Indonesia’s tax framework requires both residents and non-residents to follow specific withholding tax regulations.
For individuals, companies, and entrepreneurs operating in Indonesia, understanding withholding tax is vital to avoid legal and financial complications.
What Is Withholding Tax?
Withholding tax is the tax amount deducted by a third party from certain payments, which is then submitted to the Indonesian government.
For non-residents, this tax is considered a final tax. For residents, the withheld amount can either be a final tax or a creditable advance toward their total tax liability.
Also read: Indonesia Tax Rate: An Updated Guide
Withholding Tax Rates for Residents and Non-Residents
Withholding tax rates differ between residents and non-residents, particularly for income types such as dividends, interest, and royalties.
| Type of Income | Resident Tax Rate | Non-Resident Tax Rate |
|---|---|---|
| Dividends | 15% | 20% |
| Interest | 15% | 20% |
| Royalties | 15% | 20% |
This differentiation illustrates the distinct tax treatments for residents versus non-residents in Indonesia.
Also read: Indonesia Corporate Tax Rate: Navigating the Business Landscape
Withholding Tax on Salaries
Employers must withhold taxes on salaries and severance payments, with rates determined by the employee’s residency status. Residents without a Taxpayer Identification Number (NPWP) face a withholding tax rate of 20%.
Import-Related Withholding Taxes
Certain imported goods in Indonesia may be subject to withholding tax, depending on the product type and the importer’s status. The following are the withholding tax rates for imports:
| Type of Import | Withholding Tax Rate |
|---|---|
| Consumer goods using Importer ID Number | 7.5-10% |
| Soybeans, wheat, and wheat flour | 0.5% |
| Goods without Importer ID Number | 7.5% |
| Auctioned goods | 7.5% |
Also read: What is LKPM Reporting in Indonesia: Essential Guide
Withholding Tax on Purchases of Specific Goods
Different purchases in Indonesia, especially those involving transactions with government or state-owned enterprises, are subject to withholding tax.
| Type of Purchase | Withholding Tax Rate |
|---|---|
| Purchases from the government | 1.5% |
| Purchases from state-owned enterprises | 1.5% |
| Fuel purchases by non-Pertamina entities | 0.3% |
| Export of minerals, coal, and metals | 1.5% |
| Gold bar purchases | 0.45% |
| Automotive, pharmaceutical, plantation products, etc. | 0.1%-0.45% |
Also read; Indonesia’s PPN Guide: Rules, VAT Rates, Calculation
Withholding Tax on Land, Buildings, and Other Services
Transactions related to renting land or buildings and construction services also incur withholding taxes.
| Transaction Type | Withholding Tax Rate |
|---|---|
| Rental of land or buildings | 10% |
| Construction work (small business/individuals) | 1.75% |
| Construction work (companies/large businesses) | 2.65%-4% |
| Consulting services | 3.5%-6% |
Understanding Final and Prepaid Withholding Taxes
In Indonesia, withholding tax can be either a final tax or a prepaid tax.
For non-residents, it is consistently regarded as a final tax. For residents, the withheld amount can be either a final tax or a prepayment against their annual tax obligations.
This system facilitates tax collection but requires precise record-keeping by both parties for compliance.
Also read: Tax Treaty Indonesia: Countries List and Complete Guide
Final Thoughts: The Importance of Compliance
It is crucial for foreign individuals and businesses operating in Indonesia to adhere to withholding tax regulations. Non-compliance can lead to serious penalties and legal challenges.
Considering the possibility of changes in tax regulations, it is advisable to consult tax professionals or legal advisors to ensure operations are in line with Indonesian tax laws.
You can rely on InvestinAsia’s Indonesia tax consultant and compliance services. Our experienced team of professionals is ready to assist you in every tax matter, such as:
- Accounting and tax reporting services in Indonesia
- Indonesia Payroll Service
- Indonesia LKPM Reporting Service
- Indonesia VAT Taxpayers Registration
Contact us now for FREE consultation and special package!
Meeting tax and legal responsibilities is fundamental for a successful business presence in Indonesia. Timely and accurate tax payments are crucial to avoid complications.
references:
- aseanbriefing.com
- klikpajak.id
