An entity refers to a group of persons and/or capital that form a unity, whether conducting business or not, including limited liability companies (PT), limited partnerships (CV), other liability companies, state- or regional-owned enterprises (SOEs or ROEs) in any shape or form whatsoever, firms, joint ventures, cooperatives, pension funds, partnerships, associations, foundations, mass organizations, social and political organizations or similar organizations, institutions, permanent establishments, and other forms of statutory bodies.

Income Tax Object

The Income Tax Object is income, namely any kind of increased economic ability received or accrued by a Taxpayer derived from within or outside Indonesia, which can be used for consumption or to increase the wealth of the Taxpayer in any shape or form whatsoever.

However, there are several types of income that are not an Income Tax Object, including:

  1. a. Assistance or donations, including zakat and other religious donations with provisions regulated by or under Government Regulations; and

b. Grants with provisions regulated by or under Regulations of the Minister of Finance, as long as there is no business, work, ownership, or control relations between the parties involved;

  1. Inheritance;
  2. Assets, including cash deposits received by an entity as a substitute for shares or as a substitute for equity participation;
  3. Considerations or remuneration in the form of benefits-in-kind in respect of employment or services received or accrued from a Taxpayer or the Government (but if provided by a non-Taxpayer or certain Taxpayer, they will be counted as income); and
  4. Other income as specified in the Income Tax Laws.

Taxable Income

The steps to calculate Taxable Income are as follows:

First, calculate all income received or earned in one Tax Year and exclude any income that is not a Tax Object and income that has been subject to Final Income Tax.

Second, deduct costs, including all costs directly and indirectly related to business activities, such as: costs of purchasing materials, costs relating to employment or services (salaries, benefits, etc.), interest expenses, rental costs, royalties, travel expenses, waste treatment costs, insurance premiums, promotional and sales costs, and administrative costs. Remember to deduct depreciation and amortization expenses as well.

Third, pay attention to costs that cannot be deducted as specified in the Tax Laws and their derivative regulations. Exclude these costs from the calculation of Taxable Income.

If after deducting costs from gross income, a loss is obtained as a result, so there is no Taxable Income, such loss should be set off against income starting from the following Tax Year up to 5 (five) consecutive years.

Income Tax Rate

The Corporate Income Tax rate for Tax Year 2019 and prior is 25% of Taxable Income, or 20% if the Taxpayer is a Publicly Listed Company.

The rate of corporate income tax will be 22% in Tax Year 2020 and will remain at 22% in Tax Year 2022.

Any Corporate Taxpayer that has gone public, or publicly listed company, can benefit from a 3% lower rate if at least 40% of its total paid-up shares are traded on the Indonesia Stock Exchange and meet certain criteria. This reduced rate will be 19%.

Current Year Tax Payment

After calculating Taxable Income and Tax Payable, the next step is to deduct tax credit from Taxable Income.

The tax credit for a Corporate Taxpayer includes:

  1. Tax collected on income from certain businesses, or known as Article 22 Income Tax, and tax withheld on income from certain capital, services, and activities, or known as Article 23 Income Tax;
  2. Payment by the Taxpayer themselves, or known as Article 25 Income Tax.

The result of this deduction is Accrued Income Tax Payable.

Accured Tax Payable

Based on the concept above, let’s now take a look at the following illustration:

Company A’s known data for 2020 is as follows:

  1. Gross Income Rp6,000,000,000
  2. Deductible Expenses Rp5,400,000,000
  3. Other Income Rp50,000,000
  4. Other Deductible Expenses Rp30,000,000
  5. Loss Carryforward Rp10,000,000
  6. Article 25 Income Tax Credit Rp100,000,000
  7. Article 22 Income Tax Credit Rp10,000,000
  8. Article 23 Income Tax Credit Rp20,000,000

The calculation of Income Tax Payable will be as follows:

Gross Income (point 1)                                                            Rp6,000,000,000
            Minus Deductible Expenses (point 2)                          (Rp5,400,000,000)

Net Income                                                                                  Rp600,000,000

Plus Other Income (point 3)                                                          Rp50,000,000
            Minus Other Deductible Expenses
(point 4)                    (Rp30,000,000)

Total Net Income                                                                        Rp620,000,000

            Minus Loss Carryforward (point  5)                              (Rp10,000,000)

Taxable Income                                                                         Rp610,000,000


The Income Tax Payable will be calculated as follows:

Rp610,000,000 x 22% = Rp134,200,000

Meanwhile, the Accrued Tax Payable will be calculated as follows:

Income Tax Payable                                                                Rp134,200,000
Article 22 Income Tax Credit (point 7)                          (Rp10,000,000)
            Minus Article 23 Income Tax Credit (point  8)            (Rp20,000,000)
            Minus Article 25 Income Tax Credit (point 6)           (Rp100,000,000)

Accrued Tax Payable                                                            Rp4,200,000

Tax Rate Reduction Facility

Any domestic Corporate Taxpayer with gross income of up to Rp50,000,000,000 (fifty billion Rupiah) is eligible for a 50% (fifty percent) rate reduction facility against the rate as referred to in Article 17 paragraph (1) letter b and paragraph (2a), which is applied to their Taxable Income calculated from up to Rp4,800,000,000 (four billion eight hundred million Rupiah) of their gross income.

Using the previous example, the illustration will be as follows:

Calculation of Income Tax Payable:

  1. Taxable Income calculated from gross income eligible for the facility

     (Rp4,800,000,000 : Rp6,000,000,000) x Rp610,000,000 = Rp488,000,000 

  1. Taxable Income calculated from gross income ineligible for the facility 

     Rp610,000,000 - Rp488,000,000 = Rp122,000,000

Income Tax Payable:

- (50% x 22%) x Rp488,000,000              =          Rp53,680,000

- 22% x Rp122,000,000                            =          Rp26,840,000 (+)

Total Income Tax Payable                                    Rp80,520,000

and Accrued Tax Payable will be calculated as follows:
Income Tax Payable                                                Rp80,520,000
Minus Article 22 Income Tax Credit                       (Rp10,000,000)
            Minus Article 23 Income Tax Credit          (Rp20,000,000)
            Minus Article 25 Income Tax Credit          (Rp100,000,000)

Accrued Tax Payable                                           (Rp49,480,000)


The Accrued Tax Payable does not necessarily have a positive balance. The balance could be zero if tax payment or tax credit equals Tax Payable, or even negative if tax payment or tax credit exceeds Tax Payable, as in the example given above. If the Accrued Tax Payable has a positive balance, the Taxpayer will have to settle the underpaid Tax Payable. On the other hand, in the case of overpayment or negative balance, the Taxpayer can choose to either have it set off against the next Tax Period or submit a written request for refund of the tax overpayment to the Tax Office (KPP) with which they are registered.


Bookkeeping is a process of orderly recording financial data and information that includes assets, liabilities, equities, incomes and expenses, and acquisition costs and sales of goods or services, which closes with the making of financial statements consisting of a balance sheet and a profit and loss statement at the end of each Tax Year.

The bookkeeping must be maintained in Indonesia using Latin alphabet, Arabic numerals, and Rupiah currency, and written in Indonesian or any foreign language approved by the Minister of Finance.

The bookkeeping must be maintained in a manner and by employing a system commonly used in Indonesia, for example by complying with the Financial Accounting Standards, unless the Tax Laws specify otherwise.

Any books, records, documents, and electronic data upon which the bookkeeping is based and any other documents must be retained for 10 (ten) years in Indonesia according to the statute of limitations of tax crime investigation.