Taxation and Accounting

INTRODUCTION TO THE INDONESIA TAX SYSTEM

The major taxes in Indonesia are levied at the national level. The exceptions are transfer tax of motor vehicles and development tax.

***AFTER THE MONETARY CRISIS IN 1998, THE COUNTRY HAS EXPERIENCED SIGNIFICANT POLITICAL AND ECONOMIC INSTABILITY. THE SITUATION IS IN A CONSTANT STATE OF FLUX. CONSEQUENTLY, LOCAL BUSINESS CONTACTS, EMBASSIES AND OTHER OFFICIAL BODIES SHOULD BE CONSULTED REGARDING THE CURRENT SITUATION INSOFAR AS TAX LAWS AND ENFORCEMENT OF LAWS ARE CONCERNED. ***

The official currency is the Indonesian Rupiah and there are no foreign exchange controls place on this currency. Since the economic crisis in 1997, the Rupiah has depreciated more than 70%.

The Indonesian fiscal year ends on 31 March. The tax year in Indonesia is the calendar year. Company financial years generally end on 31 December. Subsidiaries of foreign companies usually follow the financial year of the overseas parent.

Married persons are taxed separately on employment income and jointly on all other income. Employee taxes are withheld by the employer. An employer must file a tax return based on the calendar year for all employees no later than the following 31 March. The employer must also file a monthly return by the 20th day of the following month.

Employees with only one source of income have not been required to file annual tax returns. However, resident individuals with more than one source of income must file individual tax returns disclosing all sources of worldwide income, and, effective from 1 January 2001, it appears that most individuals will be required to file individual income tax returns. The return is due on 31 March following the end of the tax year.

Withholding tax is levied on a variety of payments to residents. A self-employed professional, including an accountant, attorney, architect or consultant, has tax withheld at source on the settlement of invoices. The rates of withholding tax vary from 6% to 9% of the gross amount. Withholding tax is an advance payment of income tax.

Self-employed individuals must make monthly advance tax payments. The monthly payment amount is based on the previous year's tax liability, reduced by tax withheld at source during the preceding year. The payment is due on the 15th day of the month following the income month.