion revenue
Vast majority of companies in Bali generate an annual turnover of less than Rp. 50 billion. Those companies qualify for a 50% deduction of the income tax rate for the revenue not exceeding Rp. 4.8 billion.
|Annual Gross Revenue||Standard Tax Rate||Tax Facility (50% Discount)||Rate for Revenue not Subject to the Tax Facility|
|Rp. 0-4.8 billion||22 %||11% on the taxable income||n/a|
|Rp. 4.8-50 billion||22%||11% to the proportion subject to the facility||22% to the portion that is not subject to the facility|
|Rp. 50 billion or more||22%||n/a||22% on the taxable income|
Revenue between 4.8-50 billion is the only bracket that is a little bit more complicated to calculate which is why we put together a corporate income tax calculator in Bali:
Withholding tax payments in Bali
Withholding tax is the main way the Indonesian government collects income taxes. The two sources of withholding tax are the personal withholding tax you withhold when paying salaries (the PPH21) and when you pay for goods and services (PPH22).
Who pays withholding tax in Bali?
As a rule of thumb, every time you make a payment, you are expected to withhold tax on it. Essentially you are collecting the income tax on behalf of the recipient of the payment.
This is a common error many companies make that can lead to massive tax liability later on. For example, when you transfer rent to your landlord, you must deduct 10% from the payment. It’s your responsibility not the landlord’s – and if you forgot to cut the withholding tax you essentially just increased your rent by a further 10%.
Withholding tax rates
Withholding tax rates are determined by the type of service offered. The full table is long and out of the scope of this article but your tax advisor will be able to identify which withholding tax deductions apply to your business.
Here are some common examples of withholding tax rates in Indonesia:
|Tax Object||Tax Rate|
|Land and Building Lease||10%|
|Transfer of Land and Building Rights||2.5%|
|Construction Work Planning||4% / 6%|
|Construction Work Performance||2% / 3% / 4%|
|Construction Work Supervision||4% / 6%|
|Salaries and Wages||5% – 30%|
|Import of Goods||7.5% – 10%|
|Services and Lease/Rent of non Land and Building||2% / 15%|
|Services||0% – 20%|
Sending money abroad from Bali
As mentioned in the previous sections, payments made to overseas companies are taxed at 20%. This is unless the recipient is not an Indonesian resident and comes from a country with whom Indonesia has a double tax treaty.
In that case, the recipient needs to fill the DGT form and provide the certificate of domicile. The withholding tax rate is then determined by the agreement between Indonesia and the respective country.
Value added tax
For smaller businesses the value added tax (VAT) registration is usually not required. Namely, the company must register for VAT once the gross annual revenue of the company is above 4,8 billion Indonesian Rupiah. However, it is possible to register the VAT also if the gross annual income is less than that.
The companies who benefit from VAT registration are retail companies or companies who receive many tax invoices on the purchase of goods or services. In such a case the company benefits from VAT registration as they get refunds or compensation on the VAT paid on purchase or the difference between VAT collected (with sales), with VAT paid (with purchases). You can read more about VAT here.
Would you like to discuss your corporate taxes with Emerhub’s tax professionals? Just fill out the form below and we’ll set up a meeting or call.