Indonesia Withholding Tax Guide – A Guide to Paying Withholding Tax When Doing Business in Indonesia

Indonesia Withholding Tax GuideConducting 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 Australia, 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 (%)
Dividends 15 20
Interest 15 20
Royalties 15 20
Awards and Prizes 15 20
Rental 2 20
Other income related to property use (excludes land and space) 2 20
Management 2 20
Consulting 2 20
Technical 2 20
Other services 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 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 Guide