Inventories must be measured at cost by using either the average or first in first out (FIFO) method. Once a costing method is adopted, it must be applied consistently.
Capital gains are generally assessable together with ordinary income and subject to tax at the standard CIT rate. However, gains from the transfer of land and buildings are not subject to regular CIT, but rather are subject to final income tax at a rate of 2.5% of the transaction value or the government-determined value, whichever is higher.
The proceeds from sales of shares listed on the Indonesian stock exchange are not subject to normal CIT. Instead, the proceeds are subject only to a final WHT of 0.1% of the gross sales consideration. An additional tax of 0.5% applies to the share value of founder shares at the time an initial public offering takes place, irrespective of whether the shares are held or sold. Shareholders may elect not to pay this tax, in which case the actual gain will be subject to normal tax at the time the shares are sold.
In principle, dividend income received by a resident taxpayer from a domestic limited liability company (generally referred to as a Perseroan Terbatas or PT) is taxable as ordinary income for the taxpayer receiving the dividend. However, it becomes non-taxable if the recipient is domestic corporate taxpayers or domestic individual taxpayers whose dividends are reinvested in Indonesia within a certain period. Where the recipient is not resident in Indonesia, a WHT rate of 20% applies, subject to variation by tax treaties (see the Withholding taxes section for more information).
Dividends paid by companies abroad received by domestic taxpayers may be exempted if the dividends are reinvested or used for business activities in Indonesia within a certain period.
The same rules apply to stock dividends (bonus shares), including dividends paid out of share premium (agio).
Interest income on time or saving deposits and on Bank of Indonesia Certificates (SBIs) received by a resident company or a PE is taxed at a final tax rate of 20%, whilst interest income on bonds is subject to a final income tax rate of 10%.
Income from interest other than the above is subject to tax and will be taxed by a WHT mechanism. The WHT rate on interest is 15% of the gross amount for resident taxpayers and 20% of the gross amount for non-resident taxpayers or the reduced rate set out in a tax treaty. The domestic WHT on this interest can be used as a tax credit against the normal income tax of 22% for corporate taxpayers and/or 35% (max) for individual taxpayers.
Income from royalty is subject to tax and will be taxed by a WHT mechanism. The WHT rate on royalty is 15% of the gross amount for resident taxpayers and 20% of the gross amount for non-resident taxpayers or the reduced rate set out in a tax treaty. The domestic WHT on this royalty can be used as a tax credit against the normal income tax of 22% for corporate taxpayers and/or 35% (max) for individual taxpayers.
Exchange gains and losses
Gains and losses arising from currency fluctuations are generally recognised on an accrual basis in accordance with the prevailing Indonesian Accounting Standards, which resemble International Accounting Standards in most respects.
Certain income of a controlled foreign company (CFC) is subject to deemed dividend rules in Indonesia. This income includes dividends, interest, rentals, royalties, and gains from sales or transfer of assets, with certain limitations. A CFC is a foreign entity that is at least 50% owned by an Indonesian taxpayer or at least 50% collectively owned by Indonesian taxpayers. The scope of CFC income also covers income from indirectly owned CFCs with a minimum of 50% ownership by another CFC, collective ownership by an Indonesian taxpayer’s CFC, or collective ownership by a number of CFCs (including under the same or different Indonesian taxpayers).
The ownership threshold that is used to determine the CFC status is the ownership percentage at the end of the Indonesian taxpayer’s fiscal year, which is based on either the percentage of paid-up capital or the percentage of paid-up capital with voting rights. The only situation in which the rules do not apply is when the CFC’s shares are listed on a recognised stock exchange.
On top of foreign dividends, the following income may also be exempted if these incomes are reinvested or used for business activities in Indonesia within a certain period:
- Income received by an Indonesian taxpayer from a PE abroad.
- Active business income received by an Indonesian taxpayer from abroad (not from a PE or foreign subsidiary).