How to Determine the Financial Year-End for Companies in Indonesia
Determining the financial year-end is a crucial aspect of corporate compliance in Indonesia, as it defines the 12-month accounting period used for reporting and taxation. By default, Indonesian companies follow the standard calendar year ending on December 31, a rule that has been in place since 2001.
While foreign investment companies or entities with international affiliations may obtain approval from the Minister of Finance to use the US dollar as their functional currency and maintain records in English, their fiscal year-end generally remains aligned with the calendar year unless special approval is granted. Understanding these requirements ensures businesses remain compliant with Indonesian tax and regulatory obligations.
Deadline for the Financial Statement in Indonesia
However, if the company’s fiscal year is different from a calendar year (as above), the submission deadline will be four months after the end of that fiscal year.
The financial statement and corporate income tax report must be submitted to the regional tax office in Indonesia.
Companies classified as large taxpayers or those exceeding IDR 50 billion in annual turnover are still generally required to undergo an audit, but under the Ministry of Finance Regulation and OJK rules, listed companies and financial service institutions also have mandatory audit requirements regardless of turnover.
Exceptions for a Non-Calendar Financial Year
In Indonesia, companies are generally required to adopt the calendar year ending on December 31 as their fiscal year. However, exceptions may be granted in certain cases, such as aligning with the reporting cycle of a foreign parent company. To adopt a non-calendar financial year, a company must:
- Establish an alternative 12-month accounting period.
- Submit a formal request and obtain approval from the Directorate General of Taxes (DGT).
Choosing a Financial Year-end
Choosing a financial year-end requires careful thought and planning in order to obtain the most cost-effective and tax-advantageous result. As a general rule of thumb, companies should avoid fixing the financial year-end during peak business periods.
Here are other factors to consider when choosing a financial year-end:
- Company’s business cycle:
The ideal year-end would be one that corresponds with the end of the busy season. This reduces the amount of inventory that needs to be counted, lowering costs and improving accuracy. Closing the books during a quieter period also makes the process more convenient for support staff, as there are fewer transactions to manage. - Subsidiary company:
If your company is a subsidiary, its financial year may need to coincide with that of the holding company. This will need to be confirmed with the holding company. - Prior agreements:
In some cases, a company’s fiscal year may be determined by existing agreements, such as franchise or joint venture agreements.
Penalties on Failure to Report or Late Reporting
Indonesian taxation laws may be subject to regular changes, and it is important to keep up with regulations to avoid incorrect reporting. If a company fails to report its financial year-end and violates Indonesia’s accounting and compliance requirements, it may face monthly interest penalties ranging from 2% to 48%.
The deadline will count as a full month if it is exceeded by one day, and tax officials will impose penalties accordingly. Companies that have a record of failing to comply will also receive increased scrutiny from tax officials in the future.
Other Key Considerations
- Foreign Investment Companies (PMA): Certain PMA entities, permanent establishments, and businesses with foreign affiliations may maintain their bookkeeping in a foreign language and currency (such as USD), provided they secure prior approval from the Minister of Finance.
- Regulatory Compliance: Companies must also comply with requirements set by regulatory bodies such as the Financial Services Authority (OJK) and the Indonesia Stock Exchange (IDX), particularly regarding disclosure, transparency, and reporting obligations.
