Taxation affects almost all aspects of doing business in Indonesia. Companies and individuals must understand the taxation system, filing requirements, and tax obligations to comply with Indonesian laws.
Indonesia’s parliament has approved the Harmonized Tax Law (HTL), which overhauls the existing tax structure. Changes include an increase in the value-added tax (VAT) rate, a new carbon tax, scrapped plans to reduce the corporate income tax (CIT), and changes to the topline personal income tax (PIT) rate.
The tax system is still evolving at a rapid pace as authorities seek to improve transparency, compliance, and the ease of doing business in the country. The law aims to optimize tax revenue collection and compliance to aid economic recovery for the country.
In this guide, we discuss:
- Tax laws, their administration, and applicability;
- Tax calculation methods for different taxes;
- Transfer pricing and advance pricing agreements;
- Tax incentives for doing business in Indonesia;
- Audit and compliance; and,
- Indonesia’s accounting standards.
Summary of tax rates
|
Summary of Key Tax Rates in Indonesia (2025) |
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|
Tax |
Standard Rate |
Variations |
Abbreviation |
|
Corporate Income Tax |
22% |
Reduced CIT under certain conditions |
CIT |
|
Value Added Tax on Luxury Goods |
12% |
12%, 0% |
VAT |
|
Value Added Tax on Non-Luxury Goods and Services |
11% |
remains standard in practice (based on “other value” approach via VAT DPP calculation) |
VAT |
|
Withholding Tax |
15%, 20% |
10% under tax treaty with Certificate of Domicile |
WHT |
|
Stamp Duty |
IDR 10,000 (US$0.70) |
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|
Luxury-goods sales tax |
10%-125% |
10%-125% |
|
|
Individual Income Tax |
5%-35% |
Progressive rates by income brackets |
IIT |
Major laws governing taxation
- Harmonized Tax Law (HTL) or Law No. 7/2021;
- Income Tax Law;
- Value Added Tax ("VAT") Law;
- General Tax Provisions and Procedures ("GTP") Law;
- Investment Law;
- Excise Law; and,
- Carbon Tax Law.
Corporate Income Tax
The corporate income tax rate (CIT) is 22 percent.
There are several facilities given to businesses regarding CIT if they fulfill the following conditions:
| Category | Criteria | Corporate Income Tax (CIT) Treatment | Legal Basis |
|---|---|---|---|
| Publicly Listed Companies | Listed on the Indonesia Stock Exchange with at least 40% paid-in capital owned by the public; meet conditions like minimum shareholders & duration | Eligible for a 3% CIT reduction, resulting in a 19% CIT rate | GR No. 30/2020 |
| Medium-sized Enterprises | Annual gross turnover ≤ IDR 50 billion | 50% CIT reduction on taxable income from turnover up to IDR 4.8 billion; remainder taxed at standard 22% rate | Article 31E of Income Tax Law |
| Small Enterprises | Gross turnover ≤ IDR 4.8 billion/year; not affiliated with large businesses or permanent establishments | Subject to a Final Income Tax of 0.5% of gross revenue instead of regular CIT; valid for 4–7 years depending on entity | GR No. 23/2018 |
Individual Income Tax
An individual’s income is subject to 5 percent to 35 percent of progressive income tax rates.
Expatriate workers need to know that personal income tax (PIT) in Indonesia is determined through a self-assessment scheme.
The country has adopted a worldwide income taxation system, meaning that individuals considered Indonesian tax residents must pay tax to the government on the income they earned in Indonesia, and also on income they earned from abroad, unless there is an applicable double tax agreement.
Non-resident taxpayers will only be liable to pay PIT for income they earn in Indonesia unless the country in which they are a tax resident has an applicable tax treaty with Indonesia. In these cases, the taxpayer might not pay any tax in Indonesia or pay a reduced amount.
The lowest tax bracket cap has been increased from IDR 50 million to IDR 60 million, offering some relief to lower-income individuals. Meanwhile, a new top tax bracket of 35 percent has been introduced for those earning more than IDR 5 billion annually.
Given these tax treatments, it is important for expatriate workers to understand their tax liabilities in Indonesia. It is advisable to use the services of registered local tax advisors to help determine which tax law regime will be applicable along with any exemptions that may be brought.
Value Added Tax
Taxpayers pay VAT at a rate of 12 percent.
Value-added tax in Indonesia is imposed on the provision of services or the transfer of taxable goods. VAT rates are set out below:
- 12 percent imposed on most manufacturers, retailers, wholesalers, and importers;
- Export of tangible and intangible goods is subject to zero percent VAT; and
- The export of services is subject to zero percent VAT.
The government’s negative list sets out all the goods and services that are non-taxable
Around 25 percent of Indonesia’s tax revenue or 298.84 trillion rupiah (US$20.9 billion) last year came from domestic VAT.
Indonesia international taxation
International taxation in Indonesia mainly comprises two entities: the transfer pricing and advanced pricing agreement.
Transfer pricing
Transfer pricing regulations apply to transactions between companies that have a special relationship, such as subsidiaries, branches, or affiliated entities, both domestically and across borders.
Transfer pricing in Indonesia is regulated under the Income Tax Law of 2008, which authorizes a tax officer to redetermine the tax income of a taxpayer who has a ‘special relationship’ with other taxpayers.
Mutual Agreement Procedure (MAP)
In addition to APA, Indonesia has implemented the Mutual Agreement Procedure (MAP) mechanism, regulated under MoF-49/2019, allowing taxpayers to resolve cross-border tax disputes that arise from double taxation or inconsistent transfer pricing adjustments.
Advanced Pricing Agreement (APA)
Regulated under PMK-22/PMK.03/2020, an APA is a bilateral or unilateral agreement between the taxpayer and one or more tax authorities, setting transfer pricing methods and parameters for certain controlled transactions over a fixed period (usually 3–5 years).
Tax incentives for businesses
Tax incentives are preferential tax policies offered by the government to incentivize or encourage a particular economic activity or to support disadvantaged business owners or individuals.
Indonesia offers a broad range of tax incentives to promote foreign direct investment, job creation, industrial diversification, and sustainable development. These incentives are governed primarily by the Income Tax Law, Investment Law No. 25/2007, and implementing regulations from the Ministry of Finance and BKPM (now part of the OSS system).
There are multiple forms of tax incentives available to businesses, such as:
- Tax holidays (up to 20 years for pioneer industries)
- Super tax deductions (up to 300% for R&D and vocational training)
- Reduced CIT rates for listed companies and MSMEs
- Investment allowance and accelerated depreciation/amortization
- Import duty and VAT exemptions for capital goods
- Regional incentives for businesses in underdeveloped areas or the new capital Nusantara
Indonesia offers a series of tax incentives for businesses that invest in labor-intensive industries, training programs, research and development (R&D), a variety of income tax incentives for businesses investing in specific industries and provinces in the country, businesses that invest in developing talent, and more.
Tax incentives are granted based on:
- Type of tax: Such as corporate income tax (CIT), and value-added tax (VAT)
- Size of business: Such small- and medium-sized enterprises and cooperatives.
- Sector-wise: Companies that invest a certain amount in one of the 246 priority business lines will be afforded fiscal and non-fiscal incentives.
- Region-based: A variety of income tax incentives for businesses investing in specific provinces (such as Aceh, Greater Jakarta, and Riau) or Indonesia’s new capital Nusantara.
Indonesia’s international tax framework continues to evolve, emphasizing transparency, dispute prevention, and alignment with global standards. With the implementation of PMK-172/2023, the DGT is shifting toward ex-ante transfer pricing monitoring, making it more critical for businesses to proactively document pricing policies. In addition, MAP and APA mechanisms provide important tools for resolving cross-border tax issues before they escalate into costly litigation.
Given the complexity and increasing enforcement in this area, taxpayers are strongly encouraged to consult with transfer pricing specialists or registered tax advisors when engaging in related-party transactions or planning significant cross-border investments.
Accounting and audit in Indonesia
Indonesia accounting standards
Audits are to be conducted based on the Indonesian Financial Accounting Standards (SAK), which are set by the Financial Accounting Standards Board (DSAK IAI) and the Indonesian Sharia Accounting Standards Board (DSAS IAI), for Sharia-based companies.
Further, the DSAK IAI has converged its accounting standards with that of the International Financial Reporting Standards (IFRS), issued by the IFRS Foundation and the International Accounting Standards Board (IASB). Current harmonization revolves around the chronological adoption of past IFRS with emphasis on closing the gap between Indonesia’s adoption status and the most up-to-date international standards.
Audit and compliance in Indonesia
Foreign investors will need to be aware that regulations regarding auditing, accounting, and financial reporting are stipulated over several laws and bylaws, and that a good understanding of these can ensure their business stays compliant.
Foreign investors should, however, focus on the Company Law, which dictates the terms for when audits become obligatory in addition to the accounting standards companies should adhere to when preparing financial statements.
Investors should use the services of registered local advisors to make sure they understand the prevailing regulations.
