If expanding into Indonesia is your next big move, understanding its tax system is your best strategy. The more you understand the system, the smoother your entry and operation. Let’s explore what every foreign-owned company should know about corporate tax in Indonesia.
Understanding the Basics of Corporate Tax in Indonesia
Foreign-owned companies operating in Indonesia are subject to several key tax obligations that ensure they remain legally compliant and in compliance with local regulations.
Here’s the basic corporate tax you need to understand:
1. Corporate Income Tax (CIT)
Foreign companies with a permanent establishment (PE) in Indonesia pay corporate income tax at 22% on their net taxable income. Publicly listed companies that meet certain conditions may enjoy a lower rate of 19%, while small businesses can qualify for reduced or final tax rates based on their turnover.
Non-resident companies without a PE, on the other hand, aren’t subject to full CIT but pay withholding tax on income earned in Indonesia.
2. Branch Profit Tax
Foreign company branches are subject to a 20% branch profit tax on profits remitted abroad. However, this rate can be lower depending on applicable tax treaties.
3. Withholding Tax (WHT)
Payments such as dividends, interest, royalties, and certain services are subject to withholding tax, generally ranging from 10% to 20%, depending on Indonesia’s double tax agreements.
Companies must maintain accurate records in the Indonesian language and Rupiah, file monthly and annual tax returns, and ensure timely tax payments to avoid penalties.
Corporate Income Tax Rates, Deductions, and Filing Requirements
Source: Freepik
Corporate income tax (CIT) in Indonesia for 2025 is set at 22%, following a reduction from 25% under Law No. 6 of 2023. The rate may vary depending on company type and structure:
- Public companies listed on the Indonesia Stock Exchange (IDX) with at least 40% of shares publicly owned enjoy a reduced 19% rate.
- Small and medium enterprises (SMEs) with annual gross turnover below IDR 4.8 billion may qualify for a 0.5% final tax rate on turnover for up to three years, depending on certain conditions.
In terms of deductions, companies can deduct expenses that are directly related to business operations, including:
- Employee salaries and benefits.
- Operational costs such as rent, utilities, and maintenance.
- Depreciation and amortization.
- Interest expenses supported by valid documentation.
Meanwhile, non-deductible expenses generally include:
- Costs unrelated to business income.
- Fines, penalties, and donations not tied to business activity.
- Expenses without proper receipts or records.
For tax filing, companies must submit an annual corporate tax return. The fiscal year usually follows the calendar year, unless approved otherwise. Returns and tax payments must be completed within four months after the fiscal year ends. Late filing or payment can lead to penalties and interest charges.
The submission process is progressively being transformed by digital solutions such as Coretax, which streamlines tax filing, payment, and record-keeping through automation and user-friendly interfaces, reducing the risk of errors and improving compliance efficiency.
Withholding Tax on Cross-Border Transactions
Withholding tax (WHT) in Indonesia applies to payments made to foreign parties for income sourced from Indonesian business activities. This includes:
- Dividends paid to overseas shareholders.
- Interest on loans from foreign lenders.
- Royalties for the use of intellectual property.
- Technical and professional service fees.
- Other cross-border service payments are connected to business in Indonesia.
The standard WHT rate for these transactions is 20%, though it can be reduced under applicable tax treaties.
Indonesia currently has double tax avoidance agreements (DTAAs) with more than 70 countries, designed to prevent double taxation and encourage investment. These treaties often lower WHT rates on dividends, interest, royalties, and certain service payments.
To benefit from treaty relief, foreign investors must provide a valid Certificate of Domicile (Form DGT-1 or DGT-2) from their home country’s tax authority. This form must be submitted to the Indonesian tax office at the time of payment to confirm eligibility for reduced rates. Without it, the full 20% withholding tax applies.
VAT and Luxury Goods Tax
In Indonesia, Value Added Tax (VAT) applies to most goods and services. Businesses with an annual turnover above IDR 4.8 billion (around USD 309,500) must register as VAT taxpayers. Once registered, companies are required to charge 11% VAT on taxable goods and services.
Some transactions may qualify for special treatment:
- 0% VAT applies to exports and certain international services.
- Exemptions may be granted for specific goods and sectors defined by regulation.
VAT also covers cross-border services and imports of goods or intangible assets used within Indonesia to ensure a broad and fair taxation for consumption.
Alongside VAT, Indonesia imposes a Luxury Goods Tax (LGT) on high-end or non-essential items such as:
- Luxury cars and motorcycles.
- Yachts and private aircraft.
- Jewelry, cosmetics, and certain manufactured goods.
LGT rates typically range from 10% to 75% depending on the category. These taxes primarily target luxury retail, automotive, and manufacturing sectors. Starting in 2025, some luxury items will be subject to a revised 12% VAT rate to strengthen fiscal sustainability.
For compliance, companies must:
- Register with the Directorate General of Taxes (DGT).
- Issue valid tax invoices.
- File monthly VAT returns.
- Maintain clear documentation for imports and cross-border services.
Tax Incentives for Foreign Investors in Priority Sectors
Source: Freepik
Indonesia has specific incentives for foreign investors in priority sectors aligned with national development goals, especially manufacturing, green energy, and digital industries.
These incentives are designed to make investment easier and more rewarding:
1. Corporate Income Tax (CIT) Holiday
Investors can enjoy CIT exemptions or reductions for 5 to 20 years, depending on investment size and location:
- Investments between IDR 100–500 billion (around USD 6.6–33 million) qualify for a 50% CIT reduction for five years.
- Investments over IDR 500 billion can receive a full CIT exemption for up to 20 years.
2. Tax Allowances
Companies may deduct up to 30% of their investment value from taxable income over six years, along with accelerated depreciation and amortization benefits.
3. Reduced Withholding Tax and Extended Loss Carryforward
Dividends paid to foreign shareholders can benefit from a lower 10% withholding tax, while losses may be carried forward for up to 10 years, providing more flexibility for business growth.
4. Enhanced Incentives in Strategic Areas
Businesses operating in Special Economic Zones (SEZs) or the new capital city, Nusantara, enjoy extended tax holidays and additional exemptions, particularly for projects in infrastructure, public services, and the digital economy.
Coretax and the Future of Compliance
Indonesia’s Core Tax Administration System (Coretax) integrates registration, reporting, payment, and compliance into one centralized digital platform to make tax management simpler, faster, and more transparent.
For businesses, especially corporate taxpayers, Coretax brings efficiency and reliability through:
- Real-time data integration that reduces manual input and human error.
- Automated workflows that simplify filing and ensure deadlines are met.
- Centralized reporting that improves accuracy and traceability across all tax activities.
To prepare for Coretax adoption, foreign-owned and local companies alike should:
- Review and update their internal digital systems for data compatibility.
- Conduct data cleaning and audits to ensure accuracy before integration.
- Train key staff to understand Coretax features and reporting functions.
- Strengthen cybersecurity measures and assign authorized users with digital certificates.
- Keep documentation current to stay ready for digital audits.
Why Subang Smartpolitan is the Right Environment for Global Companies
Subang Smartpolitan is part of Special Economic Zones and a government-recognized industrial zone with complete, well-planned, and eco-friendly infrastructure. This makes it easier for companies operating there to qualify for Coretax tax incentives.
The connection between Subang Smartpolitan and Coretax Indonesia can be seen through BYD. As a recognized industrial zone, Subang Smartpolitan allows companies like BYD to access Coretax tax incentives, such as tax holidays for green and high-tech investments.
The area also partners with PLN to provide 650 MW of reliable, clean electricity, backed by renewable energy certificates (REC) and new renewable energy initiatives (EBT). This ensures companies pursuing green investments under Coretax regulations have a sustainable and dependable power supply.
Be Part of Indonesia’s Next Industrial Revolution
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Enjoy ready-to-operate facilities, easy investment support through Suryacipta Centre of Informations, and easy access to ports and airports for faster export readiness. Built on cutting-edge Industry 4.0 technologies like IoT and 5G, it creates an ultra-efficient, transparent ecosystem tailored for today’s global companies.
Take the first step toward your legacy today. Visit Subang Smartpolitan or contact our team to reserve your opportunity!
FAQ
- Who must register for corporate tax in Indonesia?
All companies operating in Indonesia, including foreign-owned entities and permanent establishments, must register with the Directorate General of Taxes. - What qualifies as a permanent establishment?
A PE arises when a foreign company has a fixed place of business or conducts activities in Indonesia for more than six months. - How does Indonesia’s withholding tax system work?
Companies must withhold taxes from payments to foreign recipients and remit them to the government. Treaty relief can apply with valid documentation. - When must companies register for VAT?
Businesses exceeding the VAT threshold must register as taxable entrepreneurs and issue VAT invoices on transactions. - What does Coretax change for foreign companies?
Coretax consolidates multiple tax submissions into one digital platform, allowing online payment, filing, and monitoring.