FAQ Income Tax

WHO IS THE TAXPAYER FOR INCOME TAX PURPOSE?

Taxpayers for income tax purposes are individual, undivided inheritance as a unit in lieu of the beneficiaries, corporation, and permanent establishment.

HOW TO CALCULATE MY TAX DUE?

Taxable income of a resident Taxpayer in a taxable year is the total income reduced by allowable deduction. Income is defined as any increase in economic capability received or accrued by a Taxpayer, originating from Indonesia as well as from offshore, in whatever name or form, that can be used to consume or to increase the wealth of the Taxpayer.

Deductions allowed in calculating taxable income are defined as:

a. expenses to earn, to collect and to secure income, including cost of materials, costs in connection with employment or services including wages, salaries, honoraria, bonuses, gratuities and remuneration in the form of money, interest, rents, royalties, travel expenses, waste processing expenses, insurance premiums, administrative expenses and taxes other than income tax;

b. depreciation of tangible asset and amortization of rights and other expenditures, which have useful life of more than 1 (one) year;

c. contributions to a pension fund approved by the Minister of Finance;

d. losses occurred from the sale or transfer of properties owned and used in business or used for the purpose of earning, collecting and securing income;

e. losses from foreign exchange;

f. costs related to research and development carried out in Indonesia;

g. scholarships, apprenticeships and training expenses;

h. debts which are actually uncollectible with certain requirements.

IS IT POSSIBLE TO DEPRECIATE ALL ASSETS OWNED BY A CORPORATION?

For calculating tax, it is allowed to depreciate cost of purchasing, erecting, expanding, improving, or replacing tangible assets, except land* that is held for earning, collecting, and securing of income that has a economic life of more than one year.

HOW MUCH IS THE TAX RATE OF INCOME TAX?

A flat rate of 25% applies since 2010. Public companies that satisfy a minimum listing requirement of 40% and other conditions are entitled to a tax discount of 5% off the standard rate, giving them an effective tax rate of 20%. Small enterprises, i.e. corporate taxpayers with an annual turnover of not more than Rp50 billion, are entitled to a tax discount of 50% off the standard rate which is imposed proportionally on taxable income of the part of gross turnover up to Rp4.8 billion.

WHAT IS THE METHOD ALLOWED FOR DEPRECIATON?

For building and contraction straight line method is applied, and for other tangible assets double declining balance method may be applied.

WHAT IS THE PERCENTAGE OF DEPRECIATON FOR EACH GROUP OF ASSETS?

Group of Tangible Assets Useful Life Rate of Depreciation Under
    Straight Line Declining Balance
I Non Building        
  Group 1 4 Years 25% 50%
  Group 2 8 Years 12.5% 25%
  Group 3 16 Years 6.25% 12.5%
  Group 4 20 Years 5% 10%
           
II Building        
  Permanent 20 Years 5% -
  Semi Permanent 10 Years 10% -

Note:

According to the Minister of Finance number 96/KMK.03/2009 on type of assets classified into the group of non ­building tangible assets for the purpose of depreciation are:

Category 1 – 50% (Declining-Balance) or 25% (Straight-Line) on assets with a beneficial life of four years. Examples of assets in this category are computers, printers, scanners, furniture and equipment constructed of wood/rattan, office equipment, motorcycles, special tools for specific industries/services, kitchen equipment, manual equipment for agriculture, farming, forestry and fishery industries, light machinery for the food and drink industries, motor vehicles for public transportation, equipment for the semi-conductor industry, tools and accessories for deep water anchor equipment rentals, and base station controller for the cellular telecommunication services.

Category 2 – 25% (Declining-Balance) or 12.5% (Straight-Line) on assets with a beneficial life of eight years. Examples of assets in this category are furniture and equipment constructed of metal, air conditioners, cars, buses, trucks, speed-boats, containers and the like. The category also covers machinery for agriculture, plantations, forestry activity, fisheries, and for food and drink, and light machinery, logging equipment, equipment for construction, heavy vehicles for transportation, warehousing, and communication, telecommunications equipment, equipment for the semi-conductor industry, tools for deep water anchor equipment rentals, and tools for cellular telecommunication services.

Category 3 – 12.5% (Declining-Balance) or 6.25% (Straight-Line) on assets with a beneficial life of 16 years. Examples of assets in this category are machines for general mining other than in the oil and gas sector, machines for the textile, timber, chemical, and machinery industries, heavy equipment, docks and vessels for transportation and communication, and other assets not included in the other categories.

Category 4 – 10% (Declining-Balance) or 5% (Straight-Line) on assets with a beneficial life of twenty years. Examples of assets in this category are heavy construction machinery, locomotives, railway coaches, heavy vessels, and docks.

Building category – 5% (Straight-Line) on assets in the permanent building category with a useful life of 20 years; or 10% (Straight-Line) on assets in the nonpermanent building category with a useful life of ten years. Included in the cost of the buildings is the Duty on the Acquisition of Land and Building Rights (Bea Pengalihan Hak atas Tanah dan Bangunan/BPHTB).

More comprehensive lists of the assets included in each category are set out in certain Minister of Finance (MoF) regulations. Separate lists of assets and depreciation rates for the oil and gas sector are also specified in a MoF regulation.

 

Special rules apply to assets used in certain areas for certain industries and KAP

 

HOW TO PAY THE TAX; ANNUALLY OR INSTALLMENT?

Although, the ultimate corporate income tax amount for a taxable year should be calculated based on annual income of that year, taxpayers are required to pay monthly installment (Income Tax Article 25) during the year, the amount of which is based on the preceding year’s annual tax return.

IS IT POSSIBLE TO DECREASE MONTHLY INSTALLMENT (ARTICLE 25)) ?

Taxpayers under certain circumstances may file a request for an adjustment of the monthly installment under article 25. According to the decree of Director General of Taxes number KEP-537/PJ./2000, taxpayers who can prove that the tax due for a taxable year would be less than 75% of taxable income of the previous year (basis for calculating Article 25 installment) may request for a reduction of the installment, at the earliest three months after a taxable year began:

HOW LONG DOES IT TAKE TO GET A TAX REFUND?

A tax refund shall be given not later than 12 months after the date of filing a tax return. Before the refund is given, taxpayer will be subject to a tax audit for that taxable year. Process of a tax audit usually takes approximately one to three months depending on data available

 

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