What do you need to know about taxation environment in Singapore and Indonesia

Despite their close geographical proximity, there is a substantive gap in differences in the taxation environment of Singapore and Indonesia.

Singapore adopts a less complex taxation system:

Singapore follows a territorial basis of taxation.

Singapore corporate tax rate is capped at 17%.

Singapore has no capital gains tax.

Indonesia’s taxation system, however, places a lot of emphasis on the identities of the relevant taxpayers and the nature of transactions, in particular the mechanisms for the collection of withholding taxes. Whilst these are not difficult to comprehend, they do require some adjustments in mindset and review, particularly if one is coming from a jurisdiction with less complex taxation systems.

Services include

Tax Compliance

Tax Advisory

Tax Diagnostic Review and Due Diligence

Transfer Pricing

Tax Dispute

Tax Ruling Application

Frequently Asked Questions

What is Withholding Tax?
Indonesian income tax is mainly collected through the WHT system. If a particular income item is subject to WHT, the payer is usually responsible for withholding or collecting taxes. These WHTs are commonly referred to as follows using the relevant provisions of the Income Tax Act (Pajak Penghasilan or PPh).
There are several types of PPh such as PPh article 15, PPh article 19, PPh article 21, PPh article 22, PPh article 23, PPh article 24, PPh article 25, PPh article 26, PPh article 29 and final PPh article 4 paragraph 2.
Does my company need to carry out tax compliance obligation every month?

Yes, companies have to meet their tax obligations in Indonesia every month. If the company’s registered office is located in Indonesia, the company is subject to the tax obligations set by the Indonesian government. Similarly, a foreign company that has a permanent establishment in Indonesia and conducts business through this local entity falls under the Indonesian tax system. If a foreign company does not have a permanent establishment in Indonesia but earns income from doing business in Indonesia, the tax obligation must be resolved by withholding taxes from the Indonesian party who pays the income.

The routine Indonesian tax compliance primarily involves monthly and annual compliance comprising three categories of tax obligations: (1) Withholding Tax; (2) Corporate Income Tax; and (3) VAT. Taxpayers are required to calculate, pay, and report their tax payable in accordance with tax provisions. The important thing to note is that there are deadlines for paying and reporting taxes each month depending on the type of tax. Thus, the taxpayer must be careful in paying attention to the deadline given.

Can my company claim VAT incurred in Indonesia?
If your Company has been registered as VAT entrepreneur (“PKP”), the input VAT, import VAT, and self-assessed VAT incurred from the transaction related to the business activities can be claimed per the registration date.
How can my company claim VAT refund?

The VAT refund decision is made by the Director General of Tax (DGT) and leads to a tax audit conducted within 12 months of the VAT refund request. If the DGT does not make a decision within 12 months, a VAT refund request can also be approved. The company must then submit the required documents to DGT within one month of submitting the application.

Monthly refunds are available to certain taxpayers (exporters of goods or services, suppliers of VAT collectors; prototyping companies and suppliers of goods or services that are not covered by VAT if certain criteria are met).

What taxes I need to pay if I want to import goods into Indonesia?

The tax needed to be paid regarding importation of goods to Indonesia are:

  • Import Duty in the range of 0% – 15% depends on the Harmonized Commodity Description and Coding System (HS). 
  • Article 22 in the range of 2.5% or 7.5% depends on the importers holds an Import Identification Number (APA) or not. 
  • Import VAT with a rate of 11%. 
How can my company utilise tax treaty benefits?
To utilize the tax treaty benefits, the overseas Company shall provide the DGT form and certificate of residence (COR) from their tax authorities. Thereafter, the DGT form must be input correctly to the e-SKTD system in DJP online to receive the SKTD number.
What is Transfer Pricing?
Transfer pricing is the company’s policy in pricing, sending a transaction, whether it’s a product, service, intangible asset, or transaction issue done by the company. There are two transaction groups for the transfer pricing, i.e. intra-company and inter-company transfer pricing. Intra-company transfer pricing is the transfer pricing between departments within a company. On the other hand, inter-company transfer pricing is the transfer pricing between the two companies with a special relationship. The transaction itself can be done in one country (domestic transfer pricing) and various countries (international transfer pricing).
How can Cedar help us to manage our tax compliance and risks?
Cedar can help the Company to calculate, pay, and report the taxes and make sure all the administrative procedures are done correctly and in a timely manner. Further, we also can provide an ad-hoc advisory before the Company kicks start its business in Indonesia to understand general tax compliance and regulation in Indonesia.
What happens if my company pay tax late or submit tax returns late?
Late tax payment and returns submission will result in an interest penalty on the Ministry of Finance (MoF) interest rate (MIR) and the interest rate resulting from the application of additional charges. Part of the month, such as one day, is counted as one month. Delays in filing tax returns or failure to file tax returns incurs administrative penalties for the following amounts:

  1. VAT return IDR500.000
  2. Other monthly tax returns IDR100.000
  3. Corporate Income Tax return IDR1.000.000
Will my company be subject to any tax in Indonesia if we repatriate profits overseas?
If your company is a permanent establishment (PE) in Indonesia, there will be a PE risk. Having a PE presence can often result in adverse tax consequences for foreign entities due to the potential applicability of ‘force of attraction’ rules and requirement to pay additional Branch Profit Tax at 20% on PE’s net profit after tax, if your company repatriates profits overseas. The Branch Profit Tax may be reduced based on the applicable tax treaty.