Indonesia Withholding Tax Guide – A Guide to Paying Withholding Tax When Doing Business in Indonesia
Conducting business in Indonesia, like everywhere else, requires compliance with the local tax laws. This guide focuses on the Indonesia withholding tax.
If you are a tax resident of Indonesia, the withholding tax is considered when finalising the company’s final tax liability. A business with a permanent establishment that also reinvests its net profit back into the country may be eligible for tax exemption.
Who Pays Withholding Tax?
Both residents and non-residents must comply with several withholding tax obligations. For residents, the taxes withheld from their payments could represent either advance prepaid tax or final income tax. This amount is creditable against the recipient’s final tax liability or refundable.
Non-resident individuals pay 20% withholding tax on any income received from outside Indonesia. However, the rate paid may vary. It would depend on the what tax treaty provisions are applicable and the given circumstances. For non-residents, the withheld tax represents the final tax.
As per Article 21, employers must withhold taxes from remuneration and severance payments. In Indonesia, pension funds are approved by the Minister of Finance (MoF) and State Workers Social Security Company (PT Jamsostek). These funds must withhold taxes from old age savings payments and pensions.
If you do not have a Tax ID number in Indonesia, your rates could be 20% or more.
Indonesia Withholding Tax Rates
The rates of Indonesia withholding tax that you pay are as follows:
|Categories||Residents (%)||Non-Residents (%)|
|Awards and Prizes||15||20|
|Other income related to property use (excludes land and space)||2||20|
Unless otherwise stated, all the percentages incurred are on gross amounts. For the dividends paid to Indonesian corporate shareholders on withholding tax, exemptions only apply if the following conditions are met:
- Dividends stem from the retained earnings
- The recipient has 25% or more share in the payer
Indonesia Withholding Tax Article 21
Article 21 states that employers are required to withhold tax from the salary and severance payments paid to employees and pay the tax to the State Treasury on the employee’s behalf.
The employer must submit the article 21 withholding tax by the 10th and 20th of the following month when the withholding tax is due. Withholding tax article 21 on salary is final and the tax withheld can be claimed as a tax credit in the employee’s annual personal income tax return.
A tax resident without a taxpayer identification number (NPWP) is subject to a higher tax rate of 20% from the normal tax rates.
Indonesia Withholding Tax Article 22
Per Article 22, income tax is applicable to the following conditions:
- Goods being imported subject to a creditable withholding tax of 2.5% for the importers with an import license. Those without the appropriate important license will pay 7.5%.
- Any sale of goods to the government that needs payment from certain credit companies owned by the state, the State Treasury or State Budget General Directorate. Tax rates in these transactions are 1.5% of the selling price.
- Purchase and sale of cement (0.25%), cars (0.45%), steel (0.3%) and paper products (0.10%) of the selling price.
- Purchase or sale of high-value luxury goods (5%) tax.
Any corporations and individuals (other than non-residents) who don’t have a tax identification number (NPWP) will be subject to 100% withholding tax.
Indonesia Withholding Tax Article 23
According to Article 23, specific types of income paid to tax residents are subject to withholding tax at a rate of either 2% or 15%.
These payments are subject to 15% withholding tax:
- Swap premiums
- Loan guarantee fees
- Prizes and awards
These payments are subject to 2% withholding tax:
- Rental of property other than land and buildings
- Remuneration for technical, management, construction, consulting services and other services such as actuarial services, legal services, accounting services, design services, waste management services and cleaning services
A tax resident without a taxpayer identification number (NPWP) is subject to a higher tax rate of 100% from the normal tax rates.
Indonesia Withholding Tax Article 26
Income received by a non-Indonesian taxpayer is subject to a rate of 20% final withholding tax.
Article 26 withholding tax is applied on the following income:
- Prizes and awards
- Swap premiums
A reduced tax treaty rate can be applied if the non-resident taxpayer is a resident of the tax treaty partner country, subject to fulfilling certain requirements.
Final withholding tax under Article 4(2)
Under Article 4 paragraph 2, transactions which are subject to final withholding tax include:
- Rental of land and buildings
- Transfer of land and building rights
- Construction services
- Additional tax on sale of Founder shares at IPO price
- Interest on time or savings deposits and on Bank Indonesia Certificates (SBI)
- Interest or discount on bonds
- Lottery prizes
- Dividends paid to individuals
Indonesia Withholding Tax Article 15
For shipping and airline services provided by local and/or foreign companies, relevant transactions are subject to Article 15 withholding tax as per below tax rates:
|Charter of local airline||1.8%|
|Local shipping company||1.2%|
|Foreign shipping and airline||2.64%|