Tax Compliance for Foreign Representative Office

Tax compliance in Indonesia for Foreign Representative Office covers three extents, tax on employee’s salary, tax on company’s income, and tax on rental of land or building of a company. These taxation laws are based on Article 23A of the 1945 Indonesian Constitution, whereas tax is imposable to all Indonesian citizens or any foreign citizen that is working in Indonesia for 120 cumulative days within a 12 month period.

The issuance of NPWP (Taxpayer Identification Number) determines that the individual or corporate that is registered has to pay taxes based on their income. Foreigners that resides and working in Indonesia might find it confusing to deal with Indonesian taxation system due to the unfamiliarity and them being a foreigner that is not residing in their home country.

Many foreign companies opt to outsource their tax payment and reporting process to another company that specializes on the field. However, don’t forget to make sure of the credibility and reliability of the outsourced company.

Foreign representative offices are mostly entitled to two types of taxes, as stated above, these taxes are income tax and tax on rental of land or building of a company. Foreign representative office is not entitled to any corporate tax since any form of sales activity is prohibited by the government.

Most common taxes are listed below:

Income Tax on Employees

Income tax Article 21 states that federal government has a levy on individual’s income. The obligation to pay and report the tax lies within the company where the individual is working with. In most cases the company is the one that deduct the employee’s salary and pay taxes to the government institution.

The tax rates for individual income tax are as follows:

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Deadline of Tax Payment: Day 15th of each month. Deadline of Tax Reporting: Day 20th of each month.

Income Tax on Corporations

Article 25 states that monthly tax installment constitutes the first part of tax payment to be made by resident tax payers and Indonesian PEs as a prepayment of their current year Corporate Income Tax (CIT) liability

Tax on Rental of land or building

Renting an office in Jakarta would entitle the organization to VAT (Value Added Taxes) or commonly known as PPN. Under this regulation, the PPN stated in the invoice shall not be paid to the management office, but instead the tenant is obliged to pay and report the taxes to the regional tax office in their respective location.

Penalties

There is also tax penalties employed if the individual or corporation fails to meet the deadline of payment or reporting. Below is the list of penalties:

  • Late Reporting
    • Since Foreign Representative Office in Indonesia is not permitted to engage in any sales activity, therefore making them not entitled to any form of tax payment. However, monthly tax reporting is still mandatory. Failing to meet the deadline would cost the company IDR 100.000
    • Every individual working in a Foreign Representative Office is entitled to a personal income tax as the individuals are receiving salary from the company.
  • Late Payment
    • Any form of late payment is subject to penalty equivalent to additional 2% of the tax amount.

FOR FURTHER INFORMATION ABOUT TAX COMPLIANCE, PLEASE CONTACT US!

*All materials have been prepared for general information purposes only to permit you to learn more about our firm, our services and the experience of our consultants. The information presented is not legal advice, is not to be acted on as such, may not be updated and it is subject to change without notice



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