Corporate Income Tax in Indonesia

Who is Subject to Corporate Income Tax

In general, every business entity registered in Indonesia — including PT (limited liability companies), PMA companies, cooperatives, foundations, and other entity forms — is subject to Corporate Income Tax on income earned.

Foreign companies not domiciled in Indonesia but having a business presence here (e.g., through a Permanent Establishment / BUT) may also be subject to Indonesian tax on income attributable to that establishment.

The Concept of Taxable Income

Taxable income is not simply accounting profit. It is gross income less fiscally-allowed deductions — after adjustments needed to align accounting treatment with tax treatment.

Tax is calculated on provable net income, not on turnover. However, companies with gross revenue below certain thresholds may qualify for special tax treatment. [VERIFY: thresholds and special rates]

Fiscal Corrections: Deductible vs Non-Deductible Expenses

Not all expenses recorded in the accounts are deductible for tax purposes. Tax law specifically defines which expenses are deductible and which are not.

Common examples of non-deductible items include: expenses unrelated to business activities, entertainment without adequate documentation, tax penalties, and certain dividend distributions. The reconciliation between accounting profit and taxable income is recorded in the annual corporate tax return attachment.

Monthly Instalments (PPh 25) & Annual Filing

Companies must pay monthly Corporate Income Tax instalments through PPh Article 25. The instalment amount is generally calculated based on the prior year's tax liability, divided by 12.

At the end of the tax year, the company files an annual corporate tax return. If taxes paid (including instalments and other tax credits) exceed the tax liability, the company can apply for a refund or carry the overpayment forward. Any shortfall must be settled before the return is filed.

Tax Credits

Taxes withheld by third parties (for example, PPh 23 withheld by a customer on service payments to your company) can be credited against the annual Corporate Income Tax liability. This prevents double taxation of the same income.

Withholding tax slips (bukti potong) received from the withholding party are important documents that must be retained and reported in the tax return.

Final Tax Regimes

Certain types of income are subject to final tax at specified rates and are not included in the regular taxable income calculation. Examples include income from construction, land and building transfers, and certain rental income types.

Whether a particular income falls under a final regime needs to be analysed based on the transaction type and applicable regulations.

Considerations for PMA and Foreign-Owned Companies

PMA companies are subject to the same general obligations as local PT companies, but have several additional considerations: (1) Transfer pricing — transactions between entities within an international group must be conducted at arm's length prices, and transfer pricing documentation may be required; (2) Withholding tax on dividends, interest, and royalties paid to overseas parent companies; (3) Group reporting — PMA companies may need to prepare reports that can be consolidated under the parent's reporting standards.

General Considerations

• Perform fiscal reconciliation regularly — don't wait until year-end.
• Document all deductible expenses with adequate supporting evidence.
• Calculate and remit PPh 25 instalments on time each month.
• For PMA companies, document transfer pricing policy from the outset.
• Tax credits (withholding slips) received must be filed and reported in the return.
• Consult a tax professional before unusual or significant transactions.