Under Balis’s self-assessment tax system, you are required to calculate and report your tax liabilities based on your company’s income to optimize financial management and resource allocations for your business. This article will provide a comprehensive overview of your business tax obligations in Bali’s hospitality sector, and provide an overview of current tax rates, and financial best practices.
Overview of Tax Rates for Your Hospitality Business in Bali
Corporate Taxes for Businesses in Bali
According to the Harmonized Tax Law (Law Number 7 of 2021), businesses should adhere to corporate tax obligations overseen by the Directorate General of Taxes. Hospitality businesses in Bali are therefore required to abide by the following tax obligations:
- Corporate Income Tax (CIT) – applies to all businesses operating within the country, including those in the hospitality sector. CIT rates can differ based on your company’s gross income:
- Above IDR 50 billion – 22%
- Between IDR 4.8 - IDR 50 billion – 11%&22%
- Below IDR 4.8 billion – 0.5% (only applicable for the first three years of incorporation)
- Above IDR 50 billion – 22%
- Between IDR 4.8 - IDR 50 billion – 11%&22%
- Below IDR 4.8 billion – 0.5% (only applicable for the first three years of incorporation)
- Withholding Taxes – taxes applicable to salaries, and services from non-employees, or vendors. There are different types of withholding taxes with different rates:
- PPh 21 – withholding taxes applicable to employee wages ranging from 5% for IDR 50 million annual income to 35% for more than IDR 5 billion.
- PPh 23 – withholding tax for payments made for services for services from non-employees. The standard is typically 2% but may vary depending on the type of income including royalties and dividends ranging from 15% to 20%.
- PPh 26 – withholding tax for payments made to non-resident taxpayers generally set at 20% plus VAT, which is mandatory for local PKP companies.
- PPh 21 – withholding taxes applicable to employee wages ranging from 5% for IDR 50 million annual income to 35% for more than IDR 5 billion.
- PPh 23 – withholding tax for payments made for services for services from non-employees. The standard is typically 2% but may vary depending on the type of income including royalties and dividends ranging from 15% to 20%.
- PPh 26 – withholding tax for payments made to non-resident taxpayers generally set at 20% plus VAT, which is mandatory for local PKP companies.
Tourism Taxes in Bali
More commonly referred to as “local tax”, this fee is mainly for services in the hospitality industry and is not to be confused with the tourism tax you pay at the airport. These taxes are typically added to the customer’s bill and must be indicated on invoices. Different types of hospitality businesses in Bali have different local tax rates:
| Hospitality Business Type | Local Tax Rate |
|---|---|
| Hotel | 10% |
| Restaurant | 10% |
| Spa | 40% |
| Massage | 12.5% |
| Discotheque | 40% |
| Karaoke | 40% |
| Gym | 10% |
Another tourism tax you should be aware of is the Hospitality Tax or PB1 (Pajak Bangunan 1), typically set at 10% of the total amount charged for the service. Some establishments may be exempt from PB1 based on these criteria:
- Annual income below a specified threshold may be exempt from paying PB1 Tax. This threshold is determined by local regulations and can vary by region.
- Certain types of businesses, such as small-scale or informal hospitality operations, may also be exempt from PB1 based on the size or nature of services offered.
- Businesses that operate primarily for non-commercial, community-based purposes or that do not charge for services may not be subject to PB1 Tax.
Hospitality businesses need to consult with local tax authorities or legal advisors to understand the specific criteria and ensure compliance with applicable regulations regarding PB1 Tax exemptions.
Service Charge Rates
In addition to local taxes, hospitality businesses may apply a service charge, which is generally set between 5% to 10% of the total bill before taxes. This charge is collected from customers and distributed among staff members at the end of the month.
To illustrate how these taxes are applied, consider the following example:
| Total bill before local tax and service charge | IDR 700,000 |
|---|---|
| Service Charge (5%) | IDR 35,000 |
| Gross Amount | IDR 735,000 |
| Local Tax (10%) | IDR 73,500 |
| Total amount due | IDR 808,500 |
Like with any region in Indonesia, a service charge is mandatory and standard practice in the hospitality industry. The Directorate General of Taxes regularly conducts audits to ensure compliance with these regulations and how it's distributed to employees.
Emerhub can help guide you with how service charges work and how we can ensure all financial records related to service charges are meticulously maintained in case of an audit.
Reporting Requirements for Hospitality Businesses in Bali
Obtain a Local Tax Number (NPWPD)
For tax compliance, your hospitality businesses in Bali must register for a Local Tax Number (Nomor Pokok Wajib Pajak Daerah - NPWPD). This number can be acquired during the company registration process. If you have multiple locations, each site must have its own NPWPD.
Deadlines for local tax payments vary across different regencies. Therefore, if a business has branches in multiple regencies, it may face differing deadlines. Additionally, the due date for corporate income tax may not align with that of local taxes. Managing these various deadlines can be challenging; however, services like Emerhub can assist with tax reporting on behalf of businesses.
When to Pay Your Taxes in Bali
Paying taxes in Bali adheres to the same regulations as anywhere else in Indonesia. As a hospitality business owner, you need to pay attention to the deadline for reporting and payment of local taxes because dates vary depending on your business location:
| Regency | Deadline |
|---|---|
| Denpasar | 10 working days of the following month |
| Badung | 10 working days of the following month |
| Gianyar | 15th of the following month |
| Buleleng | 15th of the following month |
| Karangasem | 15th of the following month |
| Klungkung | 27th of the following month |
| Tabanan | 20th of the following month |
Annual Corporate Income Taxes, on the other hand, need to be paid the latest by the 30th of April of the following year. Withholding tax payments, on the other hand, need to be paid the latest by the 15th of the following month. Failing to meet these deadlines can result in various penalties, including fines and interest on unpaid amounts. Businesses may face increased scrutiny from tax authorities, leading to audits and potential legal repercussions.
Navigating Tax Audits for Hospitality Businesses in Bali
Tax audits are essential for ensuring compliance with local tax regulations in Bali. Its focus is to ensure that businesses are accurately reporting income, and proper application of PB1 tax. Several factors can trigger a tax audit such as inaccurate reporting, late payments, and discrepancies in financial records.
Here’s how you can prepare for a tax audit on your hospitality business in Bali:
- Keep detailed and accurate financial records, including invoices, receipts, and bank statements. Ensure that all income and expenses are documented properly.
- Regularly reconcile financial records with bank statements to identify and correct discrepancies early on.
- Evaluate your business's internal processes related to tax reporting and payment to ensure they align with legal requirements.
- Be familiar with local tax laws and requirements specific to your regency. This includes knowing the applicable rates for hospitality taxes and deadlines for reporting.
Emerhub can assist hospitality businesses during audits by preparing necessary documentation, maintaining accurate financial records, and offering insights into best practices for compliance. Our expertise ensures that businesses are well-prepared for audits, minimizing potential issues and enhancing overall financial transparency.
Common Mistakes When Managing a Hospitality Business in Bali
Managing a hospitality business in Bali can be rewarding, but it also comes with its challenges. Nobody wants to land in hot water with the local authorities for mismanaging funds or operational inefficiencies.
Inadequate documentation can lead to inaccurate financial reporting and difficulties during tax audits. Businesses should maintain detailed records of all transactions, including income from bookings and expenses related to operations.
Another mistake many business owners make is incorrect tax rate application on their services. Different types of services may be subject to varying tax rates. Failing to apply the correct rate can lead to underpayment or overpayment of taxes. This mistake can trigger audits and result in fines or back taxes owed to local authorities.
The best way to navigate Bali’s complex tax system is to work with local consultants who specialize in the hospitality and tourism sectors. Emerhub provides end-to-end support for hospitality businesses in Bali from company registration to managing tax computations, and submissions.
Talk to our team of expert consultants in Bali by filling out the form below!
Frequently asked questions
Is Value Added Tax (VAT) applicable to hospitality businesses in Bali?
Value Added Tax (VAT) does not apply to hospitality businesses in Bali. Instead, these businesses are subject to the Hospitality Tax which acts as a substitute for VAT. According to local regulations, local tax subjects offering hospitality services, such as hotels and restaurants, charge this tax instead of becoming subject to VAT.
Are there any exemptions from local taxes for hospitality businesses?
Certain hospitality businesses in Bali may qualify for exemptions from local taxes under specific conditions. For example, small restaurants with revenue below IDR 10 million per month can be exempted from charging a PB1 tax.
What should I do if my business has no revenue for the year?
If your business has no revenue for the year, Annual Corporate Income Tax is mandatory. It is beneficial to maintain records and claim any potential deductions when filing your company’s Annual Corporate Income Tax.