Capital Gains Tax Indonesia: A Guide to Accounting and Tax Reporting

It may be old, but the adage has always remained true and relevant: one of the constant things in the world is taxes – even Capital Gains Tax Indonesia. It doesn’t matter which country you go to. In some way or form, you will pay for it.

Indonesia is no different. Whether you’re an employee, consumer, or business owner, whether you live in Jakarta or Bali, you are bound by the laws of taxation. What’s important is to remember these important points: what you will pay, how much to pay, and how and when to file the report.

InCorp Indonesia is here to ensure that you learn these things and pay them in compliance with the country’s rules and regulations. Know the basics of accounting, tax reporting, and Capital Gains Tax in Indonesia.

What is the Capital Gains Tax?

You must pay Capital Gains Tax on the profit when you sell an asset for more than its original purchase price. This tax applies to investments with appreciated value, such as stocks, bonds, real estate, and other assets.

This tax applies to the net Capital Gain, which is the selling price minus the purchase price, after factoring in any allowable deductions and adjustments.

Individual Vs. Corporate Income Tax

Individual income tax is a levy on different sources of income. These include Capital Gain Tax in Indonesia from the transfer or sale of property, rent, and other forms of passive income, self-employment income, and employment income.

Different types of people need to pay individual income tax:

Locals

These are Indonesian nationals since birth. This person will continue to pay taxes even when working abroad until they decide to leave the country permanently.

Foreign Residents

For the sole purpose of determining taxation, a foreign resident who has stayed in the country for at least 183 days over 12 months. During the fiscal year, this person decides (or thinks about) living in the country for good.

Foreign Non-residents

These foreign individuals do not meet the criteria to be considered tax residents but earn money in Indonesia.

Knowing which of these you or your employees belong to is essential since it affects your tax rate and its basis. For example, Indonesia, like some countries, adopts the worldwide income principle.

This means that if you’re a tax resident in Indonesia, you must pay taxes to the government, even for income earned overseas. You can only avoid this if your country where you’re working, and Indonesia has a double taxation agreement concerning Indonesia tax residency.

READ MORE:

• What You Need to Know About Taxation of Benefits in Kind

Capital Gains Tax Rate Indonesia

Meanwhile, if you’re a foreign non-resident, your income tax is based only on your earnings in the country. With these in mind, here’s your  tax rate:

Individual Tax Rate

If you’re an individual tax resident (local or foreign)

Income (in IDR)	Tax Rate
up to 50 million	5%
between 50 – 250 million	15%
between 250 – 500 million	25%
over 500 million	30%

As you can see above, Indonesia uses a progressive tax rate.

Non-resident Tax Rate

If you’re a tax non-resident: 20% based on gross income

Other income-related tax rates to keep in mind:

• 5% of the final tax based on the Capital Gains Tax Indonesia proceeds or taxable sale value, whichever is higher<
• 20% final tax on interest income earned from local and Indonesian-based banks, regardless of the currency
• 0.1% final tax on the proceeds of a share sale for companies traded in the Indonesia Stock Exchange
• 10% final tax on the rental of the building or land
• 2% on services rendered (not applicable to foreign non-tax residents)

Concerning tax reporting in Indonesia, individual income tax is responsible for the resident or the employee. The country implements a self-assessment system. In this process, the taxpayer files its annual return detailing all its income, assets, and liabilities.

However, the law also compels employers to withhold a portion of the salary for taxes (withholding tax). The corporate income tax, on the other hand, is straightforward. It applies a 25% flat rate on its income unless it meets certain conditions, in which case the effective rate is lower:

Corporate Income	Tax Rate
normal rate	25% (22% in the fiscal year 2020-2021 and will become 20% for the fiscal year 2022 onwards)
public company with > 40% of its shares traded on the IDX	20% (19% in the fiscal year 2020-2021 and will become 17% for the fiscal year 2022 onwards)
company with a gross turnover of < 4.8 billion IDR	12.5% (11% in fiscal year 2020-2021)
company with a gross turnover < 4.8 billion IDR	1% (0.5% in fiscal year 2020-2021)

Here’s the question: who pays the corporate tax? The answer depends on whether the company is a tax resident or has a permanent establishment (PE) in the country. A business is considered a tax resident if it has a domicile (or business address) in Indonesia.

It is also a resident if it has a PE in the country. In both cases, the company should be engaged in regular trading or business activities in Indonesia during the fiscal period.

If the foreign company doesn’t have a PE but performs business activities, the tax-paying Indonesian party should withhold the foreign company’s corresponding tax to settle its liabilities.

Withholding Tax

Under Article 21 on withholding taxes, employers must withhold taxes on employees’ income, including severance payments, every month. The withheld taxes may become prepaid taxes, which means the employee may be entitled to a refund at the end of the fiscal year or a credit to their final tax liability. It may also represent the person’s final tax.

Corporations may also impose withholding taxes, especially on certain types of dividends, including those not paid from retained earnings.

Article 22 governs withholding taxes for imported goods and transactions to the authorized government body. Article 23 covers withholding taxes deducted while using a non-fixed asset rental or services rendered by corporate vendors, which is 2% of the gross fees.

Non-tax residents who receive other forms of income, including pensions, interest, and dividends, pay a 20% tax on these payments, withheld by a resident taxpayer, whether an individual, organization, or company.

Value-Added Tax (VAT)

VAT in Indonesia is the tax imposed on many goods and services that enter and leave Indonesia. It generally has a flat rate of 10%. It also applies to services performed by foreigners overseas that benefit Indonesia.

The flat rate, however, can go up or down depending on the goods and services offered. Most of the exports, for example, are zero-rated. Many services also do not have to pay VAT.

These include but are not limited to, non-commercial broadcasting, insurance, financial, hotel, education, stamp-requiring mail services, and medical health. Intra-government business transactions are also exempt from VAT.

READ MORE:

• The VAT to Increase by 12%: What Will Happen Next Year?
• Everything You Need to Know about Value-Added Tax (VAT) in Indonesia

Luxury Goods Sales Tax

Goods sales tax (LGST) is a type of tax levied on the supply chain, applied upon the importation or delivery of luxury goods. As long as the product is taxable, it may be covered by LGST. The rate can be as high as 200%, which is the limit, or as low as 10%.

Because LGST significantly raises the price of the commodity, retailers encourage shoppers with a tax rebate, which can be 10%. But to take advantage of this, buyers must be tourists who have not been staying in the country for over two months.

They can also claim it only at VAT refund centers and only on the day of departure. They also need to bring the original invoice with the reflected tax. The refund doesn’t apply to foreign residents.

Customs and Excise Tax

As one of the world’s largest traders, Indonesia has relaxed some of its policies on customs duties. In many cases, the rate has been lower than before. But it can be as much as 150% or, on average, 40%. Some goods may also be zero-rated. Importation of luxury goods gets some of the highest taxes.

When to Pay the Tax Obligations

Tax compliance doesn’t only mean paying the correct taxes. It also compels you to pay them on time. Here are some of the dates to remember.

Individual Income Tax

• Personal resident taxpayers: These individuals file annual income tax returns through a self-assessment system. The filing deadline can change year to year, but it usually falls in March or April.

Corporate Income Tax

• Tax liabilities: These are typically paid to the State Treasury through designated banks throughout the year.
• Monthly tax installments: These are prepayments on the current year’s tax liability, calculated based on the most recent tax return.
• Final tax return: This is filed annually after the year ends.

Withholding Tax (WHT)

• This tax is withheld by third parties on certain income types, like payroll or imports.
• The deadline to pay the withheld tax and file the return is typically the 10th day of the following month.

How to Avoid Capital Gains Taxes

There needs to be a legal way to avoid Capital Gains Taxes altogether. Schemes promising this are likely to be tax evasion and could result in penalties.

Capital Gains Tax Strategies in Indonesia

While minimizing your tax burden is always a good idea, remember that tax evasion is illegal. Here are some legitimate strategies to consider:

Invest in Tax-Advantaged Accounts

Explore options like retirement accounts offered by Indonesian financial institutions that provide Capital Gains Tax benefits.

Hold Your Investments for Longer

In Indonesia, Capital Gains from assets held for more than two years may be subject to a lower tax rate under certain circumstances. Consult a tax professional for details.

Offset Capital Gains with Losses

Losses incurred from selling assets at a loss can be utilized to offset Capital Gains, thereby reducing the total tax obligation.

Tax Accounting and Reporting in Indonesia with InCorp Indonesia

Let’s face it: taxes are complicated, especially in countries where laws can be just as confusing. On top of the information above, you need to know:

• Tax deductions and credits
• Tax treaties or agreements that may lower your tax rates
• Tax for those with dependents, Social Security, pension, and health coverage
• Tax for every point of operation
• Goods and services not covered by tax
• Rules and regulations that cover all forms of taxation
• Taxation for offshore companies and startups

The last thing you want to happen is not to be compliant, whether it’s a deliberate choice or not. Violations can carry hefty fines and other severe penalties, including imprisonment.

Make accounting and tax reporting hassle-free, including reporting Capital Gain Indonesia. Send us your question below. Our business consultants will contact you within 24 hours.