Audit and Compliance in Indonesia

There is currently no single unifying regulation on auditing and compliance in Indonesia.

Contributing Advisor

Duha Ziaun

Senior Associate, Corporate Accounting Services

Foreign investors must be aware that regulations regarding auditing, accounting, and financial reporting are stipulated over several laws and by laws, and that a good understanding of these can ensure their business stays compliant.

Foreign investors should focus on 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.

Auditing and compliance requirements

The Investment Law lays out the basic requirements on how to operate in Indonesia. These are part of key compliance norms:

• Implementing good corporate governance;
• Undertake corporate social responsibility activities;
• Comply with the labor law;
• Submit quarterly investment activities to the Investment Coordinating Board (BKPM); and
• Honor the cultural traditions of communities.

Who is obligated to be audited?

The Company Law mandates that financial statements of a limited liability company must be audited by a public accountant registered in Indonesia if they meet at least one of the following criteria:

• Companies with assets exceeding 50 billion rupiah (US$3.2 million);
• Public companies;
• Companies that issue debt instruments;
• Certain types of state-owned enterprises; or
• The company collects or manages public funds (such as banks and insurance companies).

By law, a company must keep its accounting records and books for at least 10 years from the end of its reporting period.

Annual reports

All registered company’s annual financial statements are to be submitted to a regional tax office once a year. Financial statements consist of the following:

• Balance sheet;
• Cash flows;
• Profit and loss statement; and
• Statement of changes in equity.

Financial statements are required to provide both the current and previous year’s figures and need to be presented on a comparative basis.

Periodic financial statements must be presented in the Indonesian language and a foreign language. The obligation to use foreign languages does not apply to small- and medium-sized enterprises. Periodic financial statements that utilize foreign languages must contain the same information as the periodic financial statements that use the Indonesian language.

If there is a difference in the interpretation of the information presented in foreign languages with those presented in the Indonesian language, the information in the Indonesian language shall be used as a reference. 

The accounting books must also use the rupiah as their currency. Companies will need to seek permission from the tax authorities for the use of the US dollar, the only other eligible functional currency. This must be done no later than three months before the start of the accounting year.

Public companies

Under the Capital Markets Law, foreign companies are allowed to be listed in the country’s bourse.

Their prospectus, however, must first be audited by an auditing firm that is recognized by the country’s Financial Services Authority (OJK), the main regulator of Indonesia’s financial services sector.

The annual financial statement must be submitted to the OJK and announced to the public by no later than the end of the third month from the date of the annual financial statement. The submission of periodic financial statements must be conducted through the electronic reporting system of the OJK.

Public companies must also establish internal audit committees, an internal audit unit, and a company secretary. The audit committee supports the board of commissioners to ensure the effectiveness and integrity of a company’s financial statements and internal controls.

The committee will also review the risk management activities conducted by the board of directors and oversee the implementation of the recommendations of the internal and external auditors.

Auditor independence

The auditor must be a registered and independent public accountant as stipulated by the Ministry of Finance (MOF). They must avoid all potential conflicts of interest and adhere to MOF regulations.

The Indonesia Financial Services Authority stipulates the mandatory rotation of the public accountant every three years with a two-year cooling period. This only applies to the public accountant and not the public accountant firm.

One-month rule

Taxpayers undergoing an audit must furnish the documents and information requested by tax auditors within one month of the request date. Failure to comply within this timeframe may lead the Directorate General of Taxes (DGT) to assess tax liabilities based on deemed profits. Any documents or information not provided within the specified period cannot later be utilized by the taxpayer to contest the assessed tax amount.

Following the conclusion of a tax audit, the taxpayer will receive a written notification detailing the audit findings from the tax auditors. In the event of disagreement, the taxpayer must respond in writing. Subsequently, during the closing conference discussion, the taxpayer can reaffirm its stance regarding the tax audit corrections and provide pertinent supporting documents.

If there remains a dispute regarding the legal basis of an adjustment during the discussion of the tax audit findings, the taxpayer has the option to request a discussion with the Quality Tax Audits and Tax Assessments Assurance Team (QAT). This team is appointed either by the Regional Tax Office or the Directorate of Tax Audit and Collection.

Fiscal year

The annual deadline for reporting and paying corporate income tax is April 30 – if a company’s fiscal year begins from January 1 – December 31. If a company’s fiscal year differs from the calendar year, then its deadline is four months after the end of its fiscal year.

Penalties for non-compliance

Companies that fail to comply with Indonesia’s audit and tax requirements can expect to receive monthly interest penalties starting from two percent and up to 48 percent. Furthermore, issuing false tax and accounting documents can also result in imprisonment.

Mandatory annual legal audits

Key features of mandatory legal audits

• All entities must appoint certified legal auditors to conduct the audits.
• The audit involves planning, data collection, assessment, and reporting.
• Reports must be submitted to the Minister of Law and relevant authorities, with required follow-up actions based on the findings.
• Businesses failing to conduct or report audits could face penalties.

This regulation seeks to establish a robust legal compliance framework, encouraging businesses to maintain governance standards and mitigate legal risks.

Indonesia adopted the new Global Internal Audit Standards (GIAS), marking a significant enhancement in internal audit practices across public and private sectors.

What the GIAS framework includes:

• Structure: Five domains, fifteen guiding principles, and fifty-two specific standards.
• Focus areas: Governance, risk management, and compliance (GRC) frameworks.
• Objective: Elevating the quality and consistency of internal audits to align with international standards.

The implementation of GIAS underscores Indonesia’s commitment to strengthening 
accountability and internal controls, benefiting organizations and stakeholders alike.

The mandatory audits and GIAS adoption are part of Indonesia’s broader efforts to foster a compliance-oriented culture. Key anticipated outcomes include:

• Improved transparency in corporate governance.
• Mitigation of legal risks for businesses.
• Enhanced business valuations and investor confidence.

Integrated risk-based audit by the BPK

Complementing these initiatives, the Audit Board of the Republic of Indonesia (BPK) will introduce an integrated risk-based audit strategy for state-owned enterprises (BUMN). This approach emphasizes:

• Analyzing work plans and budgets.
• Conducting pre-audit data analysis to identify anomalies.
• Examining financial ratios and management policies for actionable recommendations.

Tax collection through a distress warrant

If a taxpayer fails to pay a legally mandated tax collection instrument within the specified timeframe, the Directorate General of Taxes (DGT) is empowered to issue a Distress Warrant (Surat Paksa). These instruments encompass various documents such as Tax Collection Letters (Surat Tagihan Pajak/STP), Overpaid Tax Assessment Letter (Surat Ketetapan Pajak Lebih Bayar/SKPLB), (Surat Ketetapan Pajak Kurang Bayar/SKPKB), Tax Objection Decision Letters, Tax Court Decisions, and Correction Decision Letters, all of which may require additional payments from the taxpayer.

The taxpayer in question is obligated to settle any underpaid tax specified in the tax collection instrument within one month of its issuance. Failure to do so incurs an interest penalty, calculated based on the applicable monthly Ministry of Finance Interest Rate, for a maximum period of 24 months.

If the underpaid tax remains outstanding beyond the specified timeframe, the DGT may proceed with the following steps as part of executing the Distress Warrant:

• Issuance of a Warning Letter (Surat Teguran) if the underpaid tax is not resolved within seven days of the due date.
• Issuance of a Distress Warrant if the underpaid tax remains unsettled within 21 days of the Warning Letter issuance.
• Implementation of a Confiscation Order (Surat Sita) if the underpaid tax is not resolved within 48 hours of the Distress Warrant issuance.
• Publication of an auction announcement regarding the confiscated assets if the underpaid tax persists beyond 14 days from the Confiscation Order issuance.
• Conduct a public auction within 14 days of the auction announcement.

Tax disputes

Tax disputes in Indonesia arise when a taxpayer disagrees with the assessment, correction, or decision made by the tax authority. To address these disagreements, Indonesia provides a structured dispute resolution mechanism under the General Tax Provisions and Procedures Law (UU KUP) and relevant Ministry of Finance regulations. There are several avenues available to address such tax disputes:

Objections

The first step in resolving a tax dispute is filing an objection with the Director General of Taxes (DGT). A taxpayer can submit an objection in response to a tax assessment letter (SKP), such as an underpayment or overpayment decision.

• Deadline: Must be filed within 3 months from the date the assessment was received.
• Requirements: The objection must be in writing, clearly stating the reasons and supported by relevant evidence. The taxpayer must have paid the amount stated in the SKP before filing.
• Timeline: The DGT must issue an Objection Decision Letter (SK Keberatan) within 12 months. If not, the objection is deemed fully granted by law.

Appeals

If the taxpayer is not satisfied with the objection decision, they may submit an appeal to the Tax Court. In Indonesia, a tax appeal-referred to as banding-is a legal remedy available to taxpayers who disagree with a tax decision issued by the authorities. This process is regulated under Law No. 14 of 2002 on the Tax Court, which defines banding as the formal objection mechanism that can be pursued by taxpayers or their legal representatives against a decision eligible for appeal under prevailing tax laws.

A tax appeal can be submitted by the taxpayer themselves, their heir, or a legal representative. If the taxpayer passes away during the appeal process, the appeal may be continued by their heir or a court-appointed guardian. Similarly, if the taxpayer undergoes a business merger, split, or liquidation, the successor entity responsible for the original tax obligations may continue the appeal.

A tax appeal can be submitted by:

• The taxpayer themselves.
• Their heir (if the taxpayer passes away during the appeal process).
• A court-appointed guardian.
• A legal representative with a valid power of attorney.
• Or the successor entity, in the event of a merger, demerger, or liquidation.

The appeal must:

• Be submitted in Bahasa Indonesia.
• Be addressed to the Chairperson of the Tax Court in Jakarta.
• Be filed within 3 months from the date the objection decision is received (60 days for customs-related matters).
• Be submitted either electronically through the e-Tax Court system (etaxcourt.kemenkeu.go.id) or by registered post/courier.

Key deadlines:

• Submission deadline: Within 3 months (or 60 days for customs decisions).
• Tax Court decision timeframe: Typically within 12 months from complete submission.

The appeal must be accompanied by:

• The original and one copy of the appeal letter;
• A copy of the decision being appealed;
• Supporting documents: SKP, objection letter, and proof of payment of at least 50% of the tax due;
• Power of attorney and company deed of establishment, if filed by a representative; and,
• Documents must be submitted in hardcopy and softcopy (Word and PDF formats), saved on a CD or flash drive.

After submission

The Tax Court will issue a Receipt of Appeal Submission (TTSB) within 14 days, which includes the official case registration number.

• The Tax Authority (Terbanding) will then be given 3 months to respond via a Statement of Appeal Explanation (SUB).
• The taxpayer will receive a copy of the SUB and has 30 days to submit a rebuttal (bantahan).
• Regardless of whether responses are submitted on time, the Tax Court will continue with the appeal hearing and trial process.

Withdrawal of appeal

Taxpayers may withdraw their appeal any time before a decision is issued by submitting a formal withdrawal letter to the Tax Court. If submitted by a representative, a notarized power of attorney must accompany the withdrawal letter.

Lawsuit

If a taxpayer disagrees with a tax collection action or a tax decision that is eligible for litigation under Indonesian tax law, they may submit a tax lawsuit (gugatan) to the Tax Court. As defined under Article 1 paragraph 7 of Law No. 14 of 2002 on the Tax Court, a gugatan is a legal remedy available to taxpayers or tax bearers specifically against tax collection procedures or certain decisions issued by the tax authorities.

The tax lawsuit may be submitted by:

• The taxpayer (Penggugat) themselves.
• Their heir (if the taxpayer passes away during the lawsuit process).
• A legal guardian (in case of bankruptcy).
• A legal representative.
• Or a successor entity if the taxpayer undergoes a business merger, demerger, or liquidation.

Filing requirements:

• The lawsuit must be filed in Bahasa Indonesia;
• It must be addressed to the Chairperson of the Tax Court, located at Jl. Hayam Wuruk No. 7, Jakarta Pusat;
• It must be submitted within:
• 14 days from the execution of tax collection; or,
• 30 days from the receipt of the decision being contested;
• One lawsuit letter is submitted per each collection execution or decision;
• It may be filed electronically via the e-Tax Court system (etaxcourt.kemenkeu.go.id), by registered mail, or delivered in person through the Tax Court’s reception counter using the online queue system.

Administrative requirements:

• The lawsuit letter must be submitted in 2 copies (1 original, 1 photocopy),
• Attach copies of:
• The decision or collection action being contested,
• Relevant documents such as Tax Collection Letters (STP),
• Supporting documents (1 copy) may include:
• Notarized articles of incorporation and amendments,
• Power of attorney, if signed by a representative,
• Legal representative’s ID card, if applicable,
• Integrity Pact,
• All documents must be submitted in softcopy format (Microsoft Word and PDF),
• Save the softcopy on a CD or flash drive, one per lawsuit,
• Include the Lawsuit Filing Form, downloadable via setpp.kemenkeu.go.id.

After submission

Once the complete lawsuit is submitted:

• The Tax Court will issue a Receipt of Lawsuit Submission (TTSG) within 14 days,
• The TTSG includes a case registration number that can be used to track the case online,
• The tax authority (Tergugat) must submit a Statement of Response (Surat Tanggapan) within 1 month,
• The plaintiff will receive a copy of the response within 14 days, along with an invitation to submit a rebuttal,
• The plaintiff has 30 days to submit their rebuttal (bantahan).

Whether or not both parties meet the above deadlines, the Tax Court will proceed with the lawsuit examination and render a verdict in a formal hearing.

Withdrawal of Lawsuit

Taxpayers may withdraw their lawsuit by submitting a formal letter of withdrawal in 2 copies to the Chairperson of the Tax Court. If signed by a representative, it must include a notarized power of attorney. The letter can be submitted:

• In court (during the hearing),
• Before the hearing via registered mail,
• One withdrawal letter must be submitted for each lawsuit filed.

Judicial review

Taxpayers who are unsatisfied with a final and binding decision by the Tax Court have the right to file a Judicial Review (PK) to the Supreme Court of Indonesia. To facilitate this process, the Tax Court provides a verification and acceptance service for both PK applications and Counter-Memorandum of Judicial Review (KMPK). This service ensures that submitted documents meet the required standards before being forwarded to the Supreme Court, minimizing the risk of rejection due to incomplete or improper filings.

Applicants or their authorized representatives must come directly to Counter C at the Tax Court building (Gedung A, Jalan Hayam Wuruk No. 7, Jakarta Pusat). The verification process is fast, taking approximately 10 minutes per file, and the service is completely free of charge.

To submit a Judicial Review request, applicants must prepare both physical and digital copies of various required documents, including:

• The original PK Memorandum (2 copies),
• Proof of payment of case fees to the Supreme Court,
• A softcopy of the memorandum in .rtf format,
• A copy of the Tax Court decision being reviewed,
• Additional documents such as a criminal court decision (if applicable) or a sworn statement for newly discovered evidence,
• A special power of attorney (if the PK is submitted by a legal representative), and
• Identification documents of the party submitting.

For KMPK, similar documents are required, including the original KMPK memorandum (2 copies), a softcopy in .rtf format, power of attorney, and valid identification.

Different requirements apply depending on the applicant's status:

• Tax officials must submit appointment letters and employee ID.
• Individual taxpayers need to provide their KTP, NPWP, and heir certificate (if relevant).
• Corporate taxpayers must provide the latest Articles of Association, ID of the authorized person, and employment proof or curator designation if represented.

The procedure is straightforward. After verifying the identity of the applicant or representative, the officer checks the completeness of the documents. If complete, a submission receipt is issued, and the applicant must also provide a valid email for correspondence. If documents are incomplete, they will be returned for revision and can be resubmitted once corrected.

The output of the service is either a formal receipt of submission or a checklist of missing items, ensuring that every PK/KMPK filing is orderly and traceable. This entire process is regulated to support transparency and legal certainty in the final stages of a tax dispute. More detailed information and sample documents are available at bit.ly/PKpajak.