Expanding to a new market with your company is very exciting and the last thing you want is for your business’ potential to be held back by bureaucracy. While there are vast opportunities in Indonesia, you should keep in mind that the country is in the 137th place in the global index for ease of paying taxes.
There is nothing impossible in understanding the local tax system but it is quite easy to be trampled by it if you fall behind with deadlines and ignore regulations. The Indonesian tax authorities also have a tendency to concentrate on companies that have had problems with compliance in the past.
The tax system here is utterly more complicated than we can serve you in a short article like this but we will give you the basics of the system including tax deadlines, warnings and most importantly – recommendations.
Before we get into it
Emerhub has put together a video about our corporate compliance service of which tax reporting is a part of. We suggest you have a look at this to get an idea of what goes into reporting taxes (and investment plan) in Indonesia.
Now, to tax reporting!
Indonesian tax law
Number one taxpayer mistake made by businesses that enter Indonesia is forgetting that as soon as your company is registered as tax payer/tax resident, it is required to settle your tax liabilities either by direct payments, third party withholdings, or combination of both.
Except for corporate and individual income taxes, these taxes are accounted for on a decentralized basis. So, different provinces and regions collect their own tax data – making the reporting process a bit more complicated if you have branches in different districts. Remember: tax reports are filed to the district’s tax office where your company is registered.
Monthly tax obligations
Here are the monthly tax dates that you need to keep up with:
It is good to remember that any underpayment of monthly tax payments must be settled before submission of the annual tax return.
Annual tax obligations
Taxable business profits are calculated on the basis of universal accounting principles. In general, deductions are allowed for all expenditures incurred.
Annual tax reporting needs to be done within these deadlines:
Warnings to consider when reporting taxes in Indonesia
An interest penalty of 2% per month is imposed on late payments, with a maximum of 48%. Even if you go over the deadline just one day, it qualifies as a full month. If you are late or fail to file a tax return you will be charged with an administrative fee:
Failure to file a tax return by the relevant deadline may lead the taxman to issue a warning letter. A warning letter will typically require you to file the tax return within 30 days of the warning letter date. Ignoring such a letter can prompt them to issue an ex-officio tax assessment along with an administrative penalty of 50% of the assessed tax. Yes, that can turn out to be a lot of money.
Issuing a defective VAT invoice, not issuing, or late in issuing VAT invoice will result in a penalty equivalent to 2% of the taxable base.
Tax audits and disputes
Other than the standard regulations that are quite universal with financial and accounting disputes, there are things to keep in mind with tax reporting in Indonesia:
- Where a return is lodged showing an overpayment of tax, this will automatically trigger a tax audit.
- The statute of limitations in taxation matters is 5 years.
- You are required to submit all data/documents within one month from the date of request by tax authorities. Data/documents that were not provided during the tax audit process will not be considered in the tax objection process.
- You may appeal to the Tax Court against a tax office’s decision. This has to be done within 3 months from the date of receiving the decision.
For tax purposes, there is no statutory requirement for an audit of your accounts by a public accountant. Meaning that if you do not make obvious mistakes or miss deadlines the Tax Authority will be unlikely to take periodical interest in you.
Recommendations for reporting as PT PMA
Create several legal entities
Remember that the tax your company pays when your company goes over 4,8 billion rupiah revenue jumps from 1% revenue to 25% of income. This is a big jump and can be avoided by creating an extra PT PMA. As a classic move it will save you a substantial amount of money.
If your company is newly established and your turnover is not enough to sustain a permanent staff of accountants, you will need to outsource bookkeeping to an external party. This is because a PT PMA needs to start reporting its taxes and investment plan as soon as the company is registered – even if there is absolutely no activity.
We know this is a hassle for a starting company and diverts attention from dealing with the core business. Emerhub offers a corporate compliance service that will take care of your tax and investment plan reporting.
We have tried to make as condensed of an article as possible without boring the life out of you. There is of course a lot more that our accountants need to deal with in taxation matters and they consider tax guides by the major corporate players such as PwC, Deloitte or even HSBC, trustworthy.
That being said, keep in mind that Indonesia is a country in transition and regulation gets changed frequently. Because of this, it makes sense to turn to a consultation company before starting your activities. You are likely to gain knowledge and insight by doing so or expose yourself to a lot of risk by not speaking to a specialist.