Helping Employees Prepare for Income Tax Indonesia

As an HR professional, it is important to ensure your payroll process is not only about disbursing salaries but also about fulfilling tax obligations, especially concerning income tax Indonesia. 

Staying compliant with tax laws is crucial to avoid legal issues. However, keeping updated with regulations governing income tax Indonesia can be quite challenging. 

Recently, the Indonesian government revised the method for calculating employee income tax. These aim to simplify the tax calculation process for individual taxpayers, including your employees.  

It is essential to stay informed to ensure that your organization and employees comply with the new income tax Indonesia regulations. 

Here’s what you need to know about the new regulation and how to help your employees prepare for income tax Indonesia.

Income Tax Indonesia Rates 2024

The new regulation stipulates that going forward, withholding tax calculation for the months of January to November will be calculated using an Effective Tax Rate (ETR) and annual calculation performed in December will still be calculated using Progressive Income Tax Rate. 

The ETR is the average percentage of an employee’s income paid as taxes, applied to their gross income without considering deductions like pension contributions or non-taxable income. 

Conversely, the progressive income tax rate for annual calculations means that taxes increase as taxable income increases. 

To calculate the final tax underpayment, subtract the tax withheld from January to November from the December calculation. 

Classifications Of Effective Tax Rates 

Effective Tax Rate on personal income is calculated based on the individual’s gross monthly income or, if they don’t receive a monthly compensation, their daily income.

The two classifications are explained below.

• Monthly ETR
• Daily ETR

Monthly ETR

This is applied to all income an employee receives on a monthly basis. Depending on the range of monthly income received and the employee’s marital status, there are three categories in this classification:

• Category A for individuals with marital status of:
  • Single with no dependent (S/0);
  • Single with one dependent (S/1);
  • Married with no dependent (M/0).
• Category B for individuals with a marital status of:
  • Single with two dependents (S/2);
  • Single with three dependents (S/3);
  • Married with one dependents (M/1);
  • Married with two dependents (M/2).
• Category C for individuals with a marital status of:
  • Married with three dependents (M/3).

These monthly taxes are due for payment and lodgement on the 15th and 20th of the following month, respectively.

Annual tax returns (SPT) on the other hand must be lodged by 31st of March the following year.

View Full Breakdown for Monthly Effective Tax Rate

Daily ETR

A daily ETR is applied on income received by a non-permanent employee on a daily/weekly/unit basis.

And if this employee’s income is not paid on a daily basis, the daily ETR will be applied based on the number of working days.

The applicable daily ETR and their income range are shown below:

• 0% for daily income up to IDR 450,000;
• ▪ 0.5% for daily income above IDR 450,000 up to IDR 2,500,000.

Note that the new government regulation does not apply daily ETR for income above IDR 2,500,000.

It is clear that these new rates will alter the take-home pay of your employees. It is important that this is communicated to them to ensure transparency and smooth implementation.

Learn more: The 5 Best HR Software Indonesia Has to Offer in 2024

Who Needs to Pay Income Tax Indonesia?

Generally, there are two categories of individuals who pay income tax Indonesia:

• Domestic tax subject
• Foreign tax subject

Several requirements govern which category an individual falls into and how they are required to report their Indonesia income tax.

Domestic Tax Subject

For an individual to be regarded as a domestic tax subject for income tax Indonesia, that person must meet the following criteria:

• The person must be residing in Indonesia, or
• The person must have lived in Indonesia for more than 183 days within a 12-month period; or
• The person must stay in Indonesia during the tax year and have plans to stay in Indonesia.

If an employee passes this criteria, they are taxed on their worldwide income regardless of where that income comes from or which service is performed.

There are instances where an individual might be exempted from worldwide income taxation.

• An Indonesian citizen who resides outside Indonesia for more than 183 days will be treated as a non-resident taxpayer provided several conditions, like tax treaties, are met.
• A foreign employee can also be exempted from worldwide income tax if they qualify based on the nature of their work or industry. The exception period will last 4 years, starting from when the employee first arrived in Indonesia.

Income tax Indonesia regulations also have requirements for couples.

Spouses can choose to file their taxes jointly or separately. But if the couples have separate Tax Identification Number, they are required by law to calculate their tax payable based on the combined family gross income, and then report the payable in each return based on their prorated income.

Foreign Tax Subject (Expatriate)

For an individual to be regarded as a foreign tax subject for income tax Indonesia, that person must meet the following criteria:

• The individual doesn’t reside in Indonesia or has not resided in Indonesia for more than 183 days within a 12-month period. But they run a business or carry out activities through a permanent establishment in Indonesia; or
• The individual don’t reside in Indonesia or have not resided in Indonesia for more than 183 days within a 12-month period but earn an income from Indonesia from means other than not from running a business.

Who is Considered a Tax Resident in Indonesia?

Tax residency refers to an employee’s legal status within a country. It is important that your organization is aware of the tax residency status of employees, especially if you have remote or expatriate workers, as it determines the extent of their tax obligations in Indonesia.

These are the requirements for being a tax resident in Indonesia:

• You are domiciled in Indonesia; or
• You’ve stayed in Indonesia for more than 183 days in any 12-month period; or
• You’re present in Indonesia during a tax year and intend to reside in Indonesia.

If a foreign employee meets any of those requirements, that employee becomes a tax resident from the date they arrive in Indonesia till the date of their final departure from the country.

However, if the employee is already an Indonesian national, that employee is considered a tax resident from birth unless they leave the country permanently.

There are exceptions to this. There are cases where an employee might need to leave the country temporarily, for example, for a work assignment. In this case, that employee can be considered as a non-resident during the assignment and will only be taxed on their Indonesian-sourced income.

Every tax resident is required to comply with the following procedures:

• Registration
• Payment of monthly tax installments
• Lodgement of annual individual tax return (SPT)
• Deregistration upon leaving Indonesia permanently

Do Non-Residents Have to Pay Tax?

Yes, non-residents have to pay income tax Indonesia. However, there are some nuances that need to be taken into consideration.

• Non-residents are taxed on their Indonesian-sourced income only, at a final flat rate of 20%.
• Non-residents do not have an obligation to register for a tax ID number or file income tax return.
• The obligation to withhold, remit, and report taxes on employment compensation rests with the local employer.
• The income tax withheld by employers must be remitted on a monthly basis. It must be remitted by the 10th of the following month and reported by the 20th of the following month.

What to Prepare Before Submitting Income Tax Indonesia

Register as taxpayer and obtain Tax Identification Number (NPWP)

If you meet the requirements of a taxpayer in Indonesia, you need to register for a tax identification number (NPWP). You can either do this offline at a tax office or online at the website of the Directorate General of Taxes.

Gather relevant documents and information

Taxpayers in Indonesia are also obligated to file annual individual tax returns. Assist your employees in getting the following forms: Form 1770 S 1, SPT 1770, or 1770 SS. The forms to be used depend on the source and size of income that the individual receives.

When it is time to remit taxes, taxpayers are encouraged to e-file their SPT. This can be done anywhere and anytime as long as you’re connected to the internet.

You only need to include proof of deduction that has been provided by the employer as the main capital for submitting the annual tax returns (SPT). 

Then fill in other information columns such as ownership of assets and debts.

Other documents every taxpayer need before they can submit income tax Indonesia include:

• Proof of any additional income sources (e.g., rental income, freelance work)
• Proof of tax-deductible expenses (e.g., medical bills, education expenses, dependent allowances)
• Bank statements
• Investment statements
• NPWP card

You also need to have information on your total annual income from all sources, details of any tax-deductible expenses, and number of dependents.

Expatriates also need to get a tax identification number so they can file their tax returns. The documents required for their registration include:

• Copy of passport;
• Copy of work permit (Notifikasi);
• A copy of limited stay permit;
• Completed electronic registration form;
• And some tax offices require a copy of the sponsoring company’s NPWP.

Navigate Income Tax Indonesia with Omni

Managing income tax Indonesia is a complex and detail-oriented task that demands a deep understanding of the region’s unique legal requirements and a commitment to accuracy and compliance. That’s why it’s important to have the right technology on your side.

Omni offers a comprehensive payroll solution tailored to Indonesian specific requirements. With features like support for Indonesian rupiah and automated tax calculations, Omni can help HR teams simplify their payroll processing and ensure compliance with ease. 

Omni’s suite of features makes the requirements for running a compliant and efficient payroll system and taxes in Indonesia easy. With secure and centralized employee records, HR teams can swiftly access employment contracts and essential documents that support payroll practices. 

Our time off and attendance features empower teams to automate data and produce accurate reports in minutes, making payroll calculations seamless and accurate. And with payroll solutions that support Indonesian rupiah and pay schedules, Omni offers an entire suite of solutions to make your income tax Indonesia seamless. 

Start your free trial today!

If you’re ready to take your income tax Indonesia management to the next level, book a demo with us today. We’ll walk you through the platform’s capabilities and demonstrate how Omni can transform your payroll processing, saving you time, reducing administrative burdens, and enhancing overall efficiency.