2024 is the last year for the 0.5% tax incentive for small and medium-sized enterprises in Indonesia. While the transition to progressive tax rates may seem daunting, it’s important to understand the implications and how to prepare for this change.
New Options for Small Business
The tax incentive for small businesses offering a reduced final income tax rate of 0.5% is set to end this year. Previously, in 2018 Indonesia’s Government Regulation No. 23 provides a final income tax rate of 0.5% for small businesses with an income not exceeding IDR 4.8 billion per year.
– For individual taxpayers, this applies for 7 years,
– For corporate taxpayers in the form of CV (limited partnership) it applies for 4 years,
– For a limited liability company (or Perseroan Terbatas/PT in Bahasa Indonesia) it applies for 3 years.
So, if an individual taxpayer starts using this tax incentive in 2024, the last year they can use this incentive is in their 2030 tax report. However, if they have been using it since 2018, then it will end in 2024.
For the 2025 tax year and onwards, the taxpayers will have 2 options, to use the Net Income Calculation Method or keep proper bookkeeping if their revenue exceeds IDR 4.8 billion. With proper bookkeeping, consequently, all business transactions must be systematically recorded and documented from January 2025 onwards.
Significant Changes
The seven-year time limit on the tax incentive was essentially designed as a learning period for small business taxpayers to implement financial bookkeeping before being subject to progressive tax rates as stipulated in Indonesia’s Income Tax Law.
Every transaction recorded in bookkeeping will subsequently become the basis for preparing fiscal financial reports that must be attached when submitting the annual tax report, which is mandatory for individuals and business operators.
So the small businesses don’t need to worry if the 0.5% tax incentive period ends. It will only cause significant changes in the way business transactions are recorded. The tax obligation, which will later use a progressive rate scheme, will still be calculated proportionally from net profit. The amount may not be significant or could even be lower.
For business, the net profit value listed in the bookkeeping will later become the basis for calculating income tax. The profit value that exceeds the non-taxable income threshold will be subject to income tax at the applicable progressive rates. This concept is similar to the income tax calculation for individuals working as employees.
Ensure Your Tax Compliance
Through proper bookkeeping, small businesses are expected to systematically record all buying and selling transactions, as well as expenses and income from their business activities throughout the year.
This enables them to accurately calculate their net profit or loss. Bookkeeping is crucial for gaining a clear picture of a business’s performance from year to year.
With the Harmonization of Tax Regulations Law, Indonesia has mandated all taxpayers to implement financial bookkeeping. However, for newly established businesses, bookkeeping can be a challenging task.
Let Seven Stones handle your financial record needs. Our comprehensive services, including tax ID registration, monthly bookkeeping, tax calculations, and annual tax reporting, are designed to streamline your business operations and ensure compliance with Indonesian tax regulations.
Do you need more info about our bookkeeping, tax and accounting services? Contact Seven Stones Indonesia today. With our expertise and personalized approach, you can focus on growing your business while we take care of the complexities of tax management.
