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  • As the fourth most populous country in the world, supported by good political and economic stability, Indonesia’s large domestic market offers awide range of investment opportunities for foreign and domestic investors.

    The Indonesia economy accelarated by 5.18% in the second quarter of 2016 as compared to a downwardly revised 4.91 percent growth in the March quarter and above market consensus of a 5 percent expansion. It was the strongest growth rate since the fourth quarter 2013, driven by a faster increase in private consumption and government spending while investment eased and exports fell at a slower pace. GDP Annual Growth Rate in Indonesia averaged 5.35 percent from 2000 until 2016.

    Indonesia is diverse and is amoing the most culturally rich countries on Earth. Add to this its enermous mineral, marine, and natural resources and it is evident that it ranks as a major economic force in the region. Following the economic and financial crisis that hit the country in 1997, Indonesia government recognised the important role of foreign investment to play in reconstruction of the Indonesia's economy. During following years, successive governments enacted legal and regulatory reforms design to make Indonesia a competitive destination for foreign direct investment.


    Setting Up a Business

    There are variuous ways for an investor to set up presence in Indonesia, depending on the investors's type of business.

    1. Limited Liability Company
      Viewed from the source of funds, there is two types of limited liability company (PT) in Indonesia, local and foreign (PMA) limited liability company. There must be two parties of shareholder in a PT. A limited liability company must have a board directors and board commisioner, at least one director and one comissioner. The director servesas management of company and responsible in company operation, while commisioner supervises and provides advice to the director.

      The common type of presence for a foreign investor who wants to invest and engage in business in Indonesia is by establishing an Indonesian incorporated limited liability company, commonly known as a PMA company. There must be at least two parties of shareholder in a PMA company. The shareholder can be a legal entity or an individual. The foreign investor’s shareholding percentage must meet the requirement.
    2. Representative Office (RO)
      Foreign companies are permitted to establish a representative of ce in Indonesia. However, unlike a PMA company, a representative of ce has more restrictions on its activities. In tax perspective RO is categorized as permanent establishment (BUT).

      As representative office can only perform marketing or prmotion activites, market research, and review business opportunities in Indonesia. Representative of ces are available for foreign companies engaged in certain sectors which include trading, services, oil and gas mining and banking. An exception applies to representative of ces of foreign companies engaged in construction services. This type of representative of ce is allowed to deliver construction services in Indonesia under a joint operation with a local construction company.
    3. Branch
      A branch office is generally not allowed, except for banking sector. 
    4. Partnership
      A partnership is an arrangement in which two or more individuals share the profits and liabilities of a business venture.

    Taxation in Indonesia

    Tax system

    Taxation in Indonesia adopts self assessment method, where every taxpayer has rights to calculate  their own income tax based on tax regulation. There are separate laws covering income tax, value added tax (VAT) and sales tax on luxury goods, other tax laws include the law on the taxing of land and building and stamp duty. 

    Income tax

    Under the prevailing Indonesian tax law, there are two subject of taxpayer : individual and corporation. Income tax is applied to individual and corporation on  increase in economic wealth. A company is treated as a resident of Indonesia for tax purposes by virtue of having its establishment or its place of management in Indonesia. A foreign company carrying out business activities through a permanent establishment (PE) in Indonesia will generally have to assume the same tax obligations as a resident taxpayer.

    Tax rate and period

    Normally, Corporate Income tax rate is 25% of taxable income applies for corporate taxpayer. But since July 2013, Directorate General of Taxes (DGT) issued new regulation for taxpayer who has gross revenue not more than IDR 4.8 Billion. The tax rate for taxpayer in this category is 1% from gross revenue. The normal tax period is January to December. If corporate taxpayers would like to use a different tax period, e.g. July to June, they would have to obtain an approval from the DGT and then maintain the approved tax period consistently.

    For individual taxpayer, DGT applies progressive tax rate, are as follows:

    5%     : IDR 0,- up to IDR 50 million

    15%    : IDR 50 million - up to IDR 250 million

    25%    : IDR 250 million - up to IDR 500 million

    30%    : > IDR 500 million

    The above rate is only for an individual who resides in Indonesia for more than 183 days within 12 months period or and an individual who within a particular year is present in Indonesia and intends to reside in Indonesia.

    Withholding Taxes

    The rates of withholding tax is vary depend on the nature of income source. The maximum withholding tax rate for domestic taxpayer is up to 15%. While, withholding tax rate for employee is same as individual taxpayer. Payments to overseas on certain sources of income may be liable to withholding tax of 20%. However, a reduced WHT rate maybe applicable where a tax treaty is applied.

    Tax Administration

    Tax liabilities for a particular period or year must be paid to the State Treasury through a designated tax-payment and then accounted for at the tax office through the filling of the relevant tax returns.

    The monthly income tax liabilites must be paid every 10th or 15th day of the following month. For VAT, the payment must be settled before the VAT return is filed. VAT return filing is done on a monthly basis by the end of the following month. 

    Late tax payments incur penalties at 2% per month while for late reporting, the penalties are IDR 100,000 per month for monthly tax reporting and IDR 1,000,000 for corporate tax return.

    Value Added Tax (VAT) and Luxury goods Sales Tax (LST)

    VAT is applicable on deliveries (sales) of good and services within Indonesia at a rate of 10%. VAT on export of foods is zero rated while the import is subject to VAT at a rate 10%. VAT from their customers or clients can be recognised as input VAT. An excess of VAT input maybe carried forward. The penalties for late reporting IDR 500,000 per month.

    Some goods are subject to LST upon import or delivery by the manufacturer  to another party at rates ranging from 10% to 200%.

    Audit and Accountancy

    Business are required to maintain accounting records properly. In Indonesia, the financial statements must be prepared according to Indonesian Financial Accounting Standards (SAK is the local acronym), which are adopted from International Financial Repoting Standards (IFRS).

    Accounting period

    Generally, business entities use the 1 January to 31 December as their accounting period.

    Bookkeeping currency

    Accounting books and financial statements are prepared using the company's functional currency. Most business entities are using Indonesian Rupiah as their  functional currency. However, there a number of companies are using functional currency other than Rupiah.


    For tax purpose, the prevailing tax regulation only allows a company to use US Dollar currency. The company should obtain approval from the tax authority before use US Dollar currency in their bookkeeping.


    Bookkeeping languange

    By law, all accounting books records and financial statements should be prepared in Indonesian language. A company is allowed to use other languanges only after get an approval from the Minister of Finance.

    Accounting Standards

    There are three accounting standards as company's guidance to prepare its financial statement:

    1. Financial Accounting Standards (SAK is the local acronym), which are adopted from International Financial Repoting Standards (IFRS).
    2. SAK for no Public Accountability (SAK ETAP), which is simpler than the full SAK
    3. Islamic Accounting Standards (Syariah SAK)

    Generally, only SAK and SAK ETAP frequently used. But for the listed company, Financial Accounting Standards (SAK) is mandatory.

    Audited Financial Statements

    The Minister of Trade requires the filling of the audited financial statements for every limited liability  that meets the following criteria:

    • The entity is a listed company
    • The entity is utilising public funds
    • The entity has issued obligations or promisory note
    • The entity has total assets exceeding IDR 50 Billion.


  • Debt to Equity Ratio in determining income tax according to PMK169/PMK.010/2015

    16 Jun 16

    In the business, debt is something we can’t avoided. Debt in financial management is to leverage or to improve financial performance. If Companies only rely on their own capital or equity, certainly, the company will have difficulties for business expansion that needs additional capital. Well this is where the role of debt is very helpful for business expansion. But, if the amount of debt already exceeds the amount of equity, then company’s risk from liquidity perspective is increasingly high.

    Liquidity shows how liquid or how fast for an asset to be converted into cash and cash equivalents. Liquidity can also describe company’s ability to settle the debts or liabilities with maturity not more than 1 (one) period.

    To assess liquidity risk, analysis is required to review financial performance using Debt to Equity Ratio (DER). DER is ratio that compares total liability to total equity. The higher the number of DER, it is assumed that the company has a higher risk for the company’s liquidity.

                                                        DER : Total Debt
                                                                  Total Equity

    Debt to Equity Ratio For Tax Purpose

    Although the debt can be used to help in company’s expansion, but it doesn’t mean there is no negative impact from debt. Generally any debts definitely have interest to be paid, and this is an expense for the company.

    Because of interest expense in income statement can be used as deduction from income in determining taxable income, and therefore if interest expense increase then it will reduce taxable income that affects on lower income come tax expense.

    The amount of interest expense is affected by amount of debt, therefore for tax purpose, Directorate General of Taxes are concern to determine debt to equity ratio. According to Tax Law (UU) No. 36 of 2008 article18, that the financial minister is authorized to issue provision regarding debt to equity ratio for the purposes of income tax calculation.

    According to Financial Minister Regulation (PMK) of Republic Indonesia No. 169/PMK.010/2015 article 2, the maximum ratio between debt and equity (capital) shall be 4:1. The definition of debt and equity are as follows:

    1. Loan is:          

    • The average balance of debt at the end of each month in the relevant fiscal year, or
    • The average balance of debt at the end of the month in the relevant part of fiscal year

    2. Capital is: the average balance of capital at the end of the month in the relevant fiscal year or part of fiscal year.

    The balance of debt mentioned before is short term and long term debt, including trade payable which charged by interest. If the ratio between debt and equity exceeds 4:1, then cost of fund that can be used as deduction of taxable income must be accordance to ratio 4:1.

    The Exception from Provision of Debt to Equity Ratio

    The provision of debt to equity ratio is not applicable to all companies. There are companies that are excluded in the application of this provision, are as follows:

    1. Bank
    2. Financial institution
    3. Insurance and reinsurance Company
    4. Taxpayer who doing business in oil and gas, mining, and others, who work under contract, sharing contract, or cooperation agreement in the mining business and in contracts or agreement which regulate the limit of debt to equity ratio.
    5. Taxpayer whose all the income subject to final tax based on laws and regulation.
    6. Taxpayer who doing business in infrastructure

    The Effective Date of This Provision

    The provision regarding ratio between debt and equity for income tax calculation as regulated in Financial Minister Regulation (PMK) of Republic Indonesia No. 169/PMK.010/2015 is valid start from fiscal year 2016.

  • PSAK 13: Investment Property Overview

    01 Nov 16


    It’s often that fixed assets are the biggest component in the statement of financial position of the enterprise. Land, building, plant, vehicle, and equipment that has a useful life more than 1 year are included in fixed asset categorized. But, is your company fixed asset have been classified correctly? Because, it’s often that a company purchases land and building (property) but not to provide goods and services, but solely for investment. How investment on land and building should be recorded? Land and building that acquired not to provide goods and services in daily activities should be recorded as investment property.


    What is Investment Property?

    Investment property is property (land or building or part of building or both) owned by entities with the intention of earning rentals or for capital appreciation and not used for production or provide goods and services for administrative purposes and not for sale in daily activities.

    Here is example of land and building are classified as investment property:

    a. Land held for long terms capital appreciation.

    b. Land held for an undetermined use in the future.

    c. Property in development process and in the future will be used as an investment property.

    d. Building own by reporting entity under a finance lease and leased out to other parties under one or more operating leases.

    e. Vacant building held by an entity to be leased out under one or more operating leases.


    While the property is not categorized as investment property such as:

    a. Property held for sale in daily activities.

    b. Property being constructed or developed on behalf third party.

    c. Property rented to other entities through financial lease


    Investment Property

    Fixed Asset

    a. Not use for production or provide goods and services in daily operation activities.

    a. Use for production or provide goods and services in daily operation activities.

    b. Not for administrative purpose

    b. For administrative purpose


    When Investment Property Can Be Recognized As An Asset?

    Investment property will be recognize as an asset when the cost value can be reliably measured and future economic benefit of the property will flow to the reporting entity.


    How Investment Property Is Measured?

    A. Initial Measurement

    Initial measurement of property investment will be at cost. The cost that included in acquisition cost is purchase price and all expenditures directly attributable incurred in transaction, such as: legal fees, sales tax, and other transaction cost. However, if an entity acquired property from exchange of monetary or non-monetary assets or combination of monetary or non-monetary assets, the acquisition cost shall be measured using the fair value, except:

    i.  The exchange transaction has no commercial substance. 

    ii. The fair value of assets are exchanged can’t be measured reliably

    B. Measurement After Recognition

    After recognition, reporting entity can choose to use fair value or cost models. For entity that use fair value are encouraged to use the fair value based on appraisal by independent appraiser who has a professional qualification and has been recognized and has experience in the location where the property is assessed. And gains or losses resulting from changes in fair value of investment property shall be recognized in income statement in the period when its occurred.

    For entity that use cost models, reporting entity measure its investment property by applying standards according to PSAK 16 regarding fixed assets, unless the investment property is categorized as held for sale.


    Fair Value Method
    (PSAK 13)

    Revaluation Model (PSAK16)

    • Use Fair Value
    •  Use Fair Value
    • Changes in fair value are recognized in income statement in the period when its incurred.
    • Changes in fair value are recognized in comprehensive income statement or equity.
    •  No Depreciation
    • Depreciation
    • Reflecting market conditions at the balance sheet date.
    • Not specific, only requires regular assessment,


    What Is The Fair Value Of Investment Property?

    Fair value of investment property is exchange price of property between the parties who have sufficient knowledge and have a willing in arm’s length transaction, so that the fair value of investment property reflects market condition at the end of the reporting period.

    Fair value doesn’t include the assumption of increase or decrease of the price because of special circumstances and in determining fair value should not be deducted transaction cost that arise from sale or other disposal.

    Fair value of investment property must reflecting the cash inflows such as income from rents, which reflecting assumptions from parties who are willing to transact and have sufficient knowledge on rental income in the future by considering the current condition. By the same consideration, fair value must concern on cash outflow related to that property.

    Fair value transaction also refers to the parties who enter in transaction, that the parties who enter in transaction have not certain/ special relationship that makes the transaction price does not reflect characteristic of market condition.


  • PSAK Update - PSAK 73: Sewa

    11 Dec 17

    PSAK 73: Sewa telah disahkan oleh Dewan Standar Akuntansi Keuangan pada tanggal 18 September 2017 yang telah mengadopsi IFRS 16. PSAK 73 berlaku efektif mulai 1 Januari 2020.

    Dengan menggunakan standar akuntansi sewa yang saat ini berlaku (PSAK 30), para pemakai laporan keuangan mengalami kesulitan mendapatkan informasi karena terdapat off-balance sheet aset. Di PSAK 73, lesee (penyewa) diwajibkan untuk mencatat seluruh sewa, baik financial lease ataupun operational lease di laporan posisi keuangan lesse, yang akan merefleksikan hak lease untuk memanfaatkan suatu aset selama masa manfaatnya. Di samping itu, lesse juga harus mengakui liabilitas untuk membayar sewa.

    Namun, PSAK 73 ini tidak wajib diterapkan pada:

        1.    Masa sewa jangka pendek

        2.    Untuk aset yang bernilai rendah

    Elemen kunci di PSAK 73 adalah mengganti konsep "risk and reward" dengan hak untuk memanfaatkan. Sehingga lesee harus mencatat aset dan liabilitas pada saat awal masa sewa.

    Dampak dari penerapan PSAK 73 di dalam laporan keuangan ini adalah:

        1. Menaikan nilai aset sekaligus nilai kewajiban.

        2. Pada laporan laba rugi, sewa operasi dibebankan dengan menggunakan metode garis lurus. Standar ini menggantikan PSAK
            30, dimana pembebanannya melalui depresiasi.