Doing Business

How to apply Reduced Income Tax in Indonesia?

Trường Lăng

February 5, 2020

Doing Business

How to apply Reduced Income Tax in Indonesia?

Trường Lăng

February 5, 2020

Indonesia government has lowered the income tax rate for small and medium-sized businesses (SMEs) in July 2018, making it easier to open up business in Indonesia. According to Government Regulation (PP-23) effective in July 2018, the reduced income tax rate in Indonesia is 0.5% from previous 1%.
In this article, we provide you all the information you need to know about reduced income tax for small and medium-sized enterprises (SMEs) and how to apply for it.

Who is eligible to apply reduced income tax?

According to the PP-23, individual taxpayers, as well as companies with gross income below IDR 4.8 billion per year (~ USD 340,000), can apply for reduced income tax rate in Indonesia. Individual taxpayers can enjoy the reduced tax rate for seven years, whereas companies can enjoy for three years.
If your company’s annual income exceeds IDR 4.8 billion during this period, you need to pay the income tax according to the general tax rates (12.5-25% of the profit). Moreover, you also cannot proceed with the reduced tax rate.
Even if your annual income does not exceed IDR 4.8 billion, the new government regulation PP-23 allows you to choose between two income tax rates:

  •         Income tax rate (0.5% of the revenue/gross income)
  •         General tax rate (12.5-25% of the profit)

What if your company gross income greater than IDR 4.8 billion per year?

The answer for this question is, you can set up several legal entities in Indonesia to keep the income per company below the required IDR 4.8 billion. If you have two legal entities in Indonesia, you can have a total income of IDR 9.6 billion. This method would allow you to still pay the reduced income tax rate in Indonesia, as long as you divide the income between the companies.
Please note that to use this method, you will have to pay attention to the status of each entity. If one entity is registered as a branch office and the other as the headquarter, the income should be combined, therefore you cannot apply for reduced income tax. If the companies are independent (not registered as part of the branch of one another), then these incomes can be separated. This also means that reducing tax pay is possible.

When to apply for reduced income tax?

Companies that complete their tax registration starting from 1 January 2019 must send the notification letter to the tax office during the tax ID registration. Keep in mind that you also need to send a notification letter to the tax office if you prefer the standard tax rate instead of the final income tax. The deadlines are the same as in the table above.

How to apply for reduced income tax?

To apply for the 0.5% income tax, you need to obtain a statement letter first. You can do that by sending an application to the tax office in which you received your tax ID. Below are the requirements to apply for reduced income tax:

  •         The Director of the company has to sign the application letter
  •   You need to submit the latest annual tax report (except newly-registered companies or companies that are not obliged to file a yearly tax report)

The tax office will then issue a statement letter or a rejection letter within three working days after the complete application is received. If the tax office rejects your claim, you can re-apply for a new statement letter. The validity period of a statement letter starts from the day of issuance up to the limit of the final income tax period or until you decide to use the general tax rate (12.5-25%).

When to pay income tax?

The monthly payment of the final income tax is the 15th day of the month. However, the deadline for paying the withholding and employee taxes is the 10th day of each month.
Still have your question unanswered? You can contact us anytime at info@viettonkin.com.vn. Our qualified accountants are always ready to assist you. For more information about Indonesia, consult our local blog!

Related posts

Doing Business

Public Holidays in ASEAN countries (Part 4 – Indonesia)

Table of Contents Major public holidays in IndonesiaImplications of public holidays for enterprises and companies in respect of the Calculation of Employee Salary and HolidaysThe ...
Read more
Doing Business

How to incorporate a company in Malaysia in 2022

Table of Contents Conditional business sectors in MalaysiaCompliance under Malaysian regulations There are the 5 main types of business entities available in Malaysia. · Sole ...
Read more
Doing Business

DOING BUSINESS IN THE PHILIPPINES IN 2022

Viettonkin Consulting has helped its clients register their businesses in the Philippines for years. Our offerings consist of i) services for company formation in the ...
Read more
Doing Business

Setting Up a Company in Indonesia (Part One)

In Indonesia, prospective business owners can start any company of any sort as long as they have fulfilled all the necessary criteria and regulations. Two ...
Read more

Download our Latest Ebook about Real Estate and Property!

Real estate holds a pivotal position in the development of a country, not only via the spillover impacts on other economic sectors such as construction, manufacturing, tourism, finance and banking etc. but also affecting the social dynamic by mobilizing the residency and infrastructure system. Foreign direct investment in real estate (RFDI) in Vietnam has a long running history and is unique in that it is largely dominated by the private sector compared to other industries which usually still have a rather large Government involvement. International capital has consistently been selecting real estate as the destination of choice, given that RDI has always been in the top 2 and 3 for volume inflow over the last 10 years, even throughout extremely turbulent periods such as COVID-19, per the General Statistics Office of Vietnam’s (GSO) data. Find out more in this ebook edition.

Tải cuốn ebook mới nhất về nền kinh tế số Việt Nam!

The digital economy of Vietnam has been fueled and accelerated by the global digital trends and the pandemic Covid-19. The movement of digital transformation is underway in every corner of Vietnamese life, strongly influencing the way people do things. Digital economy is the future of the Vietnam economy. Realizing the potential of the digital economy, the Vietnam government has issued policies, guidelines and created legal frameworks to support and further enhance this economy. In this ebook edition, the digital economy is looked at from different angles. Perspectives from the key elements comprising Vietnam digital economy are examined and discovered.

Our Happy Clients