Income tax is imposed in respect of income received or accrued in a tax year. Income is defined broadly as any increase in economic capacity which may be used for consumption or increasing wealth. Income may be classified generally as income subject to regular tax, income subject to final tax, and income not subject to tax. Income subject to final tax should be withheld by third parties (Article 4(2) Income Tax) and its details can be found there.

 

Taxable Objects of Permanent Establishments

Permanent establishments as non-resident taxpayers are taxed only on income sourced from Indonesia. Taxable objects of permanent establishments include:

• Income from business or activities of the permanent establishments and held or controlled property.

• Income of the head office from business or activities, sales of goods, or provision of services in Indonesia which are similar to those conducted or carried out by the permanent establishment in Indonesia.

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• Income referred to in Article 26 of the Income Tax Law that is received or accrued by the head office provided that there is an effective relationship between the permanent establishment and the property or activities giving rise to the aforementioned income.

 

Non-Taxable Income

The following income is not subject to tax:

1. Aid or donations, including compulsory religious donations and grants, provided that there is no business, employment, ownership, or control relationship between the parties.

2. Assets, including cash received by an entity in exchange for shares or capital contribution.

3. Remunerations related to work or services received or accrued in kind or fringe benefits.

4. Payments are received by an individual from an insurance company.

5. Dividends or other income provided that:

   • Domestically-sourced dividends received or accrued by an individual taxpayer insofar as the dividends are invested in Indonesia within a certain period; received or accrued by a corporate taxpayer.

   • Foreign-sourced dividends and income after tax from an overseas permanent establishment received or accrued by a corporate taxpayer or an individual taxpayer that fulfills the requirements set out in Article 4 (3) Sub-paragraph f.2. of the Income Tax Law.

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6. Deposit funds and certain income received by Hajj Financial Management Agency.

7. Surplus is received by registered social or religious organizations and is reinvested further.

8. Contributions received or accrued by an authorized pension fund.

9. Income from capital investments in certain sectors of the abovementioned pension fund.

10. Profit received or accrued by members of a cooperative, limited partnership without share capital, alliances, firms, and joint ventures, including unit holders of collective investment contracts.

11. Profit received by a venture capital company from an investee company established and conducting business or engaged in activities in Indonesia with certain conditions.

12. Surplus received by a registered institution or a non-profit organization engaged in education and/ or RnD, is further reinvested.

 

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