COLLECTION OF TAX

Employers are required to withhold tax monthly (Article 21) from salaries paid to employees, based on their income and personal reliefs entitlement. Tax is also withheld from pensions and severance payments at 15%, and from commissions paid to non-permanent employees at 10%.

An "exit tax" (Rp. 250,000 per exit from Indonesia by plane, Rp.100,000 by ship or Rp. 50,000 by land) is another form of prepayment in respect of an employee's income tax. If the exit tax is borne by the employer the amount paid is prepayment for the employer's income tax.

Income tax (Article 21) must also be withheld from fees paid to independent individual consultants, such as: lawyers, notaries, accountants, consultants, architects, doctors, actuaries and valuers. The effective withholding tax rate is 6% of the fees.

BENEFITS-IN-KIND

Benefits-in-kind e.g. car, housing, etc. provided by the company are not taxable in the hands of an employee and not deductible for the company. However, benefits-in-kind are taxable in the hands of employees if provided by non-taxpayers for Income tax purposes. These include:

(i). Certain mining companies and production sharing contractors, which are subject to tax under the 'old' tax laws;
(ii). Representative offices of offshore companies not constituting taxpayers.

The cost of providing benefits-in-kind in 'remote' areas is a deductible expense, without being taxable in the hands of employees. The same principle applies to BIK required for job performance such as protective clothing, uniforms, transportation costs for staff to and from the place of work, meals and accommodation for the crew of a ship and the like.

JAMSOSTEK

Indonesia does not yet have a comprehensive social security system. However, the Government has introduced a Worker's Social Security program (Jamsostek).

Employers are responsible for the entire contribution for the occupational accident security, and death security programs. There are five classifications by industry with contributions for accident security ranging from 0.24% to 1.74% of wage depending on the classification of the employer. The contribution for death security is 0.3% of wage.

The premium for old age security is jointly borne by the employer and the employee; the employer's share is 3.7% of the wage and the employee's share is 2% of the wage.

Employee contributions to Jamsostek are collected by the employer through payroll deductions.

Health maintenance security is a new feature under Jamsostek. It is optional i.e. a company which provides better company health insurance to its employees can elect not to join the health care program under Jamsostek. The contribution for health care program under Jamsostek is 6.0% for a married employee (max. Rp 60,000 per month) and 3.0% for an unmarried employee (max. Rp 30,000 per month).

CORPORATE TAXATION
TAX RESIDENCE

A company is treated as "tax resident" in Indonesia if it is incorporated or domiciled in Indonesia. Although a foreign company does not lose its status as a non-resident taxpayer by operating a permanent establishment (PE) in Indonesia, the PE itself must assume the same tax obligations as a resident taxpayer.

COLLECTION OF TAX

All "tax resident" companies, businesses and permanent establishments, are required to pay tax by monthly installments. Tax on interest, royalties, rental, dividends, insurance premiums paid to an offshore insurance company, gains on the sale of property in Indonesia, service fees including fees to contractor, are collected by means of withholding tax. The withholding tax is a payment on account of the recipient's income tax liability if the recipient is a tax resident in Indonesia, and a final tax if the recipient is a non-resident.

At year end, when submitting the tax return, taxpayers will have to pay, based on the self-assessment system, the amount of tax calculated in the annual tax return to the extent this amount exceeds the tax already paid during the year and or deduction on withholding by third parties