Corporate Income Tax in Indonesia

Tax rate 

Indonesia’s CIT rate is 22 percent, with several targeted tax incentives to support investment and SME growth:

Contributing Advisor

Duha Ziaun

Senior Associate, Corporate Accounting Services

Tax residency

In Indonesia's corporate tax landscape, the distinction between resident and non-resident companies plays a pivotal role in determining how business profits are taxed.

Resident companies—those incorporated in Indonesia or foreign entities operating through a permanent establishment (PE) in the country—are subject to the standard corporate income tax (CIT) regime. This means that once a company is legally established or has a recognized PE and is actively conducting business within Indonesia, it is treated no differently from a domestic enterprise. Profits are taxed at the same rates, with no exemptions simply because of foreign ownership or origin. Essentially, if you're doing business on Indonesian soil through a structured presence, the tax authorities consider you a full participant in the local economy—and you pay tax accordingly.

In contrast, non-resident firms that do not maintain a PE in Indonesia face a different, more limited tax obligation. These foreign entities, while not officially operating within the country, may still generate income from Indonesian sources—such as royalties, interest, dividends, or fees. For these cases, Indonesia imposes a withholding tax on the income derived from within its borders. The key distinction here is that non-residents are not taxed on their net income like resident companies; instead, tax is levied at the source before the income is even remitted abroad.

Tax payments and deadlines

Corporate taxpayers must fulfill their tax obligations either through monthly installments (Article 25), third-party withholdings, or a combination of both. The deadline for filing the annual income tax return is four months after the end of the fiscal year, with the tax payment due by the same date. While most Indonesian companies adopt the calendar year (January 1 to December 31) as their fiscal year, the fiscal year may also align with a company’s financial year as stipulated in its Articles of Association.

Tax incentives and priority sector treatment

Indonesia provides generous tax incentives to attract investment into strategic sectors and regions. Businesses investing in one of the 246 designated priority sectors may be eligible for both fiscal and non-fiscal incentives. These incentives are part of the government’s broader efforts to drive industrial development, promote innovation, and enhance regional competitiveness.

Fiscal incentives include a 50 percent CIT reduction for investments ranging between IDR 100 billion and IDR 500 billion, granted for a five-year period. For investments exceeding IDR 500 billion, a full (100 percent) CIT holiday may be provided for a period of five to twenty years, depending on the scale and nature of the investment.

Additional tax allowances are also available under Government Regulation No. 78 of 2019. These include a 30 percent deduction from the investment value spread over six years (5 percent annually), reduced withholding tax on dividends (typically 10 percent), accelerated depreciation and amortization, and an extended carry-forward period for tax losses—up to ten years in some cases.

These incentives are particularly targeted at businesses involved in labor-intensive manufacturing, pioneering industries such as renewable energy and metal refining, as well as export-oriented sectors and enterprises utilizing advanced technology or conducting domestic R&D activities. Regions such as Special Economic Zones (SEZs) and the new capital city Nusantara are also prioritized for incentives, including additional VAT and customs exemptions.

To classify as a priority sector, business enterprises must meet the following criteria:

• Must be labor intensive;
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• Must be capital intensive;
• Must be part of a national project/program;
• Must be export-oriented;
• Must involve a pioneer industry (renewables, oil refining, metals, etc.);
• Must utilize advanced technologies; and
• Must implement research and development activities.

Deductible and non-deductible expenses

When calculating CIT, taxpayers may deduct expenses that are directly related to earning, collecting, and maintaining income. These include:

• Salaries and wages
• Rent and utilities
• Royalties and license fees
• Costs of raw materials and goods sold
• Marketing and promotion expenses (e.g., advertisements)
• Donations to registered charities, research, and educational institutions (capped at 5% of prior year fiscal profit)
• Interest on business loans
• Depreciation and amortization
• R&D costs tied to business operations

However, certain expenses are explicitly non-deductible under Indonesian tax regulations. These include:

• Personal or private expenses
• Income tax payments (both corporate and individual)
• Tax penalties and administrative fines
• Employer-paid health and life insurance unless treated as taxable income for the employee
• Non-business related donations or gifts
• Compensation to partners in a partnership (CV or Firma) not treated as employees
• Expenses lacking adequate documentation or justification