Indonesia Tax & Business Guide - Deloitte

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Basic facts
Population 245.5m Inflation 13.1% (2006)*
Main languages Bahasa Indonesia GDP per head US$1,480*
Currency Rupiah (IDR) GDP growth 5.5% (2006)*
Economic communities Asia Pacific Economic Co-operation, Association of South-East Asian Nations, WTO
GDP sources 12.9% agriculture, 47.0% industry, 40.1% services
*Economist Intelligence Unit estimates.
Political environment

The Republic of Indonesia is a constitutional democracy with a strong executive presidency.

The president is Susilo Bambang Yudhoyono. The two strongest parties in the parliament are Golkar and Megawati SoekarnoputriÌs Indonesian Democratic Party-Struggle. The next parliamentary and presidential elections are scheduled for 2009.
Foreign trade and investment
Exports US$102.7bn (2006)* Imports US$73.0bn (2006)*
*Economist Intelligence Unit estimates.

Major exports: Crude petroleum and products, textiles and garments, and liquefied natural gas.

Leading export markets: Japan, the US, China and Singapore.

The Investment Co-ordinating Board (Badan Koordinasi Penanaman Modal, or BKPM) is responsible for promoting foreign investment and approving project proposals. Particularly favoured are large investments with an export orientation that facilitate skills transfer to Indonesian staff.
Business and financing
Business forms Limited liability company

The limited liability (Perseroan Terbatas, or PT) company is the business organisation used most frequently and the one to which foreign investors are restricted by the Foreign Investment Law. Branches of foreign corporations are not normally permitted outside of the banking sector.

An Indonesian corporationÌs capital may be stated in foreign currency for purposes of future capital repatriation. Foreign firms generally raise funds outside the country, and tend to use the Indonesian branches of home-country banks for cash management and local short-term investments.

The main financial centres are Jakarta (the capital), Semarang, Bandung and Surabaya (on the main island of Java), and Medan (on the island of Sumatra). Singapore acts as IndonesiaÌs offshore banking centre.
Labour environment
Unemployment rate 12.5% (2006) Minimum wage Varies by region and industry

Provincial and district authorities set minimum wages, which vary by province, district and sector. Minimum-wage levels are based on proposals by provincial wage commissions, whose members comprise workers, employers and government.

Less than 2% of the workforce is unionised.

Companies with more than ten employees or with a monthly payroll of more than IDR 1m are subject to a workersÌ insurance scheme, including occupational-accident, health and life insurance.

Expatriates may be hired only if Indonesians are not able to fulfil a position, and only if training is provided so that Indonesians are able to replace the expatriates.
Taxation
Corporate tax
Main rate 30%

Resident companies pay tax on worldwide income; non-resident companies are taxed only on Indonesian-source income. An entity is resident if it is set up or domiciled in Indonesia, or if it is a permanent establishment of an entity not set up or domiciled in Indonesia. Companies are taxed at progressive rates rising to 30% on income over IDR 100m.

Dividends are generally taxable in the hands of the shareholder, but dividends paid between Indonesian companies are exempt. There is a 20% branch profits tax on remittances abroad by permanent establishments, and this can also be applied to indirect remittances such as excessive transfer prices or payments for overhead.
Individual tax
Progressive rates to 35%

Resident individuals are taxed on their worldwide income; non-residents are taxed only on Indonesian-source income. An individual is resident if remaining in Indonesia for 183 days in any 12-month period or if resident in Indonesia with the intention of staying in the country.

Income tax applies at progressive rates rising to 35% on income over IDR 200m. Dividends received by individuals from Indonesian companies are subject to a 15% withholding tax. In calculating tax liability, gross dividends are combined with other income received and the tax on the total income received is calculated using the progressive tax rates to 35%. The 15% withholding tax is credited against the total income tax due. Interest on government bonds is taxed by final withholding at 20%.
Capital gains
Gains are taxed as income

Capital gains for both individuals and businesses are taxed as ordinary income, and capital losses are deductible.
Indirect tax
Standard rate 10% Lower rates 1% and 0.5%

Value-added tax (VAT) applies to most transactions. The standard rate is 10% and a lower rate of 1% applies to courier services and the services of travel agents. Factoring services are subject to a 0.5% rate. Exemptions include basic necessities, insurance and financial services, and healthcare. A luxury sales tax applies at rates ranging from 10% to 75% on certain goods classified as luxury goods, such as radios, carpets, television sets and certain vehicles.

Businesses with annual turnover above IDR 600m must be registered.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

All taxpayers must file an annual return with the tax authorities within three months of the end of the calendar year or tax year. Tax is calculated by self-assessment and payable with the return. Employment income is taxed by withholding.
Additional tax information
Withholding taxes Dividends, interest and royalties 20% when paid to non-residents. Withholding tax may be reduced or exempted under tax treaties.
Tax treaties Indonesia has concluded more than 50 tax treaties.
Dividends Dividends are taxable.
Revenue protection There is no specific transfer-pricing legislation, although related party transactions must be carried out on armÌs-length terms.
Groups There is no group taxation.
Incentives Export production; new projects in certain sectors; mining; oil and gas; small and medium-sized businesses; Islamic banking; remote area venture-capital companies.
Other taxes Business registration fee, Branch profits tax, Development tax, Import duties, Land and building tax, Stamp duties, Tax on transfer of real property, Stock transaction tax.