Indonesian Corporate Income Tax
Legal base base for imposing corporate income tax is Law Number 7 Year 1983 as several times amended lastly by Law Number 36 Year 2008 and its implementing regulations.
- Resident corporate tax subject which may consists of a group of people and or capital that forms a unity that either conducts business or not, including corporation, limited partnership, state or local state-owned enterprise in whatever name and form, firm, kongsi, cooperative, pension fund, partnership, association, foundation, mass organization, social and political organization, or any similar organization, institution and other forms of entity, including collective investment contract and permanent establishment. Resident corporate tax subject is entity established or domiciled in Indonesia
- Non resident tax subject that are entity which is not established and is not domiciled in Indonesia conducting business or carrying out activities through a permanent establishment in Indonesia, and entity which is established outside Indonesia and is not domiciled in Indonesia, which may receive or accrue income from Indonesia other than from conducting business or carrying out activities through permanent establishment.
A permanent establishment is a Tax Subject which for taxation purposes is treated as a corporate taxpayer.
In determining income which is subject to income tax the income tax law adopts the so called “economic accretion concept” whereby income is defined as any increase in economics capacity received by or accrued by a taxpayer from Indonesia as well as from offshore, which may be utilized for consumption or increasing the taxpayer’s wealth, in whatever name and form. From the definition of income above, it can be concluded that all economic accretion is regarded as income tax object, unless the law otherwise requires.
Income which are excluded as income tax object is as follows:
- aids or donations, including zakat;
- gifts received by educational or other social entity including foundation, cooperative which stipulated by or based on a Minister of Finance Regulation;
- assets including cash received in exchange for shares or capital contribution;
- dividends or distribution of profit received by or accrued by a resident limited corporation, cooperative, state-owned enterprises, or local government-owned enterprises through ownership in enterprise established and domiciled in Indonesia;
- expenses to earn, to collect and secure income;
- depreciation of tangible asset and amortization of rights and other expenditures which have useful life of more than 1 year;
- contributions to a pension fund which its establishment is approved by the Minister of Finance;
- losses incurred from the sale or transfer of properties owned and used in business or used for the purpose of earning, collecting and securing income;
- losses from foreign exchange;
- costs related to research and development carried out in Indonesia;
- scholarships, apprenticeships and training expenses;
- debts which are actually noncollectable provided that fulfill requirements stipulated in the law;
- donation for national disaster which is stipulated by a Government Regulation;
- donation for research and development conducted in Indonesia which is stipulated by a Government Regulation.
- costs of social infrastructure development which is stipulated by a Government Regulation;
- donation in the form of education facilities which is stipulated by a Government Regulation;
- donation for sport enhancement which is stipulated by a Government Regulation.
The loss incurred, after subtracting the deductions from gross income, shall be carried forward for a maximum of five successive years.
Special for the permanent establishment, in addition to tax deductible expenses mentioned above, head office administrative costs related to the business or activities of the permanent establishment, may also be deducted against the gross income of the permanent establishment. The amount shall be determined by the Director General of Taxes. While the expenses paid to the head office, which should not be charged as an expense, are:
- royalty or other remuneration in connection with the use of property, patents, or other rights;
- compensation in connection with the management and other services;
- interest, unless the interest relating to the business of banking.
The corporate income tax rate applicable for corporate taxpayer and permanent establishment is 25% of taxable income.
Posted on May 27, 2013, in English Version, Forum, Indonesian Taxation Summaries and tagged Corporate Income Tax rate, income tax object, income tax subject, Indonesian Corporate Income Tax, permanent establishment. Bookmark the permalink. 12 Comments.