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.

Tax subject:

  1. 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
  2. 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.

Tax object:

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:

  1. aids  or  donations,  including  zakat;
  2. gifts  received  by  educational or other social entity including  foundation, cooperative which stipulated by or based on a Minister of Finance Regulation;
  3. inheritance;
  4. assets  including  cash  received in exchange for shares or capital contribution;
  5. 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;
Deductions can be claimed in calculating taxable income:
  1. expenses  to  earn,  to  collect  and  secure  income;
  2. depreciation  of  tangible  asset  and  amortization  of  rights  and  other  expenditures which  have  useful  life  of  more  than  1    year;
  3. contributions to a pension fund which its establishment is approved by the Minister of Finance;
  4. 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;
  5. losses from foreign exchange;
  6. costs related to research and development carried out in Indonesia;
  7. scholarships, apprenticeships and training expenses;
  8. debts which are actually noncollectable  provided that fulfill requirements stipulated in the law;
  9. donation for national disaster which is stipulated by a Government Regulation;
  10. donation for research and development conducted in  Indonesia which is stipulated by a Government Regulation.
  11. costs  of  social  infrastructure  development  which  is  stipulated  by  a  Government Regulation;
  12. donation  in  the  form  of  education  facilities  which  is  stipulated  by  a  Government Regulation;
  13. 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:

  1. royalty or other remuneration in connection with the use of property, patents, or other rights;
  2. compensation in connection with the management and other services;
  3. interest, unless the interest relating to the business of banking.

Tax rate:

The corporate income tax rate applicable for corporate taxpayer and permanent establishment is 25% of taxable income.

About Jaja Zakaria

Nama saya Jaja Zakaria, saya tinggal di Depok, Jawa Barat, kurang lebih 40 km dari Jakarta Selatan. Saya alumni Fakultas Hukum Universitas Gadjah Mada, Yogayakarta, dan Opleidings Instituut Financien, Den Haag, Belanda di bidang Hukum Pajak Internasional. Saya pengarang beberapa buku, e-book, dan makalah-makalah perpajakan. Pengalaman saya antara lain pernah menjadi anggota delegasi Indonesia dalam perundingan Perpajakan dengan Denmark, Mesir, Kanada, Uni Emirat Arab, Kuwait, Turki, Brunei Darussalam, Pilipina, Vietnam, Mongolia, dan Taiwan; dalam Study Group on Asian Tax Administration and Research (SGATAR) meeting; dan dalam Joint Commission Indonesia - China. Saya juga anggota International Word Tax Expert.

Posted on May 27, 2013, in English Version, Forum, Indonesian Taxation Summaries and tagged , , , , . Bookmark the permalink. 12 Comments.

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