Under Indonesian law it’s compulsory for a company to withhold an employee’s income taxes. This applies to both Indonesian nationals and foreigners, and at the end of each calendar year the company (employer) will have to provide employees with their annual tax returns.
Both the employee and the company will then have to submit their tax reports to the tax authority no later than March 31.
Income Tax
In Indonesia, as is the case in many other countries around the world, everyone’s income is subject to tax. However, if the overall payment is below the minimum amount, then the income is not subject to income tax.
If the income is higher than the basic tax allowance amount then income tax applies. Indonesian tax rates on income tax are progressive, which means the higher the income the higher the tax bracket will be.
Taxpayer Identification Number
All Indonesians and foreigners being tax residents in Indonesia must apply for a tax ID called an NPWP (Nomor Pokok Wajib Pajak or Taxpayer Identification Number.) If someone does not have an NPWP, then an additional 20-percent tax is applied to their income tax, which companies are obliged to withhold.
Tax Brackets and Payrolls
These are the annual tax rates/ brackets in Indonesia as a basic guideline when it comes to calculating your income taxes:
IDR 0 to 60,000 000 – 5-percent
IDR 60,000,000 to 250,000,000 – 15-percent
IDR 250,000,000 to 500,000,000 – 25-percent
IDR 500,000,000 to 5,000,000,000 – 30-percent
Over IDR 5,000,000,000 – 35-percent
There are several aspects that can be used to deduct from the income tax and payroll in Indonesia as well as other payroll related aspects such as:
- Working Hours: This is usually a standard of 40-hours per week from Monday to Friday for any employee in Indonesia.
- Minimum Salary: It’s compulsory to comply with the minimum set salary, which may vary between the different regions of Indonesia.
- Allowance: A religious holiday allowance known as THR (Tunjangan Hari Raya or Religious Holiday Allowance) must be given to all employees, both Indonesian nationals and foreigners. The allowance is considered an extra income and is not part of monthly salaries. THR is usually paid out before each person’s respective religious holiday.
- Overtime Work: Each employee is only allowed a maximum of 3-hours overtime a day. The overtime calculation is set at 1/173 of the monthly salary for the employee.
- Mandatory Insurance: All employees, both foreign or domestic who work and reside in Indonesia for six months or more must participate in the national insurance and pension programme known as BPJS (Badan Penyelenggara Jaminan Sosial Kesehatan is responsible for administering Indonesia’s national health insurance.)
Read More: Payroll System in Indonesia
At Seven Stones Indonesia, we believe that compliance is better than defiance. That’s why we have a team of tax and accounting professionals who are here to help you with your tax and payrolls for domestic and international clients as well as employment of record. So, if you need a consultation or just want to clarify your position regarding tax obligations and payrolls, make sure to reach out today at hello@sevenstonesindonesia.com
