Indonesia Payroll & Tax Overview A GUIDE TO DOING BUSINESS IN INDONESIA 2017
Contents 1.0 Key Country Facts and Public Holidays 3 2.0 Business and Culture in Indonesia 4 3.0 Visas and Work Permits 5 4.0 Tax and Social Security 6 5.0 Compliance 8 6.0 Statutory Absence/Payments 9 7.0 In-country Payroll Providers 11 8.0 About This Payroll and Tax Overview 12 2017 The Global Payroll Association, Inc.; All Right Reserved -2-
1.1 Key Country Facts and Public Holidays 1.2 Official Language The official Language is Indonesian, 300 regional languages 1.3 Currency Indonesian rupiah 1.4 Country Dial code The country dial code is +62 1.5 Country abbreviation The country abbreviation is id 1.5 Statutory Filing Payment Methods Electronic VAT System 1.6 National Minimum wage Established by provincial and district authorities, which vary by province, district, and sector; the current lowest minimum wage was in the province of Yogyakarta at rupiah 1,108,249 per month and the highest was in Jakarta at rupiah 2,700,000 per month. 1.7 Filing Deadlines Annual filing Deadline: The annual employee income tax return must be filed by March 31 of the following year. Monthly filing Deadline: The monthly Indonesian individual tax return is due for payment and lodgement by the 15th and 20th of the following month, respectively. 1.8 Fiscal year Calendar year 1.9 Time Zone WIB Western Indonesian Time UTC/GMT +7 hours 2017 Holiday Holiday Type 01 January New Years Day National Holiday 28 January Chinese New Year National Holiday 28 March Hari Raya Nyepi National Holiday 14 April Good Friday National Holiday 01 May Labour Day National Holiday 25 May Ascension Day National Holiday 24 April Isra Miraj National Holiday 10 May Waisak Day National Holiday 26 June Hari Raya Puasa National Holiday 27 June Hari Raya Puasa National Holiday 18 August Independence Day National Holiday 01 September Idul Adha National Holiday 21 September Muharram National Holiday 25 December Christmas Day National Holiday 2017 The Global Payroll Association, Inc.; All Right Reserved -3-
2.1 Business and Culture in Indonesia 2.2 Establishing as an Employer BKPM is an investment service agency of the Indonesian Government created with the purpose to effectively implement the enactment of law on foreign as well as domestic investment. At the time, BKPM, chaired by Head of BKPM, is a nondepartmental government agency serving under and directly responsible to the President of the Republic of Indonesia. An approval in investment stage can be categorized in two main types: approval for domestic investment and approval for foreign investment. Below is the flow chart of approval in investment stage. 2.3 Employment In Indonesia the typical working hours per week would be 40 hours during the days of Monday-Friday, the maximum hours to be worked in one single day is 8 hours. Government office hours are variable, but are generally 8am to 4pm Monday to Friday (with a break for Friday prayers from 11.30am to 1.30pm), and 8am to noon on Saturday. Go in the morning if you want to get anything done. Private business offices have staggered hours: 8am to 4pm or 9am to 5pm Monday to Friday, with a lunch break in the middle of the day. Many offices are also open until noon on Saturday. 2017 The Global Payroll Association, Inc.; All Right Reserved -4-
3.1 Visas and Work Permits ITAS - Temporary Stay Permit Visa (Visa Izin Tinggal Terbatas) VITAS - This is the sticker visa put in a foreigner's passport in an Indonesian Embassy/Consular Office abroad which will give the person the right to an ITAS (which they apply for after arrival in Indonesia). Once the TA01 recommendation has been approved, the VITAS must be applied for, for the working spouse and his dependent family, at the Indonesian Immigration office in the intended city of residence. Upon approval, the Indonesian Immigration office will send a telex approval to the Indonesian Embassy where the foreigner and his dependent family want to pick up the approval and to get the VITAS/VBS stamped into their passports. This VBS visa stamp permits your entry into Indonesia. Within 7 days of your arrival in Indonesia, you and your dependent family members must go to the Immigration office to report your arrival "lapor diri" and complete the necessary paperwork. Failure to do this within 7 days will constitute a violation of your status, a legal hassle that can only be overcome through a visit to the courts and will incur large fines. So don't delay your initial trip to the Immigration office to report your arrival. At the immigration office, you will be called to take a full set of fingerprints and to sign various documents and provide at least four 2 x 3 cm color photographs. To summarize the VBS: A VBS is a temporary stay permit issued before the ITAS or Resident s Permit. The VBS is stamped in the foreigner's passport by Immigration on arrival. ITAS/ITAS or Temporary Stay Permit ITAS = Izin Tinggal Terbatas (Temporary Stay Permit). This is the immigration status/permit by itself. It is materialized by the stamp that the immigration offices stamps into your passport every year. KITAS = Kartu Izin Tinggal Terbatas (Temporary Stay Permit Card). This is the yellow card that Imigrasi will give you after the ITAS has been granted. ITAS can be issued for a variety of reasons: for foreign investors (PMA owner) for foreign experts - most of the expats have this kind of ITAS. They theoretically have skills that Indonesians don't have. Thus they are called tenaga ahli/experts. for foreign researchers who come for research, usually with an agreement of an Indonesian university for dependant foreign spouse/children, sponsored by a foreigner, holder of an ITAS himself/herself or being an Indonesian citizen for religious clerics (foreign priests/imam, etc.) for retired foreign citizens for former Indonesian citizens, returning to Indonesia in the framework of repatriation to get back their citizenship ITAP/KITAP - Permanent Stay Permit/Card ITAP = Izin Tinggal Tetap (Permanent Stay Permit). This is the immigration status/permit by itself. It is evident by the stamp that the immigration office stamps into your passport. KITAP = Kartu Izin Tinggal Terbatas (Permanent Stay Permit Card). This is the blue card that immigration will give you after the ITAP has been granted. ITAP can also be issued to foreign investors, CEOs or to workers in fields that require a specific skill. However, others, who don't fall under these categories, can also obtain an ITAP as well, with persistence and knowing the regulations. Special provisions are also available for foreign nationals to get an ITAP if they are married to an Indonesian. Official cost for an ITAP application - Rp 3,500,000 (non-electronic), Rp. 3,700,000 (electronic), Extension Rp 10,000,000 (nonelectronic), Rp. 10,200,000 (electronic). Who can apply for an ITAP? Indonesian Law is, in fact, quite clear. But as in many cases in Indonesia, this is more a problem of getting the right text of law with all of its amendments to clearly understand who can apply for to an ITAP. Once you get the right context, everything becomes very clear and the only remaining difficulty is to explain the law to the ones who are supposed to know it: the Immigration officials, who in many cases seemingly ignore the law. Once you get past the lower echelons, things are much smoother, because at the higher levels (i.e., KanWil or DitJen), they know the law regarding ITAP issuance. 2017 The Global Payroll Association, Inc.; All Right Reserved -5-
4.1 Tax and Social Security 4.2 Tax Company is subject to the tax obligations set by the Indonesian government if the company's domicile is in Indonesia. Similarly, a foreign company that has a (permanent) establishment in Indonesia - and carries out business activities through this local entity - falls under the Indonesian tax regime. If the foreign company does not have a permanent establishment in Indonesia but does generate income through business activities in Indonesia, then it needs to settle its tax liabilities through withholding of the tax by the Indonesian party paying the income. In general, a corporate income tax rate of 25 percent applies in Indonesia. However, there are several exemptions: CORPORATE INCOME TAX NORMAL RATE 25% PUBLIC COMPANY WITH >40% OF ITS SHARES TRADED ON THE IDX 20% COMPANIES WITH A GROSS TURNOVER BELOW IDR 50 BILLION 12.5% COMPANIES WITH A GROSS TURNOVER BELOW IDR 4.8 BILLION 1% Individual Income Tax If an individual fulfills any of the following conditions, then he/she is regarded a tax resident in Indonesia (except if a tax treaty overrides these rules): the individual lives in Indonesia; the individual is in Indonesia for more than 183 days within a 12-month period; the individual is in Indonesia during a fiscal year and intends to reside in Indonesia. Meanwhile, non-resident individuals are subject to a 20 percent withholding tax on Indonesia-sourced income. Nearly all income earned by individual taxpayers in Indonesia is subject to income tax. The following progressive rates are charged to taxable annual income: Individual Income Tax Tax Rate Up to IDR 50 million 5% Over IDR 50 million to IDR 250 million 15% Over IDR 250 million to IDR 500 million 25% Over IDR 500 million 30% Withholding Tax (for payments to residents) Tax Rate For interest, dividends & royalties 15% For services 2% for land and building rental (final tax) 10% These withholding taxes are considered corporate tax prepayments Withholding tax calculated on sales/revenue is considered a final tax Withholding Tax (for payments to non-residents) normal rate (can be reduced by using tax treaty provisions, or exempt services that qualify as business profits) Tax Rate 20% 2017 The Global Payroll Association, Inc.; All Right Reserved -6-
4.3 Social Security The BPJS employee social security contributions are calculated as follows: Work accident insurance contribution between 0.24% to 1.74% to be paid by employer Life insurance benefit - contribution of 0.3% to be paid by employer Old age benefit (Pension) employer contribution is 3.7% and employee contribution is 2%. The contribution is calculated on the basic salary plus other monthly fixed allowances and there is no cap or maximum to the amount of the contributions. When the assignee leaves Indonesia at the end of their assignment they may be eligible to withdraw the pension component (i.e. the total contribution of 3.7% and 2% plus any contribution growth). The BPJS health care program consists of both employee and employer contributions. The maximum employer contribution is approximately IDR 200,000 per month and the maximum employee contribution is IDR 50,000 per month. BENEFIT PROVIDED % OF MONTHLY SALARY CONTRIBUTED Occupational accident between 0.24% to 1.74%, depending on the type of business of the employer PAID BY employer Death benefit 0.3% employer Old age benefit 5.7% 3.7% by the employer; and 2% by the employee. 2017 The Global Payroll Association, Inc.; All Right Reserved -7-
5.1 Compliance 5.2 Employer Registration The main sources of employment law in Indonesia are: Law No. 13 of 2003 (March 25, 2003) on Manpower (the Manpower Law), as amended by Constitutional Court decision No. 012/PUU-I/2003 of October 28, 2004; Law No. 2 of 2004 (January 14, 2004) on Industrial Relations Dispute Settlement (Law No. 2); and Law No. 21 of 2009 (August 4, 2000) on Labour Unions (Law No. 21). The Manpower Law protects all employees which is any person working in return for a salary or compensation in another form. Certain rights, such as overtime pay, are not available to manager-level employees. The statutory minimum termination benefits are not payable to an employee who is a shareholder (excluding employees holding shares due to employee stock benefit plans). 5.3 Starters/Registration Only fixed-term employment agreements have to be in writing and in the Indonesian language. If there is a written employment agreement, it must at least contain the following: name, address and type of business of the company; name, gender, age and address of the employee; position or type of work; place of work; amount of salary and method of payment; employment conditions containing employer and employee s rights and obligations; commencement date and term of effectiveness of employment agreement; place and date of the employment agreement was made; and Signatures of the parties to the employment agreement. For permanent employment, the Manpower Law simply requires an employer to issue a letter of appointment as an employee (article 63 of the Manpower Law). 5.4 Leavers/De-registration There are minimum terms and conditions set down by law regarding mandatory termination benefits. 5.5 Data Retention A company must retain data for up to five (5) years all regulated documentation, either in hardcopy or electronic. 2017 The Global Payroll Association, Inc.; All Right Reserved -8-
6.1 Statutory Absence/Payments 6.2 Annual leave The company must provide the employee the opportunity to use its annual leave. The company is however allowed to postpone the ability of the employee to take the annual leave for a maximum period of six months based on article 5 (2) of Government 21 of 1954 About Determination Of Regulation Of Labor Rest (Regulation). Such postponement may only be conducted by the company if it can be evidenced that it is in the interest of the company to perform such action. Basically the annual leave must be taken for the full period of 12 days, based on article 6(1) of the Regulation. However in practice the 12 days period is seldom taken at once by employees, since this is often not beneficial for both the employees and the company. According to the Regulation, if the company and employees agree not to take the full period of 12 days at once, then there must be at least an annual leave period of 6 days consecutively. In case the annual leave is not taken by the employee which is not cause by any action of the company, the annual leave will expire six months after the birth of the right to take annual leave. The Indonesian employment legislation does not regulate whether or not companies can provide compensation as a replacement for annual leave which has not been taken by the employee. Employees and companies are however free to decide differently in the employment agreements, company regulations or collective labor agreements. In such documents the parties can also agree upon a money compensation as a replacement for annual leave not taken. For avoidance of doubt, the replacement of annual leave does not automatically arise by itself, but must be agreed upon. 6.3 Maternity leave Women are entitled to receive full wages during maternity leave, including 1.5 months before the birth and 1.5 months after the birth, as certified in writing by an obstetrician or midwife. In the event of a miscarriage, the worker is entitled to 1.5 months of paid leave or as certified in writing by an obstetrician or midwife. The duration of leave for giving birth (before and after) and miscarriage can be extended subject to recommendation by a doctor. Employers must provide opportunities and special facilities for mothers to breastfeed their infant during working hours. 6.4 Sickness Absence from work due to illness or injury should not deduct the workers days of annual leave. Employers must provide continuous leave to workers who are ill if they provide a written statement from their doctor. The wage received by the workers should be as the following: Percentage of wages to be paid Period of absence 100% The first 4 months 75% The second 4 months 50% The third 4 months 25% Subsequent months Female workers are entitled to paid leave on the 1st and 2nd days of menstruation, if they are ill and they cannot perform their work. 6.5 Personal Leave Employers must provide paid time off for personal leave as follows: Reason for Leave Worker s marriage Marriage of worker s child Son s circumcision Child s baptism Wife gives birth or has a miscarriage Death of worker s spouse, child, child-in-law, parents or parents-inlaw Member of worker s household dies Days of Paid Leave 3 days 2 days 2 days 2 days 2 days 2 days 1 day 2017 The Global Payroll Association, Inc.; All Right Reserved -9-
Religious Holiday Allowance (Tunjangan Hari Raya or THR ): The THR payment is payable to employees who have worked for at least three consecutive months. The THR is paid prorata if an employee has worked for three months but less than 12 months. If an employee has worked for 12 months, he/she will get the full THR payment in the amount of 1 month salary (basic salary plus fixed cash allowances); 6.6 Benefits Pensions Jamsostek Pension Fund can be withdrawn at the age of 55 or any time after an employee quits from a company, provided his/her enrollment in Jamsostek has already been a 5 year minimum. Expatriates: Accommodation Expats moving to Indonesia can rest assure that they will have no problem in finding comfortable and affordable accommodations while in Indonesia. Generally, condominiums are most popular with expats in Indonesia, especially those who work in Jakarta, as they are secure, and often boast highly sought-after amenities, such as gyms, swimming pools, and even tennis courts. Transportation While city public transportation is generally still in poor condition in Indonesia, there are always taxis and premium cabs available at reasonable rates. Food There are many restaurants that serve a fine range of cuisine from across the world. Within most of these cuisines there are good selections of restaurants, from low-cost to expensive. Or if you have the urge to cook your own food, you can always find your ingredients in some specialty grocery stores. If you like to try local foods, you can find a wide range of local foods from different ethnic backgrounds in Indonesia. Restaurants featuring Indonesian cuisine can be found all over Jakarta and other urban centres. Many regional dishes are popular far from home, including the spicy hot Padang food, delicious chicken from Kalasan in Central Java, grilled fish from Ujung Pandang, and delicious Chinese seafood dishes. A good place in Jakarta to get a quick introduction to Indonesian cuisine would be at a mall food court. Here, you can actually see the various dishes being prepared and sample different specialties until you discover your favourites. 2017 The Global Payroll Association, Inc.; All Right Reserved -10-
7.0 In-country Payroll Providers Founded by an American Expatriate with 40+ years in enterprise HR and payroll, Tiger-Consulting is committed to making expansion and management of operations easier for international businesses. +(66) 2 231 8036 neil@tiger-consulting.net www.tiger-consulting.et Since 2002, Expaticore has specialised in Local National and Expatriate payroll, Assignment Management Services and International HR Consulting Services. +001 212 239 2625 amorris@expaticore.com www.expaticore.com Our specialist teams work together on a global scale in over 40 countries to help clients meet their obligations and solve their problems. We are dedicated yet flexible in our approach, and strive to build lasting relationships with the people we advise. +44 (0) 207 404 4140 info@fitzandlaw.com www.fitzandlaw.com 2017 The Global Payroll Association, Inc.; All Right Reserved -11-
8.1 About This Payroll and Tax Overview 8.2 Copyright All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher. 8.3 Disclaimer Every effort has been made to ensure that all information in this booklet is correct at the time of publication. This information should be used as reference only and not as a sole source of decision making. 8.4 The Global Payroll Association Global Payroll Association is the first international payroll association of its kind. We are a central hub for all-things payroll. A one-stop-shop supplying comprehensive directories, interactive training and in-depth country resources. We are here to help you with your global payroll needs, no matter how complex, connecting you with the world s leading experts and offering a forum to network with other like-minded global professionals. Global Payroll Association welcomes international payroll, HR and financial professionals of all levels. 2017 The Global Payroll Association, Inc.; All Right Reserved -12-
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