Thousands of companies are registered every month in Indonesia and all of them must abide by the Indonesian laws and regulations in order to fully operate. This includes fulfilling the regulatory corporate compliance, obtaining business/commercial licenses, setting up a bank account, and registering for the Tax Identification Number (NPWP). Failure to comply can result in the suspension of business activities, termination of licenses or even a lawsuit[i]. Obtaining the Deed of Incorporation of your company is only a starting point for a number of post incorporation compliances that the corporate has to follow. This article will discuss the post incorporation compliances that you as owners and directors of the company must not fail to look into.
Tax Compliance
Corporate Income Taxes
All limited liability companies in Indonesia, local or foreign-owned, have the same corporate tax considerations. Companies with a total revenue below IDR 4.8 billion can opt for the 0.5% tax rate of the monthly revenue and be paid and filed in the following month on a monthly basis[ii]. Companies registered after July 2018 have the right to choose whether or not they want to use the 0.5% tax scheme. When the cumulative amount exceeds IDR 4.8 billion, the tax office will send a letter of notification that the company should now fall into the regular annual profit-and-loss based tax scheme of 25%, paid and filed before the 30th of April of the following year.
Value Added Tax (Pajak Pertambahan Nilai or PPN)
Companies are not obliged to register for VAT until their annual revenue exceeds IDR 4.8 billion and once this threshold is met, VAT registration is mandatory. VAT is a debit and credit scheme and Net VAT is reconciled on a monthly basis and filed in the following month.
Employee Income Tax and Benefits
Individual Income Taxes: An employee’s individual income tax is deducted from his or her salary and it is the obligation of the employer to pay and file taxes in the following month. The individual tax rates vary from 5% to 30% depending on the income of the employee. Please refer to our previous article concerning individual income taxes in Indonesia.
Employment Benefits: All employees, both foreign and local, must be registered with the Indonesian health and social welfare scheme (BPJS Kesehatan dan Ketenagakerjaan). Contributions are borne by both the employee and the employer:
| Employee Contribution | Company Contribution | |
|---|---|---|
| BPJS Kesehatan (Universal Health Care) |
1% or max IDR 120,000 | 4% or max IDR 480,000 |
| BPJS Ketenagakerjaan | ||
| Jaminan Hari Tua (Old Day Fund) |
2% | 3.7% |
| Jaminan Kecelakaan Kerja (Work Accident Security) |
– | 0.24% – 1.74% depending on the severity of risks |
| Jaminan Kematian (Death Insurance) |
– | 0.3% |
| Jaminan Pensiun (Pension Fund) |
1% or max IDR 70,000 | 2% or max IDR 140,000 |
The company is also obliged to pay a one month’s salary Holiday Allowance (Tunjangan Hari Raya or THR)[iii] famously known as the ‘13th-month salary to employees every year. This must be paid a week prior to the relevant religious holidays at the latest[iv] – Eid al-Fitr (Hari Raya Lebaran) for Muslims, Christmas Day (Hari Raya Natal) for Christians and Catholics, Day of Silence (Hari Raya Nyepi) for Hindus, and Vesak Day (Hari Raya Waisak) for Buddhists.
In practice, there is no difference between foreign and local employees when it comes to employee income tax and benefits in Indonesia. All foreign and local employees have the same tax and benefit schemes.
Human Resources Compliance
- Employment contracts are mandatory and employees are allowed to be hired on a contractual basis maximum of once;
- All employees are eligible for severance compensation per government regulations;
- Foreign employees must carry valid work and stay permits to be able to work in Indonesia and this is the obligation of the company;
- Foreign directors are not allowed to sign appointment and termination letters;
- In the event that the company has more than 10 employees, an Employee Handbook must be released and approved by the Human Resources Department.
Other Administrative Post Incorporation Compliances
Work and Stay Permit for Foreign Employees (KITAS)
The company is obliged to sponsor and process the Work and Stay Permit (KITAS) for their foreign employees. Foreign shareholders of the company are eligible for the two-year Investor KITAS whilst foreign employees can get the Work Permit KITAS, which is valid for one year. Both types of KITAS are extendable.
Investment Activity Report (LKPM)
All foreign-owned companies without exception, and locally owned companies that have an investment value of more than IDR 10 billion, are required to file the quarterly Investment Activity Report (LKPM) to the Investment Coordination Body (BKPM). We have thoroughly discussed what the Investment Activity Report (LKPM) is, why it is important and how to submit it in this article.
Conclusion
Permitindo helps investors incorporate their companies, manage all post incorporation compliances matters and ensure with Indonesian laws and regulations. If you have any other questions related to company formation or post incorporation compliances that we have not addressed in this article, do not hesitate to write us an email at anita@permitindo.com or contact us via this form.
References
[i] Regulatory Corporate Compliances in Indonesia [Link], accessed on 25/08/2020
[ii] Minister of Manpower Regulation No 6/2016
[iii] Government Regulation No 23/2018
[iv] Tanya Jawab Seputar Tunjangan Hari Raya (THR) [Link], accessed on 26/08/2020
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