Discover the ins and outs of income tax in Indonesia. From individual tax rates to deductions, this comprehensive guide provides valuable insights for individuals and businesses. Understand how Indonesian income tax regulations impact your financial planning and explore a global workforce sourcing platform for diverse industry needs.
Table of Contents
Employers have three options for calculating personal income taxes:
- Employee salaries are classified as gross, and tax is calculated on this, withheld from the employee, and paid to the tax office through the banking system.
- Employee salaries are classified as Net and then grossed up to establish a gross amount from which tax is calculated to return the remainder to the net amount stated in the employment letter.
- The tax is calculated on a net basis and is considered a fringe benefit.
Employers must ensure that their expatriate employees have followed the most recent policies and paid the appropriate income tax to avoid penalties. Employers should be aware of three types of tax subjects for foreign workers:
- Domestic tax subjects for foreigners who stay in Indonesia for less than 183 days in a calendar year.
- Foreign taxation applies to foreigners who stay in Indonesia for more than 183 days in a calendar year.
- Non-taxpayers include foreigners who stay for less than 183 days and do not earn any income, as well as expatriates listed in Article 36 of Law Number 36 of 2008.
All expatriates living in Indonesia are required to register with the tax office and obtain their own separate tax number (NPWP), as well as pay monthly income taxes, file annual tax returns, and pay tax on income earned outside of Indonesia, less tax paid in other jurisdictions on the additional overseas income.
Individual Tax Rates
The following are the standard tax rates on taxable income received by resident taxpayers:
People who do not have a tax number (NPWP) pay an additional 20% tax on top of the progressive income tax rates listed above.
Depending on the taxpayer’s personal circumstances, the following personal deductions are available for resident individual taxpayers in calculating their taxable income.
|Amount Per Year
|IDR 54.00 mln
|IDR 4.5 mln (IDR 54.00 mln more for a wife whose income is combined with her husband’s)
|IDR 4.5 mln each (up to three individuals related by blood or marriage)
|5% of gross income up to a maximum of IDR 6.0 mln
|Contribution to approved pension fund, e.g. BPJS Ketenagakerjaan
|Amount of self-contribution
|Compulsory tithe (“zakat”) or religious contributions
|Actual amount, if valid supporting evidence is available and certain conditions are met.
Understanding income tax regulations in Indonesia is crucial for individuals and businesses. By familiarizing themselves with individual tax rates and utilizing eligible deductions, taxpayers can optimize their financial planning strategies. Leveraging a global workforce sourcing platform can provide valuable support in tax planning and compliance. Stay informed, seek expert guidance, and fulfill tax obligations to contribute to the nation’s development.
The views expressed in this article are the author’s own and do not reflect Talent’d’s views, opinions or policies.