Withholding tax is a system in which tax is deducted at the point of income generation and forms a fundamental part of Indonesia’s tax administration. For those considering doing business or investing in Indonesia, understanding local taxation—especially withholding tax—is essential.

In Japan, withholding tax is commonly associated with individual income, but in Indonesia, various types of withholding taxes exist. This article provides an overview of withholding taxes in Indonesia and their respective rates.

What Is Withholding Tax in Indonesia?

Indonesia employs a withholding tax system for income tax collection. Specific types of income—such as salaries, fees, interest, dividends, and royalties—are subject to withholding by the payer (employer or service purchaser).

Withholding taxes are categorized by article numbers under Indonesia’s Income Tax Law (PPh), including:

• Article 21 (PPh21): Withholding tax on individual income
• Article 22 (PPh22): Withholding tax on imports
• Article 4(2) (PPh4-2): Final tax/separate withholding tax
• Article 23 (PPh23): Withholding tax on payments to Indonesian residents for services
• Article 26 (PPh26): Withholding tax on payments to non-residents

Article 21 (PPh21): Withholding Tax on Individual Income

PPh21 governs tax deductions from salaries and other personal income. Employers are required to withhold tax from employee salaries and remit it to the government. This applies to income from work, services, and activities performed by residents in Indonesia.

Taxable Income:

• Salaries for regular employees
• Pension and similar income
• Severance and retirement benefits
• Wages for contract workers
• Fees for freelancers
• Appearance or participation fees for events

Tax Rates (Residents):

• ≤ IDR 60 million/year (approx. USD 3,576): 5%
• IDR 60M–250M/year (approx. USD 3,576–14,900): 15%
• IDR 250M–500M/year (approx. USD 14,900–29,800): 25%
• IDR 500M–5B/year (approx. USD 29,800–298,000): 30%
• > IDR 5B/year (approx. USD 298,000): 35%

Non-Residents: Subject to Article 26, taxed at 20%.

Tax treaty relief (e.g., for Japanese freelancers) is available upon submission of a Certificate of Residency/DGT form to the Directorate General of Taxes (DGT).

Payers:

• Resident corporations
• Permanent Establishments (PEs)
• Representative offices of foreign companies
• Business organizations and designated individuals

Payment Deadline:

• By the 10th of the following month

Article 22 (PPh22): Withholding Tax on Imports

PPh22 applies to income derived from importing goods and affects importers and specific product purchasers. It is levied along with customs duties and VAT upon issuance of an import declaration (PIB).

Tax Base:

• Import value (price + customs duties)
• Auctioned import goods
• Sales price of fuel, lubricants, etc.
• Purchases of cement, paper, steel, or automotive products from local suppliers

Tax Rates:

• With Importer Identification Number (API): 2.5%
• Without API: 7.5%

Additional Penalty:

• Taxpayers without a Tax ID (NPWP): 100% surcharge

Exemption: Available via a Tax Exemption Certificate (SKB) for specified goods (e.g., vaccines, machinery, military equipment, research supplies).

Payment Deadline:

• Next business day after the issuance of PIB

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Company Formation in Indonesia

Article 4(2) (PPh4-2): Final Tax/Separate Withholding Tax

PPh4-2 applies final tax rates to specific income types. Tax withheld is final and completes the tax obligation.

Applicable Income:

• Capital gains from land/building sales
• Bank deposit interest
• Lottery winnings
• Income earned by individuals/companies with annual sales ≤ IDR 4.8 billion, excluding PEs

Tax Rates:

• Vary by item (see Indonesia Tax Pocket Book 2023, p.14)

Payers:

• Depends on whether payer/payee is an individual or entity

SMEs:

• All received invoices are subject to PPh4-2, and monthly payments replace the need for year-end filings.

Payment Deadline:

• By the 10th of the following month

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Article 23 (PPh23): Withholding Tax on Resident Service Payments

PPh23 applies to most services provided within Indonesia and is levied on payments to resident taxpayers.

Applicable Income:

Group A:

• Dividends
• Interest (including premiums, discounts, guarantees)
• Royalties
• Prizes and awards

Group B:

• Rental of non-land/building assets
• Fees for technical, management, consulting, and other services (excluding services taxed under PPh21)

Tax Rates:

• Group A: 15%
• Group B: 2%

Payers:

• Resident corporations
• Permanent Establishments
• Representative offices
• Business organizations and designated individuals

Payment Deadline:

• By the 10th of the following month

Article 26 (PPh26): Withholding Tax on Non-Resident Payments

PPh26 governs tax on payments to non-residents for passive income or service fees, including cross-border transactions.

Applicable Income:

Group A:

• Passive income to non-residents
• Service fees for cross-border transactions

Group B:

• Insurance premiums to foreign insurers
• Sale of unlisted Indonesian companies by non-residents

Tax Rates:

• Group A: 20%
• Group B: Varies by recipient

Tax Treaty Relief:

• Available for treaty country residents (e.g., Japanese insurers) upon registration of residency documents with the DGT.

Payers:

• Indonesian residents and corporations
• Permanent Establishments
• Business entities
• Representative offices

Payment Deadline:

• By the 10th of the following month

Conclusion

As outlined, withholding tax obligations in Indonesia are clearly categorized under the Income Tax Law. Some income types are exempt or eligible for reduced rates under tax treaties. To minimize tax risks and avoid unnecessary costs, a clear understanding of these rules is essential.

For questions or consultations about withholding taxes, please contact our firm.

Reference: Indonesia Tax Pocket Book 2023
https://www.pwc.com/id/en/pocket-tax-book/japanese/pocket-tax-book-2023-jpn.pdf