Income tax
Learn how income tax works in Indonesia, from PPh rates and PTKP to the 0.5% MSME tax, with worked examples.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Income tax in Indonesia (Pajak Penghasilan) applies to individuals and businesses on the income they receive or earn in a tax year
- Resident individuals pay five progressive rates, 5% to 35%, after subtracting a personal allowance that starts at Rp54 million
- Companies pay 22%, while eligible individuals with turnover up to Rp4.8 billion can choose a 0.5% final tax on turnover
- Individuals file their annual return by 31 March and companies by 30 April, so records kept up to date all year make filing quicker
What is income tax?
Income tax (Pajak Penghasilan, PPh) is a tax on the income individuals and businesses receive or earn in a tax year. The Directorate General of Taxes (Direktorat Jenderal Pajak, DJP) defines income as any increase in economic capacity, from Indonesia or abroad.
Imagine you run a café in Bandung and rent out a spare room. The café profit and the rent both count as income.
Who pays income tax in Indonesia?
You pay income tax in Indonesia if you’re a tax resident or you earn income from Indonesian sources. Under PwC’s summary of Indonesian residence rules, you’re a resident if you stay over 183 days in any 12 months or intend to live here.
Residents are generally taxed on worldwide income. According to PwC’s Indonesia personal income tax summary, non-residents pay 20% withholding tax (PPh Article 26) on Indonesian-source income, which a tax treaty can reduce.
Resident individuals use their national identity number (Nomor Induk Kependudukan, NIK) as their taxpayer identification number (Nomor Pokok Wajib Pajak, NPWP). This took full effect on 1 July 2024.
Types of income tax
Which taxes you deal with depends on how you earn money and how your business is set up. Most small business owners meet at least two of the four types below.
Individual income tax
Resident individuals pay progressive rates on their net income for the year, after subtracting a personal allowance. You report it all in your annual return.
Income tax for sole traders and freelancers
If you run a business or work independently as an individual, your profit is part of your personal income. If you qualify, you can choose between progressive rates on net income and the 0.5% final tax on turnover.
Corporate income tax
A limited liability company (perseroan terbatas, PT) or limited partnership (persekutuan komanditer, CV) pays tax on its own taxable profit. Shareholders then pay tax on the dividends they receive, unless an exemption applies.
Withholding taxes and instalments
Some income tax is paid during the year, before your annual return. Usually the payer deducts it and pays it to DJP, and you credit it against your annual bill.
- Employers withhold PPh 21 from salaries monthly, using average effective rates (tarif efektif rata-rata, TER) since 1 January 2024
- Business payers withhold PPh 23 at 15% on interest, royalties and prizes, and 2% on most services and rent other than land or buildings
- Indonesian payers withhold PPh 26 on income they pay to non-residents
- Business taxpayers pay PPh 25 themselves in monthly instalments as an advance on their annual tax
The TER system comes from Minister of Finance Regulation (Peraturan Menteri Keuangan, PMK) 168/2023. If you employ staff, understanding how online payroll works helps you get each month’s PPh 21 deduction right.
What income is taxable?
Most money that adds to your economic capacity is taxable, whatever it’s called. DJP’s taxable categories include these.
- Salaries, wages, bonuses and pensions
- Profit from a business or freelance work
- Interest, royalties, dividends and prizes
- Gains from selling assets
- Rent and other payments for the use of your property
Receipts outside income tax include aid and religious donations such as zakat, certain grants, inheritances and some benefits in kind. Dividends from Indonesian companies are exempt for resident individuals who reinvest them in Indonesia within a set period; otherwise, a 10% final tax applies.
Income tax rates in Indonesia
Your rate depends on whether you pay as an individual, a company or a small business using the final tax.
Individual income tax rates
Resident individuals pay five progressive rates under the Harmonisation of Tax Regulations Law (Undang-Undang Harmonisasi Peraturan Perpajakan, UU HPP). DJP’s summary of the UU HPP brackets sets them out as follows.
- 5% on taxable income up to Rp60 million
- 15% on taxable income above Rp60 million up to Rp250 million
- 25% on taxable income above Rp250 million up to Rp500 million
- 30% on taxable income above Rp500 million up to Rp5 billion
- 35% on taxable income above Rp5 billion
Each rate applies only to the slice of income inside its bracket, so a higher bracket raises the tax on that slice alone.
Non-taxable income allowance (PTKP)
Before the rates apply, you subtract your non-taxable income allowance (penghasilan tidak kena pajak, PTKP). DJP’s individual tax calculation guide sets PTKP at Rp54 million, plus Rp4.5 million if you’re married and Rp4.5 million per dependant, up to three.
A married taxpayer with two children, for example, has PTKP of Rp67.5 million.
Corporate income tax rate
Companies pay 22% on taxable income. If turnover is Rp50 billion or less, Article 31E halves the rate to 11% on taxable income from the first Rp4.8 billion of turnover.
Taxable income linked to turnover above Rp4.8 billion is taxed at the full 22%.
0.5% final tax for small businesses
This option is for micro, small and medium enterprises (usaha mikro, kecil dan menengah, UMKM). If yearly turnover is up to Rp4.8 billion, you can pay 0.5% final tax on gross turnover. Government Regulation (Peraturan Pemerintah, PP) 20/2026, effective 22 April 2026, amended the PP 55/2022 rules on who qualifies.
Individuals and one-person companies (perseroan perorangan) can now use the rate with no time limit, and cooperatives can use it for up to four years. Newly registered PTs, CVs, firms and village-owned enterprises (badan usaha milik desa, BUMDes) pay standard corporate rates instead.
Individuals also pay no tax on the first Rp500 million of turnover each year.
How to calculate income tax
If you pay progressive rates as an individual, work out your tax in four steps.
- Add up your net income for the year, leaving out income taxed as final and income that isn’t taxable
- Subtract your PTKP to find your taxable income
- Apply each progressive rate to the slice of taxable income in its bracket, then add the results
- Subtract tax credits, such as tax already withheld or paid in instalments, to find what you still owe
Example: freelancer on progressive rates
Say you’re a married freelance designer with one child, and your net income for the year is Rp200,000,000. Here’s how the four steps work out.
- Your PTKP is Rp63,000,000, so your taxable income is Rp137,000,000
- 5% on the first Rp60,000,000 is Rp3,000,000
- 15% on the remaining Rp77,000,000 is Rp11,550,000
- Your total tax for the year is Rp14,550,000
- After subtracting the Rp4,000,000 your clients already withheld, you pay Rp10,550,000
Example: company using the Article 31E cut
Take a PT with turnover of Rp3 billion and taxable income of Rp400,000,000. All its turnover falls within the first Rp4.8 billion, so the full Rp400,000,000 is taxed at 11%, giving Rp44,000,000.
At the full 22% rate, the same company would pay Rp88,000,000.
Example: individual using the 0.5% final tax
Suppose you sell handmade furniture as an individual and turn over Rp1.2 billion in a year. The first Rp500 million is exempt, so you pay 0.5% on Rp700 million, which is Rp3,500,000 for the year.
Tax credits and deductible expenses
Both lower your bill, at different stages. Deductible expenses reduce your net income, while tax credits come off the tax itself.
A tax credit is tax already paid during the year, whether withheld from your income or paid by you. Common examples are PPh 21 on salaries, PPh 23 withheld by clients and your own PPh 25 instalments.
If you keep full books (pembukuan), net income is revenue minus the costs of earning it, so each recorded business cost lowers your taxable profit. Tracking those costs closely also helps you measure profitability all year.
If you use the net income norm (norma penghitungan penghasilan neto, NPPN), DJP sets your net income as a percentage of turnover. Your taxable income then follows turnover, whatever your actual costs.
Filing and paying income tax
You settle income tax through monthly payments and one annual return (Surat Pemberitahuan Tahunan, SPT Tahunan), filed through Coretax, DJP’s online tax system. During the year, you pay any PPh 25 instalments, and employers pay over the PPh 21 they withhold.
Under DJP’s filing deadlines, individuals file by 31 March and companies by 30 April. DJP occasionally extends a deadline for one season, so check pajak.go.id before each one.
Records you need to calculate income tax
Organised records make every calculation step faster. What you keep depends on your turnover.
Individuals with business or freelance turnover under Rp4.8 billion can keep simple records (pencatatan) instead of full books. To use NPPN, you notify DJP within the first three months of the tax year.
Whichever method you use, keep these documents to hand.
- Sales invoices for all turnover
- Expense receipts and supplier bills
- Slips showing tax others withheld from your income
- Payroll records for PPh 21
- Year-end financial statements if you keep full books
DJP requires you to keep books, records and supporting documents in Indonesia for 10 years. Simple small business accounting habits, like taking time each week to record transactions, keep this manageable.
Manage your income tax records with Xero
Tax time is simpler when your figures are ready well before the deadline. Xero accounting software brings in transactions through automated bank feeds and document uploads, then turns them into easy-to-read reports.
You can work with your accountant or bookkeeper in real time, or find one through the Xero Advisor Directory. Start preparing for your next return today and get one month free.
FAQs on income tax
Here are quick answers to common questions about income tax in Indonesia.
Is income tax withheld by employers in Indonesia?
Yes, employers withhold PPh 21 monthly. In December, they recalculate your full-year tax at progressive rates, so your last payslip deduction of the year can differ from earlier months.
What’s the difference between final and non-final income tax?
Final tax settles the tax on that income when it’s paid, so you leave that income out of your annual calculation. Non-final tax, such as PPh 23, is an advance you credit against your annual bill.
Who pays standard rates instead of the 0.5% final tax?
Under PP 55/2022, as amended by PP 20/2026, individuals earning from professional services, such as doctors, lawyers and consultants, pay standard rates. So does any business with turnover above Rp4.8 billion.
What happens if you file your annual return late?
Late filing brings an administrative fine of Rp100,000 for individuals or Rp1,000,000 for companies. The General Provisions and Tax Procedures Law (Undang-Undang Ketentuan Umum dan Tata Cara Perpajakan, UU KUP) sets these amounts.
How can non-residents pay less than 20%?
If your home country has a tax treaty with Indonesia, you can claim its lower rate. You’ll usually need to give the Indonesian payer a certificate of domicile on DJP’s form.
Does Indonesia have local income tax?
It’s a central tax administered by DJP, and individuals pay no local income tax on top, as PwC’s Indonesia tax summary also notes. Your rates are the same whether you live in Jakarta or Jayapura.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.