Indonesian income tax is collected mainly through a system of WHTs. Where a particular income item is subject to WHT, the payer is generally held responsible for withholding or collecting the tax. These WHTs are commonly referred to using the relevant article of the Income Tax (Pajak Penghasilan or PPh) Law, as follows.
Article 23/26 Income Tax (PPh 23/26)
PPh 23/26 is levied on a variety of payments to corporations and individuals, resident and non-resident, at the following rates:
|Dividends||Interest||Royalties||Branch profits (8)|
|Non-resident corporations and individuals|
|Australia||15||15||0/10 (6a)||10/15 (7b, 7c)||15|
|Cambodia (1, 5)||10||10||0/10 (6a, 6b)||10||10|
|Canada||15||10||0/10 (6a, 6b)||10||15|
|China (2)||10||10||0/10 (6a)||10||10|
|Czech Republic||15||10||0/12.5 (6a)||12.5||12.5|
|Finland||15||10||0/10 (6a)||10/15 (7d)||15|
|France||15||10||0/10/15 (6a, 6b)||10||10|
|Germany (1)||15||10||0/10 (6a)||10/15 (7b, 7c)||10|
|Hong Kong||10||5||0/10 (6a)||5||5|
|Hungary (3)||15||15||0/15 (6a)||15||20|
|India (1)||10||10||0/10 (6a)||10||15|
|Italy||15||10||0/10 (6a, 6b)||10/15 (7b, 7c)||12|
|Jordan (3)||10||10||0/10 (6a)||10||20|
|Korea (North)||10||10||0/10 (6a)||10||10|
|Korea (South) (2)||15||10||0/10 (6a)||15||10|
|Luxembourg (1)||15||10||0/10 (6a)||12.5||10|
|Malaysia (4, 5)||10||10||0/10 (6a, 6b)||10||12.5|
|Mexico||10||10||0/10 (6a, 6b)||10||10|
|Netherlands||10/15||5||0/5/10 (6a, 6b)||10||10|
|New Zealand (3)||15||15||0/10 (6a)||15||20|
|Norway||15||15||0/10 (6a, 6b)||10/15 (7a, 7b, 7c)||15|
|Pakistan (1)||15||10||0/15 (6a)||15||10|
|Papua New Guinea (1)||15||15||0/10 (6a)||10||15|
|Philippines||20||15||0/10/15 (6a, 6b)||15||20|
|Romania||15||12.5||0/12.5 (6a, 6b)||12.5/15 (7a, 7b, 7c, 7d)||12.5|
|Seychelles (3)||10||10||0/10 (6a)||10||20|
|Singapore (6)||15||10||0/10 (6a)||15||15|
|Slovakia||10||10||0/10 (6a)||10/15 (7d)||10|
|South Africa||15||10||0/10 (6a)||10||20|
|Sri Lanka||15||15||0/15 (6a)||15||20|
|Sweden||15||10||0/10 (6a)||10/15 (7b, 7c)||15|
|Switzerland (1)||15||10||0/10 (6a)||10||10|
|Syria||10||10||0/10 (6a)||15/20 (7d)||10|
|Tajikistan||10||10||0/10 (6a, 6b)||10||10|
|Ukraine||15||10||0/10 (6a, 6b)||10||10|
|United Arab Emirates||10||10||0/5 (6a, 6b)||5||5|
|United Kingdom||15||10||0/10 (6a, 6b)||10/15 (7b)||10|
|United States of America||15||10||0/10 (6a)||10||10|
|Venezuela (1)||15||10||0/10 (6a, 6b)||20||10|
|Zimbabwe (1, 5)||20||10||0/10 (6a)||15||10|
Domestic Article 23 WHT is also payable at the rate of 2% for most types of services where the recipient of the payment is an Indonesian resident.
- Service fees, including for technical, management, and consulting services, rendered in Indonesia are subject to WHT at rates of 5% for Switzerland; 7.5% for Germany; 10% for Cambodia, India, Luxembourg, Papua New Guinea, Venezuela, and Zimbabwe; and 15% for Pakistan.
- VAT is reciprocally exempted from the income earned on the operation of ships or aircraft in international lanes.
- The treaty is silent concerning BPT rate. The ITO interprets this to mean that the tax rate under Indonesian Tax Law (20%) should apply.
- Labuan offshore companies (under the Labuan Offshore Business Activity Tax Act 1990) are not entitled to the tax treaty benefits.
- Ratified but not yet effective, pending the exchange of ratification documents.
- Renegotiation was signed on 4 February 2020, pending the ratification and exchange of ratification documents. The royalty rates are reduced from 15% to 10% on payments for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process; or 8% on payments for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. The BPT tax rate is reduced from 15% to 10%.
The issue of beneficial ownership has come under tax office scrutiny. For treaty WHT rates to apply to passive income such as interests, dividends, and royalties, the recipient of such income must be the beneficial owner. The recipient must also provide a Certificate of Domicile (CoD) in the form required by the ITO and certified by their home country tax authority that the recipient is a tax resident of that country. The CoD in the form prepared by the other country’s tax authority may only be used in limited circumstances. Further, the CoD form also requires a number of declarations to be made by the recipient that acknowledges that the use of the treaty jurisdiction was not merely for obtaining the benefit of the treaty. These declarations place onerous obligations on both the Indonesian payer and the recipient entity. Without a certified CoD, a WHT at a rate of 20% will apply. These aspects need to be considered when paying income of this nature.
Article 22 Income Tax (PPh 22)
PPh 22 is typically applicable to the following:
|Event||Tax rate (%)||Tax base|
|1||The import of:||Import value (i.e. CIF value plus duties payable)|
|a. Certain end customer goods||10|
|b. End customer goods other than (a)||7.5|
|c. Goods other than (a) and (b) using an Importer Identification Number (Angka Pengenal Impor or API):|
|i. Soybeans, wheat, and flour wheat||0.5|
|ii. Other than (i)||2.5|
|d. Goods other than (a) and (b) without an API||7.5|
|2||The auctioned imported goods||7.5||Auction prices|
|3||The sale of goods to the government requiring payment from the State Treasury and Proxy of Budget User (Kuasa Pengguna Anggaran or KPA) (1)||1.5||Selling prices|
|4||The sale of goods to State-Owned Enterprises (Badan Usaha Milik Negara or BUMN) and some of their subsidiaries (1, 3)||1.5||Selling prices|
|5||The purchase of oil fuel by gas stations from Pertamina and its subsidiaries (2)||0.25||Selling prices|
|6||The purchase of oil fuel by gas stations from parties other than Pertamina and its subsidiaries (2)||0.3||Selling prices|
|7||The purchase of oil fuel by parties other than gas stations (2)||0.3||Selling prices|
|8||The purchase of gas fuel (2)||0.3||Selling prices|
|9||The purchase of lubricants||0.3||Selling prices|
|10||The purchase of cement by local distributors||0.25||Selling prices|
|11||The purchase of paper products by local distributors||0.1||Selling prices|
|12||The purchase of steel products by local distributors||0.3||Selling prices|
|13||The purchase of automotive products by local distributors||0.45||Selling prices|
|14||The purchase of pharmaceutical products by local distributors||0.3||Selling prices|
|15||The purchase of motor vehicles from Sole Agents (Agen Tunggal Pemegang Merek or ATPM), Agents (Agen Pemegang Merek or APM), and general importers (4)||0.45||Selling prices|
|16||The sale of forestry, plantation, agriculture, cattle breeding, and fishery products to manufacturers or exporters (1)||0.25||Selling prices|
|17||The export of coal, metal, and non-metal minerals by exporters other than those engaged in a mining cooperation agreement or a contract of work with the government||1.5||Export value|
|18||The sale of coal, metal, and non-metal minerals by companies or individuals holding a mining license (Izin Usaha Pertambangan or IUP) (1)||1.5||Selling prices|
|19||The purchase of gold bars (5)||0.45||Selling prices|
|20||The purchase of very luxurious goods||5||Selling prices|
- In events (3), (4), (16), and (18), the PPh 22 collectors must withhold PPh 22 from the amount payable to a particular vendor, except payments for the purchase/use of:
- oil fuel, gas fuel, lubricants, postal products
- water and electricity
- oil or gas (including upstream by products) from a contractor of a PSC, the contractor’s head office, or the contractor’s trading arms, and
- geothermal or electricity from a contractor of a Joint Operation Contract.
There is also an exemption for the purchase of goods with a value of up to IDR 2 million, IDR 10 million, and IDR 20 million for events (3), (4), and (16) respectively. In the other events, the importer or the buyer of the designated goods must pay PPh 22 in addition to the amounts payable for the goods imported or purchased.
- The withheld PPh 22 constitutes a pre-payment of corporate/individual income tax liabilities, except for the purchase of oil and gas fuel by distributors/agents, which is categorised as final tax.
- Exception applies on the sale of forestry, plantation, agriculture, cattle breeding, and fishery products since it is already subject to PPh 22 in event (16).
- Exception applies on the purchase of very luxurious motor vehicles since it is already subject to PPh 22 in event (20).
- Exemption applies on the sale to Bank Indonesia.
The tax does not apply, either automatically or with an Exemption Certificate issued by the DGT, on the following types of events:
- Import/purchase of goods not subject to income tax.
- Import of goods exempted from import duties and/or VAT, subject to 0% import duty, or where VAT is not collected.
- Goods that have been temporarily imported (i.e. goods for re-export).
- Goods for re-importing (i.e. exported and re-imported in the same quality or to be repaired/tested).
- Import of gold bars for the production of jewellery for re-export.
- Purchase of goods related to the use of government school operations subsidy (Bantuan Operasional Sekolah or BOS) fund.
- The purchase of grain or rice by the State Treasury, KPA, and the Bureau of Logistics (Badan Urusan Logistik or BULOG).
- The purchase of necessary food products by BULOG or appointed BUMN.
Taxpayers without a Tax Identification Number will be subject to a surcharge of 100% in addition to the standard tax rate.