Basic Concepts: What are Income and Profit?

1. Income (Pendapatan):
This is all the money a company receives from its operations, before deducting any expenses. For example, if you sold goods worth 10 billion Rupiah in a year, that is your income.

2. Profit (Keuntungan):
This is what remains with the company after deducting all expenses. For example, if a company's income was 10 billion Rupiah, but you spent 8 billion on salaries, rent, and purchasing goods, then the profit would be:
10 billion - 8 billion = 2 billion Rupiah.

1. Corporate Income Tax (PPh Badan)

What is it?
This is a tax that a company pays on its profit, i.e., on the money remaining after deducting all expenses. This tax shows how much "net" money you earn and are obligated to pay to the state budget.

Corporate Income Tax Rates (NOT simplified tax system):

• Standard rate: 22% of profit.
• Preferential rate (11%): if a company's income does not exceed 50 billion Rupiah per year, an 11% rate can be applied to the first 4.8 billion Rupiah of profit.
• If income exceeds 50 billion Rupiah, the preferential rate does not apply, and all profit is taxed at 22%.

How to pay Corporate Income Tax?

1. Once a year:
At the end of the financial year, you calculate your total profit and submit a tax declaration. Based on this declaration, you pay the Corporate Income Tax (PPh Badan).

2. Monthly (advance payments):
Throughout the year, you are obligated to make monthly advance payments (PPh Pasal 25). These payments are credited when calculating the annual tax.

How is the advance payment calculated?
You take the amount of corporate income tax paid for the previous year and divide it by 12.
Example: if the tax for the previous year was 12 million Rupiah, you must pay 1 million Rupiah each month.

Corporate Income Tax Rates (simplified tax system) - available only for the first 3 years.

What is it?
This is a special benefit for small companies whose annual income does not exceed 4.8 billion Rupiah. Companies can pay a fixed tax of 0.5% of their income, instead of calculating profit and paying tax at a rate of 22%.

How does it work?

• Tax is calculated based on gross income (Pendapatan), not profit (Keuntungan).
• The benefit is only valid for the first three years after the company's registration.

Example:
If your company earned 3 billion Rupiah in a year, you pay:
3 billion × 0.5% = 15 million Rupiah.

When to pay?
The tax is paid monthly. For example, if the monthly income was 250 million Rupiah, the tax will be:
250 million × 0.5% = 1.25 million Rupiah.

2. Value Added Tax (VAT or PPN)

What is it?
VAT is a tax that is added to the price of goods or services sold by your company. This tax is not paid from your profit, but is collected from customers and then transferred to the government.

Who must pay VAT?

Companies with an annual income greater than 4.8 billion Rupiah are obliged to register as VAT payers and add a tax of 11% to their goods or services.

VAT rate: 11%.

Example:
If you sell goods for 100 million Rupiah, you add 11% VAT. The buyer pays 111 million Rupiah, and you transfer 11 million Rupiah to the government.

When to pay?
VAT is paid monthly, by the 15th of the following month.

3. Employee Income Tax (PPh Pasal 21)

What is it?
This is a tax withheld from your employees' salaries. As an employer, you are obligated to deduct this tax from their salaries and transfer it to the tax authorities.

Tax Rates:

• Up to 60 million Rupiah per year: 5%.
• From 60 to 250 million Rupiah per year: 15%.
• From 250 to 500 million Rupiah per year: 25%.
• Over 500 million Rupiah per year: 30%.

Example:
An employee earns 5 million Rupiah per month (60 million Rupiah per year). The tax will be:
60 million × 5% = 3 million Rupiah per year or 250 thousand Rupiah per month.

When to pay?
Employee income tax is paid monthly, by the 10th of the following month.

4. Social Contributions (BPJS)

What is it?
BPJS is a state insurance system that includes health and social security.

Components:

1. BPJS Kesehatan (health insurance):

• Employer pays 4% of the employee's salary.
• Employee pays 1%.

2. BPJS Ketenagakerjaan (social security):

• The rate depends on the type of insurance and ranges from 0.24% to 8%.

Example:
If an employee's salary is 5 million Rupiah:
BPJS Kesehatan:

• Employer pays 200 thousand Rupiah (5 million × 4%).
• Employee pays 50 thousand Rupiah (5 million × 1%).

When to pay?
BPJS is paid monthly, by the 10th of the following month.

5. LKPM (Laporan Kegiatan Penanaman Modal)

What is it?
LKPM is a report on a company's investment-related activities. This report is mandatory for companies with foreign capital (PT PMA) or companies that have received investment incentives.

What does LKPM include?

• Investment volume (e.g., purchase of equipment or office rent).
• Company income and expenses for the reporting period.
• Number of employees, including local and foreign.
• Description of any difficulties the business faces.

Who is required to submit?

• Companies with foreign investments (PT PMA).
• Companies that have received incentives or grants.

When to submit?

• 1st quarter: by April 10.
• 2nd quarter: by July 10.
• 3rd quarter: by October 10.
• 4th quarter: by January 10.

6. Director's Personal Report

What is it?
The Director's Personal Report is a tax declaration that the company director must submit. This is especially important for foreign directors to confirm their tax obligations and status in Indonesia.

When to submit?

The Director's Personal Report is submitted annually through the tax service system by March 31 of the following year.

It is important to note that even if your company is inactive and has "zero" activity, some reports must still be submitted to the tax authorities, even with zero figures.

In addition to basic taxes, there are other taxes in Indonesia that may be specific to your business. For example, a restaurant tax, which is up to 10% of the order amount, or one-time taxes, such as property rental tax (10% of the rental amount), paid with each payment, or dividend tax (15%), which is levied at the time of their distribution. These taxes depend on your company's specific operations, and we are ready to consult you on them individually.