Complete Guide to Individual Income Tax Filing in Indonesia

Understanding the individual income tax filing process in Indonesia is essential for compliance and efficient financial management. Through understanding and adherence to the following guidelines, individuals can ensure they meet their tax obligations effectively, avoiding legal complications and optimizing their financial planning.

Contributing Advisor

Putwi Firdayanti

Assistant Manager, Corporate Accounting Services

Tax residency

Tax residency in Indonesia is a key concept that significantly influences one's tax obligations. Residents are subject to taxation on their worldwide income, which highlights the importance of understanding one's residency status to effectively manage tax liabilities.

Residency status criteria

• Presence in Indonesia for over 183 days in a year.
• Having a habitual place of residence that is consistently accessible, not merely a transit location.
• Demonstrating vital personal and economic ties to Indonesia.
• Possession of documents like permanent or limited stay permits to substantiate residency intent.

Foreigners’ residents’ taxation

Upon establishing tax residency, foreigners are subject to tax on all income sourced within Indonesia with the following details:

• Foreigners meeting residency criteria are taxed on all income sourced within Indonesia.
• Eligibility for territorial taxation for the first four years of residency, limiting tax liability to Indonesian-sourced income.
• Qualification for territorial tax requires specific skills and a commitment to transferring knowledge to Indonesian citizens.

Exempted individuals

Certain categories of foreign expatriates are not classified as Indonesian tax residents, despite potentially spending extensive periods within the country.

This status effectively exempts them from paying Personal Income Tax (PIT) even if they fulfill the general criteria of residency based on the duration of their stay or their intent to reside in Indonesia.

The specific groups that benefit from these exemptions include:

• Foreign Diplomatic and Consular Personnel: Individuals in these roles are typically exempt from tax obligations in the host country as per international diplomatic laws and agreements.
• Military Personnel and Civilian Employees of Foreign Armed Services: This group consists of individuals serving in the military or as civilian staff within foreign armed forces, exempted under various defense and bilateral agreements.
• Representatives of International Organizations: This exemption applies to individuals working for international bodies, such as the United Nations or the World Bank, as specified by the Minister of Finance or through international treaties to which Indonesia is a signatory.

These exemptions aim to facilitate international cooperation and respect the sovereign legal frameworks established through global and bilateral agreements.

Taxable income overview

Taxable and non-taxable income types

Taxable income in Indonesia includes a variety of earnings such as:

• Employment income;
• Dividends (both onshore and offshore);
• Interest income;
• Royalties;
• Rental income from property (again, both onshore and offshore); and,
• Capital gains from the sale or transfer of assets.

Notably, resident taxpayers with a gross revenue of not more than IDR 4.8 million (USD 299) from certain business activities can opt for a 0.5% final income tax rate calculated from the gross revenue.

Conversely, certain types of income are not typically taxable. For example:

• In-kind benefits provided by employers like;
  • Housing;
  • Food and beverages;
  • Gifts for religious holidays and other events;
  • Health, security, and safety benefits;
  • Vehicle facilities;
  • Work equipment;
  • Sports facilities; and,
  • Employer’s contribution to employee pension funds.

These benefits, however, are not tax-deductible for the employer and could be subject to tax under specific conditions.

Additionally, capital gains from the sale of land or buildings in Indonesia are taxed at a final rate of 5% on the higher of the taxable sale value or actual proceeds, and the sale of shares traded on the Indonesia Stock Exchange incurs a 0.1% final tax on sales proceeds.

Tax rates and brackets

Progressive tax rates for residents

The tax structure for residents is progressive, meaning that the rate of taxation increases as the taxable income increases. This system is designed to ensure fairness, with higher-income earners paying a higher percentage of their income in taxes. The specific brackets for resident taxpayers are as follows:

These rates apply to the annual taxable income, following a self-assessment system where taxpayers calculate their tax due based on these brackets. The monthly withholding tax from January to November is calculated using an Effective Tax Rate (ETR), while the annual reconciliation in December applies these progressive rates.

The ETR is calculated based on the individual’s gross monthly income or an individual’s daily income. Here is a comprehensive table that breaks down the taxpayer categories and their respective Effective Tax Rates (ETR) for both monthly and daily income scenarios in Indonesia:

This table outlines the categorization and corresponding ETR applied to different family statuses for monthly taxed employees and shows the specific tax rates applicable to non-permanent employees who are paid daily. The rates aim to reflect the financial responsibility towards dependents in a progressive manner.

Flat tax rates for non-residents

Non-residents in Indonesia are subject to a different tax regime compared to residents. A flat rate of 20 percent is imposed on their gross income, regardless of the amount. This simplifies the tax calculation for individuals who do not reside in Indonesia but earn income from Indonesian sources.

Specific exceptions include income from the sale of shares in Indonesian companies and certain assets, which are taxed at a final rate of 5 percent on the sales proceeds.

Deductions and allowances

Various deductions are available from the gross income when calculating an individual's annual taxable income in Indonesia. Families are treated as a single tax reporting entity, represented by a single tax identification number (NPWP) held by the family head, who must include the income of their dependent spouse and children in their tax returns.

Employer obligations

Most income tax is collected through employer withholding, which must then be remitted monthly to the appropriate governmental body.

Employee obligations

• Annual tax return: Expatriate employees in Indonesia must file their tax return and calculate their tax liability by March 31 of the following year.
• Statutory withholdings: The majority of Personal Income Tax (PIT) is paid through employer withholdings on earned income.
• Provisional tax payments: For any additional regular income, taxpayers must make monthly provisional tax payments to the tax department, based on the previous year's earnings.

Tax return filing process

In Indonesia, taxpayers have the option to file their tax returns either digitally through the e-filing system or using traditional paper forms. The table below provides the highlighted difference between both methods.

Digital vs. paper filing

Step-by-step guide

Filing an individual income tax return in Indonesia involves several key steps to note. The following steps are:

Step 1: Initial preparation

Taxpayers start by gathering all necessary documentation required for filing the tax return. This includes:

• Tax payment slips to demonstrate that all due taxes have been paid;
• A copy of the Employer’s Certificate of Income Tax on Earnings (Form 1721 – A1);
• A detailed list of liabilities and assets; and,
• For foreign income, any supporting documents for foreign tax paid.

Step 2: Payment verification

Before submission, it is essential to ensure that all tax liabilities for the fiscal year have been settled. This step is critical to avoid any penalties for underpayment which could complicate the tax filing process.

Step 3: Form completion and submission timing

The tax return must account for all income and deductions for the fiscal year running from January 1 to December 31. Taxpayers are required to file their completed tax returns with the Tax Office no later than March 31 of the following year.

Step 4: Requesting an extension

If circumstances prevent timely filing, taxpayers have the option to request an extension. This is done by submitting Form 1770-Y, which extends the filing deadline to May 31.

It is important to note that while this form extends the filing deadline, it does not extend the deadline for tax payments, which remain due by March 31.

Claiming tax credits and rebates

Personal tax residents have the opportunity to reduce their tax liability through various credits and rebates. These tax benefits are designed to reflect taxes already paid during the fiscal year and to avoid double taxation, especially for income earned abroad. Key domestic tax credits include:

• The income tax withheld by employers on employment income;
• Taxes collected on business income;
• Withholding tax on other incomes that are not final in nature; and,
• Provisional monthly tax instalments are made throughout the fiscal year.

Additionally, for income earned outside of Indonesia, foreign tax credits allow taxpayers to claim a credit for taxes paid to foreign governments, though this is capped at the total Indonesian income tax due on that foreign income.

Step-by-step process for claiming tax credits

Gather documentation

The first step in claiming any tax credit is to compile all necessary documentation. This includes proof of income and corresponding tax payments, such as payment slips, tax withholding certificates from employers, and official receipts or statements from foreign tax authorities.

Complete the tax return form

When filling out your annual tax return, you will need to include detailed information on your income and the taxes paid both in Indonesia and abroad. Ensure that the form is completed accurately to include all relevant sections pertaining to tax credits.

Attach proof of tax paid

For both domestic and foreign tax credits, it's essential to attach proof of the tax paid. This could be in the form of withholding tax certificates, business income tax receipts, or official statements from foreign tax bodies.

File tax return by the due date

Submit your tax return by the March 31 deadline. If you're claiming foreign tax credits, make sure the calculations are accurate to avoid claiming more than what is due, as this could lead to discrepancies and possible audits.

Wait for assessment

Once submitted, your tax return will be assessed by the Directorate General of Taxes. During this period, ensure that you are available to respond to any queries or requests for additional documentation.

Receive confirmation

After processing, if all documentation and calculations are verified, the Directorate General of Taxes will confirm the amount of tax credit you are entitled to. This amount will then be applied against any tax due or potentially refunded if it exceeds your tax liability.

Deadlines and key dates

Here is a comprehensive table outlining the key tax filing dates for individual taxpayers in Indonesia:

Compliance and penalties

• Penalties for late submission: Failing to meet tax filing or payment deadlines results in penalties. Late submissions incur an administrative fine of IDR 100,000 (US$ 6.18). Additionally, any taxes due that are paid late are subject to a monthly interest penalty. The interest tax rates vary depending on the month of the late payment, with the highest rate reaching 0,99%.
• Tax registration cancellation: Expatriates leaving Indonesia should ensure that their tax registrations are properly cancelled to prevent being considered continuous tax residents, which involves a tax audit and submission of all relevant tax-related documents to the local tax office.
• Regular monitoring and updates: Regularly checking the Directorate General of Taxes website or consulting with a tax advisor can provide updates on tax legislation and deadline changes, helping taxpayers stay informed and compliant.