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Taxable income (PKP) plays a crucial role in calculating income tax (PPh) in Indonesia, and understanding how it works can have a significant impact on the financial planning of your business.
In this article, we’ll explain what PKP is, the income tax rates you need to know in Indonesia and how to calculate it for both individuals and businesses. By mastering the basics of taxable income, you'll be better equipped to manage your tax obligations and make strategic decisions for your business.
What is taxable income (PKP)?
Taxable income (or PKP in Indonesia) refers to the income of a taxpayer (or WP in Indonesia) during a tax year, which serves as the basis for calculating income tax. According to the 2008 Indonesian Income Tax Law, PKP is used to determine income tax for both individuals and corporate entities.
For companies, the PKP is calculated by deducting the gross income with tax-deductible components and the tax loss compensation. For individual taxpayers, on the other hand, the PKP is calculated by deducting the annual net income from the non-taxable income (PTKP).
Taxpayers can multiply their taxable income by the applicable tax rate to calculate how much income tax they have to pay. Therefore, theoretically, the higher your taxable income, the more tax you have to pay.
In the case of personal income tax, however, various factors such as marital status and dependents can influence the amount of PTKP, which in turn also affects the amount of income tax a person has to pay.
Income tax rates based on taxable income
Before you can calculate how much income tax you owe, you must first determine your taxable income. Below you will find the tax rates based on taxable income for individuals and legal entities.
Income tax rates for private individuals
Article 21 of the 2008 Income Tax Law, often referred to as PPh 21, stipulates that individuals are taxed on the income they earn from work, services, activities and engagements. Furthermore, the annual income tax rate for each taxpayer in Indonesia is based on how much total taxable income they earn in a year.
Below are the applicable tax rates according to the 2021 Harmonization of Tax Regulations Law.
- Taxable income up to Rp60,000,000 = 5%
- Taxable income from Rp60,000,000 to Rp250,000,000 = 15%
- Taxable income from Rp250,000,000 to Rp500,000,000 = 25%
- Taxable income from Rp500,000,000 to Rp5,000,000,000 = 30%
- Taxable income over Rp5,000,000,000 = 35%
Please note that these rates apply to individuals with a taxpayer identification number (NPWP). For persons without NPWP, the tax rates increase by 20%.
Income tax rates for corporations
According to Article 17 of the 2021 Law on Harmonization of Tax Regulations Law, corporate taxpayers in Indonesia are subject to an income tax rate of 22%. As with individuals, this is calculated on the basis of the company’s taxable income, which is determined by deducting net taxable income and tax loss compensation.
Listed companies (PT) can reduce their tax rates by 3% so that they can enjoy a 19% income tax rate. However, they must fulfill these conditions in order to receive the reduced tax rate.
- At least 40% of the total shares must be traded on the Indonesian stock exchange
- The shares must be owned by at least 300 parties, with each party holding less than 5% of the total issued and fully paid-up shares.
- These requirements must be met within 183 calendar days during a tax year and a report must be submitted to the Directorate General of Taxation of the Ministry of Finance (DJP).
How to calculate taxable income
For individual taxpayers, the calculation of PKP is straightforward:
PKP = Net annual income – Non-Taxable Income (PTKP)
Please note that when calculating tax, net income refers to the total amount of income that the taxpayer earns after deductions.
Meanwhile, for businesses, the formula is slightly different:
PKP = total annual income – tax-deductible components
Practical examples of taxable income calculations
Let’s look at how these calculations work in real-life scenarios for both individuals and companies.
Example for an individual taxpayer
Ani, an individual taxpayer, is single, has no dependents and earns Rp10,000,000 per month. She also has a monthly tax deduction of Rp500,000. Due to her status, her PTKP is set at Rp54,000,000.
How to calculate Ani’s PKP:
PKP Ani = [(Rp10,000,000 - Rp500,000) x 12] - Rp54,000,000
PKP Ani = Rp114,000,000 - Rp54,000,000 = Rp60,000,000
Since Ani’s taxable income falls within the 5% bracket, her income tax for the year is:
PPh Ani = 5% x Rp60,000,000 = Rp3,000,000
Example for corporate taxpayers
Company XYZ earned Rp5,000,000,000 in one year and its tax deductible expenses amounted to Rp500,000,000. The taxable income calculation would be as follows:
PKP XYZ = Rp5,000,000,000 - Rp500,000,000 = Rp4,500,000,000
At a tax rate of 22%, the corporate income tax owed by XYZ Company is:
PPh XYZ = 22% x Rp4,500,000,000 = Rp990,000,000
Managing taxes efficiently with Aspire
Accurately calculating taxable income is crucial for compliance and optimizing your tax planning. A clear understanding of your PKP not only helps you manage your tax payments but also improves your overall financial planning strategy.
To simplify your tax management, Aspire offers a streamlined business tax management solution with the Business Account. With Aspire, you can manage all your tax payments from a single, user-friendly dashboard.
Beyond tax management, Aspire's expense management tool helps you monitor and control your expenses in real-time and ensure that all expenses are in line with your budget. The platform also integrates seamlessly with your accounting software for smooth financial reporting and tax filing.
Aspire’s corporate cards enhance your expense management even further. They make it easier to track company expenses and enable efficient management of receivables and invoices.
Aspire makes managing your business finances more efficient and intuitive. Are you ready to streamline your tax and financial management? Contact our team today to find out more!
Frequently Asked Questions
How can Aspire support the unique financial needs and challenges of mid-sized businesses?
Aspire offers a comprehensive suite of expense management solutions tailored for mid-market companies. This includes sophisticated corporate cards, advanced budget controls, and streamlined claims and approval policies, all designed to enhance financial efficiency.
How quickly can a mid-market company integrate Aspire's solutions into existing systems and workflows?
Integration with Aspire's expense management solutions is swift and seamless. Mid-market companies can swiftly implement corporate cards with tailored features, set up nuanced budgets, and establish streamlined claims and approval processes, ensuring minimal disruption to existing workflows.
How does Aspire compare to competitors for international money transfers?
Aspire excels in international expense management with FX fees up to 2x cheaper than traditional banks.
Global payments are offered by various providers through business accounts. Read our article to know more about types of business accounts and how to choose the best one for your business. There are many banks and fintech companies offering business accounts to businesses in Singapore. We have covered them all in our blog, you can click the links to view accounts offered by various banks such as DBS, OCBC, Maybank etc.
However, if you are a start-up or a growing business, chances are you may not meet the eligibility criteria for most of these banks or find their charges to be expensive for your liking. You can consider opting for Aspire multi-currency account for global payments which offers you all the benefits, with eligibility criteria which are less stringent. Read our article on bank charges in Singapore for a quick and easy comparison.
What level of customization does Aspire offer to meet the specific financial requirements of mid-market clients?
Aspire understands the diverse financial needs of mid-market clients and provides a high level of customization to tailor solutions accordingly. This includes the ability to customize corporate cards with specific spending limits, rewards, and benefits that align with the unique requirements of each client.
Additionally, Aspire's budgeting features are adaptable to accommodate the distinct financial structures of mid-market enterprises. The platform also allows for fine-tuning approval policies, ensuring they align with the specific workflows and compliance standards of individual mid-market businesses. This commitment to customization empowers mid-market clients to optimize their expense management in a way that best suits their financial goals and operational preferences.
Is there a minimum balance required for Aspire Business Accounts?
No minimum balance is required to keep your SGD, USD, EUR, GBP and IDR Accounts activated.
Can Aspire's corporate cards be customized to cater to the specific needs of consulting teams on the go?
Yes, Aspire's corporate cards are highly customizable. Consulting teams can benefit from tailored spending limits, travel-centric perks, and real-time transaction tracking, ensuring that the cards meet the unique requirements of professionals on the move.
How does Aspire support budget management for consulting projects and travel expenses?
Aspire's platform offers sophisticated budget controls that consulting companies can adapt to project-specific needs. This includes setting project budgets, tracking expenditures, and receiving real-time insights to ensure that expenses align with project goals.
What are Aspire Corporate Card FX rates?
At Aspire, we want you to pay the lowest rates in the market.
- Zero card activation fees
- Zero card transaction fees
- Best FX rates, up to 2x cheaper than banks
How does Aspire help consulting companies enforce expense policies and approvals for travel expenses?
Aspire streamlines the claims and approval process, allowing consulting companies to establish and enforce expense policies seamlessly. Customizable approval workflows ensure compliance with company policies and industry regulations.
Is Aspire's platform scalable for consulting companies of varying sizes?
Yes, Aspire's platform is scalable and caters to consulting companies of all sizes. Whether you're a boutique consultancy or a larger firm, the platform's features can be adapted to meet your specific travel and expense management needs.
How can I open a business account in Singapore?
For a business account in Singapore, Aspire is an excellent choice. With a focus on startup and SME needs, Aspire offers a seamless and transparent banking experience.
Benefit from their user-friendly online platform, no minimum balance or account opening fees, and dedicated support for businesses of all sizes.
Aspire is designed to streamline your financial management, making it an ideal partner for entrepreneurs in Singapore.
How long does it take to open an Aspire business account?
Registration with Aspire takes less than 10 minutes which you can do via our website or mobile app.
Once registered, we will get back to you within 5 business days on whether your account has been activated or if we need further documents from you.
Our account verification process varies according to the nature of your business. In exceptional cases, it can take up to 7 days to process your documents.
How can Aspire's corporate cards benefit my startup?
Aspire's corporate cards offer a range of benefits for your startup. Earn 1% unlimited cashback on qualified spends, simplify expense management, enjoy streamlined transactions, and gain real-time insights into spending. With customizable limits, integration with accounting software, and enhanced security features, Aspire's corporate cards are designed to empower your startup's financial efficiency and provide added convenience for your team.
Is Aspire suitable for both early-stage and established startups?
Absolutely, Aspire caters to the needs of both early-stage and established startups. Whether you're just beginning your entrepreneurial journey or have an established business, Aspire offers tailored financial solutions to help streamline your operations.
From managing expenses and optimizing workflows to providing valuable financial insights, Aspire's platform is designed to adapt and scale with your business as it grows. The flexibility and scalability of Aspire make it a suitable choice for startups at various stages of development.
Is there a minimum balance required for Aspire Business Accounts?
No minimum balance is required to keep your SGD, USD and IDR* Accounts activated.
However, we recommend keeping your subscription plan amount available on your balance to ensure you're up to date with your payment every month.*
To create a recipient or make any transaction on your IDR Account, you'll need to have a minimum balance of IDR 10,000 on your account.
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