Because freelancers are not employees and we don't pay taxes on payouts, they must declare any income received through Solar Staff by themselves.
To be a freelancer in Indonesia, you have to meet the following conditions:
Be above 18 years of age for unrestricted legal work
Be a citizen, a permanent resident of Indonesia, or hold a work permit (ITAS/KITAP)
To carry on tax accounting on the income received via Solar Staff while in Indonesia, you need:
To be a resident
Have a taxpayer's ID (not having it may incur an additional 2% tax)
Tax residency in Indonesia
To be considered a resident, an individual must meet one of the following conditions:
reside in Indonesia
be present in Indonesia for more than 183 days in any 12-month period
be present in Indonesia during a fiscal year and intend to reside in Indonesia
An Indonesian citizen who is present in Indonesia for less than 183 days in any 12-month period may be regarded as a non-resident if they fulfill additional requirements, for example having a permanent home, center of vital interest, the status of tax subject, or other criteria outside Indonesia.
In Indonesia, the following types of income are subject to taxation:
residents' worldwide income (see rates below)
non-residents' Indonesian-sourced income (at the rate of 20%)
Exemptions:
foreigners who have become domestic tax subjects by reason of becoming a tax resident in Indonesia can be taxed only on Indonesian-sourced income, including if paid offshore (check the applicable requirements)
investments in Indonesia made from offshore income generated thanks to commercial activities
cases where the tax is mitigated by the application of double taxation agreements
Taxpayer's ID
Taxpayer's ID called NPWP aka Nomor Pokok Wajib Pajak is a number assigned to taxpayers to identify and exercise tax rights and responsibilities. Every person with tax obligations is required to register with the office of the General Directorate of Taxation (Direktorat Jenderal Pajak). In the absence of tax obligations, at the request of the taxpayer, it is possible to cancel the NPWP.
Freelancer in Indonesia: taxes, deductions, and contributions
Indonesia uses a self-assessment system, wherein taxpayers are trusted to do their own tax calculation, payment, and reporting. That being said, the Directorate General of Taxes (DGT) may issue tax assessment letters if it finds that a tax has not been paid in full.
Tax liabilities depend on the chosen tax status and/or eligibility for certain criteria. Indonesia has two tax status options for Solar Staff users to choose from:
IMPORTANT! Solar Staff does not have the option to choose a tax status for freelancers based in Indonesia, but you can fill in your tax ID in your account.
See a detailed breakdown below.
INDIVIDUAL
Under this status, freelancers pay income tax and may apply tax deductions. Tax liabilities:
Income tax (Pajak Penghasilan) is levied on 50% of gross income (post deductions) and is calculated in Indonesian Rupiahs (IDR) at a progressive rate:
Taxable income, IDR | Tax rate, % |
Up to 60,000,000 | 5 |
60,000,000–250,000,000 | 15 |
250,000,000–500,000,000 | 25 |
500,000,000–5,000,000,000 | 30 |
Above 5,000,000,000 | 35 |
This status allows for the following deductions:
Basis | Deductible amount |
Standard personal deduction | IDR 54,000,000 |
Spouse | IDR 4,500,000 |
Dependents (up to 3 persons) | IDR 4,500,000 each |
Business expenses (incl. investments in Indonesia) | Full amount |
Religious contributions/alms | Full amount |
Contributions to pension funds | Full amount |
In the first 2 years, a 5% tax on lump-sum pension payments may be levied if taxable income exceeds IDR 50 million.
Social contributions: Indonesia does not have a comprehensive social security system, with contributions payable only by those working under formal employment contracts (borne by both employer and employee). Formal employment is also the only way to get deductions for occupational expenses (maximum 5%), old age savings contributions (2%), pension annuity (1% of gross income, maximum IDR 90,776 per month).
Useful resources: income tax calculation; ways to file the reporting and guides on filling out the forms.
MICRO, SMALL, AND MEDIUM ENTERPRISES (MSMEs)
Entrepreneurs get classified as a micro, small, or medium enterprise (Usaha Mikro, Kecil, dan Menengah, UMKM) based on their annual turnover and their assets (according to the Law):
Category | Assets for the year, IDR | Annual turnover, IDR |
Micro enterprise | Up to 50 million | Up to 300 million |
Small enterprise | 50–500 million | 300–2,500 million |
Medium enterprise | 500–10,000 million | 2,500–50,000 million |
Tax liabilities:
Sole proprietors that carry out commercial activities or independent work and whose gross annual turnover is less than IDR 4.8 billion pay income tax at 0.5% on all income received as an MSME (a PP 23 report required).
Value-added tax (VAT) is normally charged at 5–15%, but MSMEs can bring it down to 1–3% (learn more). VAT is only compulsory in cases where annual income exceeds IDR 4.8 billion (for anything below that, VAT is voluntary).
A taxpayer whose annual income exceeds IDR 4.8 billion must register as a taxable entrepreneur.
Useful resources: sample PP 23 report, income tax calculation, reporting instructions.
TAXABLE ENTREPRENEUR
This status entails a special registration procedure and is applied by entrepreneurs with an annual income of over IDR 4.8 billion. Upon receiving income, a taxable entrepreneur must issue electronic invoices carrying the VAT identification number. Tax liabilities:
Income (profit) tax is levied at a flat rate of 22% on net taxable profit (income minus expenses). Certain taxpayers and industries enjoy special tax rates (for example, medium enterprises with an annual turnover below IDR 50 billion can apply for a 50% reduction in the profit tax rate).
Entrepreneurs earning less than IDR 50 billion a year are entitled to a 50% discount on the standard tax rate imposed on taxable income of up to IDR 4.8 billion.
Value-added tax (VAT) ranges between 5% and 15% and is based on government regulations and goods sold / services rendered. For example, certain services outside the country are taxed at 11%. A VAT identification number is required for paying VAT. Several Indonesian islands (Batam, Bintang, Karimun) form a free trade zone, removing the obligation to register as a VAT payer. We recommend checking with the Tax Administration if you are subject to VAT given your services and location.
Deductible expenses (subject to documentary support):
expenses incurred in the ordinary course of business (to obtain, collect, and maintain taxable income)
depreciation/amortization of assets
interest on loans used for business purposes
bad debts (given a respective legal case)
charitable contributions
land and buildings tax, regional taxes
input VAT (as long as it's not claimed as a credit against output VAT)
Losses may be carried forward for a maximum of five years.
Useful resources: income tax calculation, VAT calculation.
IMPORTANT! Solar Staff does not have the option to choose a tax status for freelancers based in Indonesia, but you can fill in your tax ID in your account.
DEADLINES AND PENALTIES
The Indonesian government recommends filing tax returns online (requires EFIN – Electronic Filing Identification Number). Taxes can also be paid online.
Tax payment and reporting deadlines:
Type of tax | Payment deadline | Tax return filing deadline |
Income tax (installment) | The 15th (or 10th for MSMEs) of the month following the reporting one | The 20th of the month following the reporting one |
Income tax (current year) | March 31 of the year following the reporting one, but before filing the return | March 31 of the year following the reporting one |
VAT | Prior to the tax return filing deadline | Monthly – the end of the following month |
Failure to pay applicable tax when it's due results in penalties and fines. Late tax payments incur interest penalties whose rate is calculated as the Ministry of Finance Interest Rate (MIR) plus a surcharge (about 2% a month, learn more). Late filing of a tax return or failure to file the same incurs the following penalties:
Tax return | Penalty amount, IDR |
VAT return | 500,000 |
Corporate income tax return | 1,000,000 |
Other monthly tax returns | 100,000 |
Additional info
Indonesia has no provincial or local taxes on income.
Income received through Solar Staff is declared based on the Offer Agreement using data from certificates and invoices.
If you have any questions, get in touch via the chat in your Solar Staff account, or email [email protected].