Financial Compliance in Indonesia: Bookkeeping, Audits, and Taxation for Foreign Companies

For foreign investors establishing PT PMA (Penanaman Modal Asing) entities in Southeast Asia's largest economy, understanding and adhering to Indonesia's comprehensive financial compliance framework is essential to avoid costly penalties, minimize audit risks, and maintain operational legitimacy in an increasingly scrutinised business environment.

Contributing Advisor

Duha Ziaun

Senior Associate, Corporate Accounting Services

The consequences of non-compliance extend far beyond monetary penalties, encompassing operational disruptions, reputational damage, and potential criminal liability for fraudulent reporting.

Recent enforcement actions demonstrate the Indonesian authorities' increasingly aggressive stance, with 267 foreign-owned companies losing their business licenses in 2025 as part of Operation Wira Waspada, highlighting the importance of maintaining active compliance rather than assuming minimal oversight. The Financial Services Authority (OJK) has imposed fines exceeding IDR 100 million (USD 6,000) on companies for financial statement violations, while the Directorate General of Taxes continues expanding its sophisticated audit capabilities targeting foreign entities.

Key authorities

Directorate General of Taxes (DGT)

The DGT functions as Indonesia's primary tax authority, wielding extensive powers in tax administration, audit enforcement, and compliance monitoring for all business entities operating within the jurisdiction. Under the Ministry of Finance, the DGT oversees corporate income tax collection, withholding tax enforcement, VAT administration, and transfer pricing compliance, utilising sophisticated data analytics and risk management systems to identify non-compliant taxpayers.

The authority has demonstrated increasing aggressiveness in audit selection and assessment procedures, particularly targeting foreign-owned entities with cross-border transactions or relationships with low-tax jurisdictions.

The DGT's enforcement capabilities include comprehensive audit powers, penalty assessment authority, and criminal investigation referral mechanisms for serious violations. Recent regulatory developments have strengthened the authority's ability to access financial information, conduct surprise audits, and coordinate with other government agencies to ensure comprehensive compliance verification.

Financial Services Authority (OJK)

The OJK serves as Indonesia's financial sector regulator, established in 2011 to consolidate supervision over banking, capital markets, insurance, and other financial services industries. For foreign companies, the OJK's jurisdiction extends to entities engaged in financial services activities, publicly traded companies, and businesses issuing debt instruments to the public.

The authority maintains extensive reporting requirements, including monthly operational reports, audited annual financial statements, and corporate governance compliance documentation.

Recent developments include enhanced digital reporting systems through APOLO (Online Reporting Application of OJK), streamlined submission processes, and strengthened coordination with other regulatory bodies to ensure comprehensive oversight of financial services entities.

The OJK's enforcement actions include administrative sanctions, operational restrictions, and license revocation for serious violations.

Bank Indonesia (BI)

Bank Indonesia functions as the central bank with macro-supervisory responsibilities over the banking system and monetary policy implementation. For foreign companies, BI's regulatory scope includes foreign exchange regulations, payment system compliance, and reporting requirements for entities engaged in cross-border transactions.

The authority oversees the implementation of foreign exchange regulations that affect PT PMA operations, including investment reporting, dividend repatriation procedures, and compliance with foreign ownership restrictions.

BI's enforcement mechanisms include foreign exchange violation penalties, transaction monitoring systems, and coordination with other authorities for comprehensive compliance verification.

Recent regulatory developments focus on digital payment systems, cryptocurrency regulations, and enhanced reporting requirements for cross-border financial activities.

Ministry of Law (Company Law)

The Ministry of Law administers Indonesia's company law framework, including PT PMA establishment procedures, corporate governance requirements, and legal entity compliance obligations.

The ministry's jurisdiction encompasses company registration, articles of association approval, ownership structure verification, and ongoing corporate compliance monitoring through integrated systems.

Recent developments include enhanced digital integration through the Online Single Submission (OSS) system, strengthened coordination with investment authorities, and improved monitoring capabilities for foreign-owned entities. The ministry's enforcement actions include license revocation, operational restrictions, and mandatory compliance remediation for violating entities.

Core legal framework

Investment Law

Law No. 25 of 2007 on Investment, along with its implementing regulations, establishes the comprehensive legal framework governing foreign investment in Indonesia. The law defines PT PMA requirements, sets minimum investment thresholds, and establishes ongoing compliance obligations, including quarterly investment reporting, corporate social responsibility implementation, and adherence to sectoral ownership restrictions.

The Investment Law mandates specific reporting obligations to the Investment Coordinating Board (BKPM), including detailed investment realisation reports, employment data submissions, and compliance certifications.

Violations can result in administrative sanctions, investment license revocation, or operational restrictions affecting business continuity.

Company Law

Law No. 40 of 2007 on Limited Liability Companies provides the foundational legal framework for PT PMA operations, establishing corporate governance requirements, financial reporting obligations, and audit mandate thresholds.

The law requires companies meeting specific criteria to undergo mandatory audits by registered public accountants, maintain comprehensive financial records, and submit annual reports to relevant authorities.

Critical provisions include mandatory audit requirements for companies with assets exceeding IDR 50 billion, public companies, entities issuing debt instruments, and businesses collecting public funds.

The law also establishes record retention requirements, financial statement preparation standards, and corporate governance compliance obligations that directly impact foreign-owned entities.

Tax Law and Omnibus Law reforms

Indonesia's tax legal framework encompasses multiple statutes, including the Income Tax Law, VAT Law, and General Tax Provisions and Procedures Law, recently amended through comprehensive reforms.

The current corporate income tax rate stands at 22 percent for most entities, with special provisions for listed companies and small enterprises. Recent reforms have introduced enhanced compliance requirements, strengthened penalty structures, and expanded audit powers for tax authorities.

Key developments include transfer pricing documentation requirements aligned with OECD standards, country-by-country reporting obligations for multinational groups, and enhanced withholding tax compliance procedures.

Relevant BI Foreign Exchange Regulations

Bank Indonesia's foreign exchange regulatory framework governs cross-border transactions, investment reporting, and currency compliance requirements for PT PMA entities.

Regulations require specific approvals for foreign currency bookkeeping, establish reporting thresholds for foreign exchange transactions, and mandate compliance with investment regulations.

Recent developments include enhanced digital reporting systems and strengthened coordination with other regulatory authorities.

Critical provisions include USD accounting approval procedures for qualifying entities, mandatory transaction reporting requirements, and compliance with foreign ownership restrictions. Violations can result in significant penalties and operational restrictions affecting business operations.

Bookkeeping and accounting requirements

Indonesian Financial Accounting Standards (SAK)

Indonesian Financial Accounting Standards serve as the comprehensive framework governing financial statement preparation and accounting practices for all business entities operating in Indonesia.

The Financial Accounting Standards Board (DSAK IAI) issues and maintains these standards, ensuring alignment with international practices while addressing specific domestic requirements. SAK provides detailed guidance on revenue recognition, asset valuation, liability measurement, and financial statement presentation requirements that foreign companies must implement consistently.

The current SAK framework encompasses multiple tiers designed to address different entity types and reporting requirements.

• Tier 1 SAK applies to listed companies and entities with significant public accountability, requiring comprehensive financial reporting aligned with international standards.
• Tier 2 SAK EP addresses private entities without public accountability, providing simplified reporting requirements while maintaining essential transparency and accountability measures.

Indonesian GAAP vs IFRS Alignment

Indonesia has achieved substantial convergence between SAK and International Financial Reporting Standards (IFRS), with Tier 1 SAK fully adopting IFRS principles since January 1, 2015.

However, timing differences between IFRS adoption and Indonesian implementation create specific compliance considerations for foreign companies operating across multiple jurisdictions.

The convergence process involves continuous updates to maintain alignment with evolving IFRS standards, requiring companies to monitor both international developments and local implementation timelines.

SAK Internasional, introduced in December 2022, provides full IFRS adoption for qualifying entities that trade equity shares in multiple countries on regulated markets. This framework offers foreign companies additional flexibility in financial reporting while ensuring compliance with Indonesian regulatory requirements.

Record-keeping obligations

Books must be kept in Indonesian and in Rupiah (Exceptions for USD)

Indonesian tax law mandates that companies maintain their accounting records in Indonesian Rupiah and compose documentation in the Indonesian language, establishing clear parameters for financial record-keeping compliance. However, specific exceptions accommodate foreign-investment companies and entities with legitimate business reasons for alternative currency and language usage.

PT PMA entities, permanent establishments of foreign companies, subsidiaries of foreign entities, taxpayers listed on overseas exchanges, and companies presenting financial statements in USD under Indonesian Financial Accounting Standards may obtain DGT approval for USD bookkeeping and English-language documentation. The approval process requires applications submitted at least three months before the beginning of the USD accounting year, with automatic approval if the DGT fails to respond within the statutory timeframe.

Companies operating under Production Sharing Contracts (PSC) or Contract of Work (CoW) agreements may implement USD accounting in English simply by providing written notification to the DGT, reflecting special provisions for resource sector operations.

Regardless of currency and language usage, companies must settle tax liabilities in Rupiah and file tax returns in Indonesian, maintaining consistency in tax administration procedures.

Minimum 10-year retention period

Indonesian law establishes a mandatory 10-years retention period for all accounting records and supporting documentation, creating significant compliance obligations for foreign companies operating in the jurisdiction. This requirement encompasses all financial records, transaction documentation, audit trails, and supporting materials necessary to verify the accuracy and completeness of financial reporting.

The retention requirement extends to both physical and electronic documentation, with specific provisions for data security and accessibility standards. Companies utilising electronic record-keeping systems must ensure data integrity, backup procedures, and retrieval capabilities that meet regulatory requirements throughout the retention period.

Bookkeeping considerations for foreign companies

Software compatibility

Foreign companies establishing operations in Indonesia must carefully evaluate accounting software systems to ensure compliance with local requirements while maintaining integration with global reporting systems. The selection process should prioritise solutions capable of handling Indonesian Rupiah transactions, generating reports in the Indonesian language, and accommodating local tax calculations, including VAT, withholding taxes, and corporate income tax provisions.

Cloud-based accounting systems offer particular advantages for foreign companies, providing real-time accessibility, automatic backup capabilities, and integration with Indonesian regulatory reporting requirements.

Outsourcing vs in-house accounting teams

The decision between outsourcing accounting functions and establishing in-house capabilities requires careful consideration of compliance requirements, cost factors, and operational control preferences. Outsourcing to qualified Indonesian accounting firms provides access to local expertise, ensures regulatory compliance, and reduces overhead costs while maintaining flexibility in resource allocation. However, companies must carefully select providers with appropriate qualifications, experience with foreign-owned entities, and robust quality control procedures.

In-house accounting teams offer greater operational control, enhanced confidentiality, and closer integration with business operations, but require significant investment in local talent acquisition, training programs, and system implementation. Companies choosing this approach must ensure staff qualifications meet Indonesian requirements, implement adequate internal controls, and maintain ongoing professional development programs to address evolving regulatory requirements.

Who needs an audit?

Companies must engage registered public accountants if they meet certain criteria.

Tax-driven audit triggers (high-risk industries, loss-making entities, transfer pricing concerns)

Beyond statutory corporate obligations, Indonesian tax authorities deploy increasingly sophisticated risk assessment methodologies to select companies for enhanced scrutiny. The Directorate General of Taxes (DGT), through its Compliance Risk Management (CRM) system, evaluates indicators such as industry risk profiles, financial performance patterns, and the nature of transactions to prioritize audit resources.

Certain industries are naturally more exposed to transfer pricing and compliance risks. Natural resources companies face complex valuation and profit-sharing challenges; manufacturers often report significant related-party transactions that require close examination; financial services firms raise concerns around funding structures and intercompany guarantees; while digital economy businesses attract scrutiny due to intangible-heavy models and cross-border service delivery. For companies operating in these sectors, the probability of audit is materially higher, making robust documentation and proactive compliance essential.

Persistent loss-making entities also stand out as high-risk. When businesses report continuous losses despite strong revenue generation, the DGT will probe whether these results reflect genuine commercial realities or aggressive tax planning. Investigations typically focus on transfer pricing arrangements, allocation of expenses, and related-party structures that could suppress Indonesian tax liabilities. Loss patterns inconsistent with industry benchmarks almost always trigger deeper audit inquiries.

Audit process

Audit procedures in Indonesia generally mirror international best practices but are adapted to local regulations and business customs. The process typically progresses through planning, data collection, examination, and reporting, with timelines varying according to industry complexity and company size.

• Auditors assess risk, determine materiality, and design an audit strategy tailored to the taxpayer’s business model and industry. Initial procedures include reviewing internal controls and identifying key risk areas.
• Data collection. Fieldwork involves reviewing documentation, testing transactions, and applying analytical procedures. Physical asset verification and substantive balance testing are common, alongside close coordination with company personnel.
• Detailed testing follows, including management inquiries, review of accounting estimates, and analysis of related-party transactions, revenue recognition, and consistency with Indonesian tax and accounting standards.
• Final reporting generally occurs within 8–14 weeks, depending on case complexity. For companies with a December year-end, fieldwork usually spans January to March, with reports finalized by April to align with tax filing deadlines. Other fiscal year-ends must complete audits within four months after the year-end.

Tax compliance obligations

Corporate Income Tax

Indonesia applies a 22 percent corporate income tax rate to most taxpayers, reduced from the previous 25 percent under the Harmonized Tax Law. This standard rate applies to both domestic and foreign-invested companies, permanent establishments, and state-owned enterprises, creating a uniform framework.

Publicly listed companies meeting free-float and compliance requirements may qualify for a 19 percent preferential rate, while small and medium enterprises (SMEs) with turnover below IDR 4.8 billion (USD 300,000) benefit from a 50 percent reduction applied proportionally to taxable income. Certain microbusinesses may opt for a final tax regime of 0.5 percent of turnover, reflecting a progressive approach to encourage smaller businesses.

Annual corporate income tax returns must be filed within four months after the fiscal year-end, with the option of a two-month extension upon notification. Outstanding liabilities must be settled before submission. Late filings incur fixed penalties of IDR 1 million (USD 60) per return, while late payments attract monthly interest based on a KMK rate capped at 24 months.

Annual vs periodic tax filings

Indonesia's corporate tax system requires both annual comprehensive returns and periodic reporting obligations that create ongoing compliance responsibilities throughout the fiscal year. Monthly tax installments must be calculated based on the previous year's regular taxable income and settled by the 15th of the following month, requiring accurate estimation and cash flow management procedures.

Annual corporate income tax returns provide a comprehensive reconciliation between accounting profit and taxable income, incorporating permanent and timing differences prescribed by tax law. These returns must include audited financial statements for companies meeting audit thresholds, complete with reconciliation schedules demonstrating tax calculation methodology. Companies must also disclose related-party transactions, transfer pricing method applications, and documentation maintenance status.

Withholding Taxes

Indonesian withholding tax applies at a standard rate of 20 percent on dividends, interest, royalties, and service fees paid to non-residents. Reductions or exemptions may be available under double taxation treaties, subject to a certificate of domicile and anti-abuse provisions.

Dividend payments are taxed at 20 percent unless treaty relief applies, while interest on foreign loans and royalty payments face similar treatment with additional anti-avoidance measures. Service fees to non-resident providers are generally subject to withholding unless exempt under treaty conditions, typically where no permanent establishment exists. Companies must carefully assess each payment type, apply the correct rate, and maintain proper documentation to support treaty claims.

DTAA relief for foreign shareholders

Indonesia's extensive double taxation agreement network provides significant opportunities for withholding tax relief, reducing compliance costs, and improving investment returns for qualifying foreign investors.

Treaty benefits require satisfaction of residence tests, anti-treaty abuse provisions, and appropriate documentation procedures, including a certificate of domicile submission to the relevant tax offices.

Economic substance requirements evaluate whether treaty-claiming entities possess genuine business activities, management functions, and decision-making capabilities within their residence jurisdictions. Artificial arrangements lacking commercial substance may face treaty benefit denial and standard withholding rate application. Companies should implement comprehensive treaty planning procedures supported by robust documentation and professional advice.

Value-Added Tax (VAT) and other indirect taxes

Indonesia’s Value Added Tax (VAT) regime requires registration for businesses with annual turnover above IDR 4.8 billion (USD 290,000), though voluntary registration remains possible below this threshold.

As of 2025, VAT rates have been updated:

• 12 percent applies to luxury goods and certain designated services.
• An effective 11 percent rate continues for most goods and services, calculated using a special 11/12 base adjustment.

VAT obligations include issuing compliant invoices, filing monthly returns, and managing input credits. Exemptions cover essentials such as basic food, education, health, and financial services. Exports are zero-rated, enabling full input VAT recovery—a key incentive for exporters and capital-intensive investors.

Exemptions and refunds

Indonesian VAT law provides comprehensive exemptions for essential goods and services, including basic foodstuffs, education, medical services, and certain financial services, designed to minimise impact on lower-income households. Export transactions qualify for zero-rate treatment, enabling input tax credit recovery and supporting international competitiveness. Companies engaged in both taxable and exempt activities must implement proper allocation procedures for input tax credit eligibility.

VAT refund procedures enable recovery of excess input tax credits resulting from export activities, capital investments, or business restructuring.

Compliance risks and penalties

Foreign companies operating in Indonesia frequently encounter compliance pitfalls that result from inadequate understanding of local requirements, insufficient system implementation, or incomplete professional guidance.

Currency conversion errors represent a persistent challenge, particularly for companies maintaining multiple currency systems or conducting significant cross-border transactions. Incorrect exchange rate application, inconsistent conversion methodologies, and inadequate documentation of foreign currency transactions create audit risks and potential assessment exposures.

Transfer pricing compliance represents another common challenge area, with many companies underestimating documentation requirements, benchmark analysis sophistication, or ongoing maintenance obligations.

The Indonesian regulatory framework requires a comprehensive economic analysis supported by robust comparability studies and detailed functional analysis, that many companies fail to implement adequately. Inadequate attention to related-party service arrangements, financing structures, and intangible asset transactions create significant audit risks and potential adjustment exposures.

Late filing penalties and interest charges

• Late tax return filing attracts fixed penalties of IDR 1 million per return, regardless of tax liability amounts or delay duration.
• Late tax payment incurs interest charges of 2 percent per month, capped at 24 months, creating potentially significant cumulative costs for extended delays.
• VAT compliance violations attract separate penalty structures including late filing penalties, late payment interest, and administrative sanctions for invoice issuance failures. Companies maintaining inadequate books and records face additional penalties and potential estimated assessments based on DGT calculations rather than taxpayer-reported figures.

Audit adjustments and dispute risks

Tax audit procedures can result in significant assessment adjustments reflecting different interpretations of transaction characterization, transfer pricing analysis, or tax law application.

Common adjustment areas include transfer pricing arrangements, expense deductibility challenges, revenue recognition disputes, and related-party transaction recharacterization.

These adjustments often result in substantial additional tax liabilities, penalties, and interest charges that can materially impact financial performance.

The dispute resolution process encompasses:

• Administrative objection procedures;
• Tax court proceedings; and,
• Potential mutual agreement procedures under applicable tax treaties.

However, dispute resolution timelines can extend for years, creating cash flow pressures and operational uncertainties. Many disputes arise from inadequate documentation, inconsistent position presentation, or failure to engage professional representation during audit procedures.

Criminal liability for fraudulent reporting

Indonesian law establishes criminal liability for intentional tax violations, including fraudulent financial reporting, fake invoice issuance, and deliberate tax avoidance schemes.

Criminal tax offenses carry imprisonment sentences up to six years and fines up to twice the tax amount involved, while unintentional negligence may result in detention up to one year and proportionate financial penalties.

The distinction between intentional fraud and unintentional negligence depends on evidence of deliberate intent to evade tax obligations or deceive authorities.

Companies should implement robust internal controls, comprehensive documentation procedures, and regular compliance monitoring to prevent inadvertent violations and demonstrate good faith compliance efforts.

Strategies for effective compliance

Integrated approach to bookkeeping, audit readiness, and taxation

Successful compliance management requires integrated systems that address bookkeeping requirements, audit preparation, and tax obligations through coordinated procedures and consistent methodology application.

Companies should establish charts of accounts structures that facilitate both financial reporting and tax calculation requirements, implement transaction coding systems that enable efficient audit trail verification, and maintain documentation standards that support regulatory inquiries and examination procedures.

Monthly closing procedures should incorporate audit-ready documentation preparation, tax provision calculation, and compliance monitoring activities that identify potential issues before they escalate into regulatory problems.

Setting up robust internal reporting systems

Effective internal reporting systems provide management with timely, accurate information supporting decision-making processes while ensuring regulatory compliance obligations are met consistently. These systems should incorporate automated data collection procedures, exception reporting mechanisms, and performance monitoring capabilities that enable proactive issue identification and resolution.

Key performance indicators should include compliance metrics such as filing timeliness, payment accuracy, documentation completeness, and regulatory correspondence management.

Regular management reporting should highlight compliance status, identify emerging risks, and recommend corrective actions supporting continuous improvement in regulatory performance. Integration with enterprise resource planning systems facilitates comprehensive data analysis and reduces manual compliance burdens. \

Local accountants and tax consultants

Engaging qualified Indonesian professional advisors provides access to specialized expertise, regulatory guidance, and ongoing support essential for effective compliance management in Indonesia's complex regulatory environment.

Local accountants familiar with Indonesian Financial Accounting Standards, audit procedures, and reporting requirements offer valuable assistance in system implementation, process design, and ongoing compliance monitoring.

Tax consultants specializing in Indonesian regulations provide essential guidance on tax calculation procedures, filing requirement compliance, and audit preparation strategies.

These professionals maintain current knowledge of regulatory developments, enforcement trends, and best practice approaches that foreign companies may lack through internal resources alone.

Regular advisor engagement supports proactive compliance management and early identification of potential issues.

Legal and audit firm partnerships

Establishing relationships with qualified legal and audit firms provides comprehensive professional support to address complex regulatory challenges and specialized compliance requirements.

Legal advisors offer guidance on corporate law compliance, regulatory interpretation, and dispute resolution procedures while maintaining confidentiality and privilege protections. Audit firm partnerships provide access to technical expertise, industry knowledge, and quality assurance procedures supporting financial reporting objectives.

These relationships should be structured to provide ongoing support rather than transactional engagement, enabling continuous advice provision and proactive issue identification.

Cloud-based accounting and ERP systems

Modern cloud-based accounting and enterprise resource planning systems offer significant advantages for foreign companies managing Indonesian compliance requirements while maintaining integration with global operations.

Key system features should include multi-currency functionality, Indonesian language capability, local tax calculation modules, and integration with regulatory reporting systems.

Cloud-based solutions facilitate remote access, reduce IT infrastructure requirements, and provide scalability supporting business growth. However, companies must ensure data residency compliance, security standards, and backup procedures meet Indonesian regulatory requirements.

BI and OJK reporting automation

Automated reporting systems for Bank Indonesia and Financial Services Authority requirements reduce manual processing burdens while improving the accuracy and timeliness of regulatory submissions.

Recent developments include enhanced digital reporting platforms such as APOLO for OJK submissions, providing streamlined procedures and improved processing efficiency.

Companies should evaluate automation opportunities that reduce compliance costs while improving reporting quality and timeliness. Implementation should include comprehensive testing procedures, staff training programs, and backup systems ensuring continuity of regulatory reporting capabilities.