Compliance in Indonesia

Thanks to its growing economy and strategic proximity to international trade partners, Indonesia is a thriving business market for foreign companies and investors. If you are currently carrying out activities in Indonesia, or if you are considering doing so, then you must ensure compliance in Indonesia with local regulations.

This guide will help you understand Indonesia’s principal compliance requirements regarding social contributions, taxes, and Investments. This knowledge will allow you to ensure that your business activities are conducted following Indonesian legislation and will avoid unwanted penalties.

Employee Payroll Compliance in Indonesia

Employee compensation and mandatory contributions in Indonesia

In Indonesia, salaries vary by location and industry, starting from 3,070,000 IDR for entry-level roles. Employees are also entitled to receive a benefit known as a 13th-month salary every year. To ensure compliance, employers must also provide employees with their entitled 12 paid days off every year, as well as Indonesian public holidays.

Indonesia also has comprehensive social security and healthcare schemes that have been established by the government. Any company that processes payroll must calculate the necessary contributions for all local employees and expat employees who worked in Indonesia for more than 6 months. 

The social security and healthcare administration is referred to locally as Badan Penyelenggara Jaminan Sosial (BPJS). These regulations were based on Social Security Administrators Law No. 24 of 2011 to replace the previous social security foundations.

National Manpower Social Security Agency (BPJS Ketenagakerjaan)

The contributions related to social security are managed via the BPJS Ketenagakerjaan. There is a range of benefits that stem from this program. To ensure compliance in Indonesia, you must calculate the correct percentage of contributions for both the employee and employer on the salary. Each program benefit has an established rate:

Program Benefit% of regular salaries (monthly)
Employee contributionEmployer contribution
Provident Fund23.1
Work-Related Accident00.24 – 1.74 (dependent on work environment risk level)
Pension Plan12

Keep in mind that these contributions are subject to deadlines for each period. Failure to meet these deadlines will result in penalties for non-compliance. Inaccuracies and delays in accident reporting will also result in penalties. For the provident fund and pension plan, the penalties are 2% for each month of delay 

National Healthcare Security Agency (BPJS Kesehatan)

Companies must register their employees under the BPJS Kesehatan healthcare provision. If a company fails to comply with this requirement, they will be penalized. Unpaid contributions of more than 6 months can even result in the agency terminating its service for your company or employees.

The mandatory monthly contributions for each employee are calculated based on the employee’s regular/fixed gross wages. These include a contribution portion of 4% for the employer and 1% for the employee. BPJS Kesehatan covers up to 5 family members of the employee and is liable for an additional 1% monthly contribution per family member.

To ensure compliance in Indonesia, it is crucial to properly calculate and manage all the requirements relating to employee payroll. Emerhub’s team of experts can simplify this process for you through its comprehensive payroll service.

Tax Compliance

Tax laws in Indonesia are very strict and it is essential to have a good understanding of the different requirements to ensure both personal and corporate compliance. If you are living in Indonesia or are subject to paying taxes in the country, you must consider registering for certain pre-requisite before you can submit any tax returns:

  • Personal Tax Card (NPWP): This is a mandatory document for any individual or a legal representative for a company. It establishes your identity as an Indonesian taxpayer and provides you with your tax code, which is necessary for submitting returns.
  • Electronic Filing Tax Number (EFIN): This is necessary for accessing the Indonesian Online Tax Service. The EFIN offers a more efficient and secure way of authenticating company tax data.
  • Accounting system: It is recommended that you also put this system in place to ensure that your data and financial records are stored securely. This will also facilitate financial reporting and compliance.

Monthly and annual tax compliance in Indonesia

Both companies and individuals must adhere to strict tax regulations in Indonesia. It is considered best practice to understand the different types of tax reports as well as the filing submission deadlines for each:

  • Monthly Income tax: All businesses operating in Indonesia must submit monthly reports of their income, even if the company hasn’t started making any earnings yet.
  • Yearly Income tax: Applicable to both individuals and companies, all income gained in a fiscal year (Jan 01 – Dec 31) must be reported. 
  • Employee Withholding tax: Concerns all taxes withheld from employee wages and paid by an employer directly to the Indonesian tax authorities.
  • Other Withholding tax: Taxes withheld from other income types, such as dividends. For more details, read this article on how to legally reduce dividend tax in Indonesia.
  • VAT: The Value Added Tax is calculated on the government-assessed value of certain goods being imported into Indonesia
Type of TaxMonthly Payment DeadlineMonthly Filing DeadlineAnnual filing deadline
Corporate Income Tax15th of the following month20th of the following monthEnd of the 4th month after the fiscal year ends
Individual Income Tax15th of the following month20th of the following monthEnd of the 3rd month after the fiscal year ends
Employee Withholding Tax10th of the following month20th of the following monthN/A
Other Withholding Taxes10th of the following month20th of the following monthN/A
VAT Before the VAT return filing deadlineEnd of the following monthN/A

Taxation penalties and sanctions for non-compliance

Tax compliance in Indonesia is of utmost importance, as any inaccuracies in reporting or failures to submit or pay by specific deadlines can result in serious consequences. Individuals and companies must avoid specific conditions that can result in financial and criminal penalties and sanctions:

  1. Late Reporting 
  2. VAT invoice- not issued, incomplete, late, or not by the period of issuance
  3. Tax return- fails, incorrect or incomplete information in submission
  4. improper use of/ not registering NPWP, providing false or falsified bookkeeping records, refusing a tax audit
  5. Issuing tax documents that are not based on actual transaction/ issuer is not yet confirmed as a taxable entrepreneur

Tax reporting is an arduous task and requires a keen understanding of Indonesia’s complex tax system to avoid falling into the aforementioned pitfalls. Emerhub’s Tax & Accounting service can provide solutions to your specific needs through our team’s expertise and knowledge of the Indonesian tax system to keep your finances compliant.

Investment Reporting (LKPM)

Why is investment reporting required in Indonesia?

Investments are one of the driving forces behind Indonesia’s growing economy and booming business sectors. As such, to ensure compliance in Indonesia, your company must follow investment reporting guidelines. Any company with foreign investors or with investments higher than IDR 500,000,000 must submit the Investment Activity Report (LKPM).

The LKPM, also known locally as the Laporan Kegiatan Penanaman Modal, allows the Indonesian government to properly assess the current state of the economy while moderating potential risks through relevant policymaking. The LKPM must include all the relevant company investment details:

  • Realizations on investments
  • Source of funds
  • Number of additional employees per report period
  • Number of contractors and vendors
  • Company concerns
  • Legal documents
  • Activities and responsibilities

Types of reports and compliance deadlines

The BKPM establishes the specific deadlines that apply to each type of report. It is important to stay up to date with the current submission deadlines and policies relevant to your specific area of activity. Failure to submit the LKPM can result in further fines and sanctions against your company. 

Companies that do not yet have a business license must submit a quarterly report, whereas companies that have a business license must only submit bi-annually. These are the report periods as defined by Indonesia’s fiscal calendar, which runs from January 01 to December 31:

First quarterApril 10
Second quarterJuly 10
Third quarterOctober 10
Fourth quarterJanuary 10

Ensure company compliance in Indonesia through Emerhub

Navigating through Indonesia’s many strict compliance regulations can be challenging, but is necessary to ensure that your company can prosper in this market. It is advisable to consider partnering with an expert in Indonesian laws and regulations to avoid potential mistakes or missed submissions.

Emerhub’s team is very knowledgeable about Indonesian laws and can help you with all your company needs. Our advisors can streamline your company’s compliance processes and allow you to focus on what you do best. With Emerhub as your partner, you can have peace of mind that your payroll, taxes, and fiscal reporting will always follow all the most up-to-date Indonesian policies.

Contact us via the form below to discuss compliance solutions for your company with one of our experts!

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