For Japanese business owners and managers considering entry into the Indonesian market or expatriate assignments, it is essential to correctly understand local tax systems. In particular, Indonesia’s personal income tax (Pajak Penghasilan Orang Pribadi / PPh Orang Pribadi) differs significantly from Japan’s system in both structure and procedures—making it important to understand key points in advance.

This article provides a comprehensive and easy-to-understand explanation of the fundamentals of personal income tax in Indonesia, including recent legal changes, taxpayer classifications, tax brackets, tax registration (NPWP), filing procedures, and its impact on Japanese expatriates and freelancers. We also cover major taxes beyond personal income tax. Please read through to ensure a smooth and secure business and living experience in Indonesia.

Basics of Indonesia’s Personal Income Tax System

First, let’s understand how Indonesia’s personal income tax system works. The country uses a progressive tax system , meaning that individuals are taxed at rates ranging from 5% to 35% , depending on their annual income.

The taxable income includes salary, bonuses, business income, interest, dividends, rental income, and other miscellaneous income. In principle, Indonesian residents are taxed on worldwide income (all income earned inside and outside Indonesia). However, under the Double Taxation Avoidance Agreement with Japan (explained later), adjustments may apply for foreign-sourced income.

The tax year in Indonesia follows the calendar year (January 1 – December 31) . Tax filing and payment occur annually, with individuals required to submit their annual income tax return (SPT Tahunan) by March 31 of the following year .

Employers are responsible for monthly withholding tax (PPh Article 21) on employee salaries, which they pay directly to the tax authorities. This withheld amount is reconciled during the individual’s end-of-year tax return, with additional payments or refunds issued as necessary.

If you have additional income such as self-employment or side jobs, you are generally required to make advance monthly tax payments (PPh Article 25) based on estimated annual income, with final adjustments made during the annual filing.

Non-Taxable Income Threshold (PTKP)

Indonesia sets a minimum income threshold below which no tax is due , known as Penghasilan Tidak Kena Pajak (PTKP) .

As of now, this threshold is set at IDR 54,000,000 per year (or about IDR 4,500,000 per month ) for single individuals without dependents.

Depending on marital status and number of dependents, the threshold increases:

• Additional IDR 4,500,000 if married
• Additional IDR 54,000,000 if jointly reporting spousal income
• An extra IDR 4,500,000 per dependent , up to a maximum of 3 dependents

After subtracting the applicable PTKP, progressive tax rates are applied to the remaining Taxable Income (Penghasilan Kena Pajak / PKP) .

Legal Revisions and Tax System Changes (2023–2025)

In recent years, Indonesia has implemented several important tax reforms aimed at harmonizing and strengthening the tax system. These were introduced under the Harmonization of Tax Regulations Law (UU HPP) , enacted in October 2021.

Below are the main changes relevant to the past two years (2023–2025).

Change in Progressive Tax Brackets (Effective 2022)

Under UU HPP, the previous flat rate of 30% for income above IDR 500 million was replaced with an expanded progressive structure. The new tax brackets are:

• IDR 0 – 60,000,000 : 5%
• IDR 60,000,001 – 250,000,000 : 15%
• IDR 250,000,001 – 500,000,000 : 25%
• IDR 500,000,001 – 5,000,000,000 : 30%
• Over IDR 5,000,000,000 : 35%

One key change is the expansion of the lowest tax bracket (5%) to include incomes up to IDR 60,000,000 , offering relief to middle-income earners. Meanwhile, higher-income earners face increased top rates: 30% for income over IDR 500 million , and 35% for income over IDR 5 billion , enhancing the progressive nature of the system.

Expanded Tax Exemption for Small Business Owners (Effective 2022)

Previously, small businesses with annual revenue of up to IDR 480 million were subject to a simplified tax regime of 0.5% on gross revenue (UMKM Tax Regime under PP23/2018) .

Under UU HPP, this scheme was improved: the first IDR 500 million of annual revenue is now tax-exempt , and only income exceeding this is taxed at 0.5% .

This reform benefits small-scale entrepreneurs and freelancers by significantly reducing their effective tax burden.

Integration of NPWP with NIK (2022–2024)

In Indonesia, taxpayers are identified using an NPWP (Nomor Pokok Wajib Pajak) — similar to Japan’s My Number system.

Under UU HPP, NPWP is being integrated with NIK (National Identity Number) . Since July 2022, Indonesian citizens have been gradually transitioned to use their 16-digit NIK as their NPWP .

Originally scheduled for full implementation in January 2024, the deadline has been extended to July 1, 2024 , allowing the coexistence of old 15-digit NPWP numbers during early 2024.

For foreigners, a new 16-digit NPWP will be issued separately (by adding a zero prefix to the existing number), ensuring proper identification even without a NIK.

VAT Rate Increase (2022 and 2025)

Not related to personal income tax, but under UU HPP, Indonesia’s VAT (PPN) rate was raised from 10% to 11% in April 2022 , with a further increase to 12% planned for January 1, 2025 .

However, for non-luxury goods and services, the effective tax base will be adjusted so that the real burden remains close to 11% .

These updates reflect broader efforts to reform and streamline Indonesia’s tax system—including personal income tax—to improve efficiency and fairness.

Taxpayer Classification in Indonesia: Residents vs Non-Residents

In Indonesia, individuals are classified as either residents or non-residents , and each category is treated differently in terms of taxation and tax obligations.

It is crucial to understand which category you fall into.

Resident Individuals

Under Indonesian tax law, a person is considered a resident taxpayer (Wajib Pajak Dalam Negeri) if any of the following conditions are met:

• Has a residence (home) in Indonesia
• Stays in Indonesia for more than 183 days within 12 months
• Is present in Indonesia during the tax year and intends to reside there (e.g., expatriates assigned for long-term employment)

If you qualify as a resident, your worldwide income —both from Indonesia and abroad—is subject to Indonesian tax.

Non-Resident Individuals

A non-resident taxpayer (Wajib Pajak Luar Negeri) does not meet the above criteria—meaning no permanent home in Indonesia, stays less than 183 days, and has no clear intent to reside long-term.

Only Indonesian-source income is taxed for non-residents, and the treatment differs from that of residents.

Differences in Tax Treatment

Residents are subject to progressive tax based on net taxable income, while non-residents are generally taxed under final withholding tax rules (PPh Article 26) , usually at a flat rate of 20% on Indonesian-source income.

For example, a Japanese national working in Indonesia as a non-resident and receiving consulting fees or royalties from Indonesian sources would normally be subject to 20% withholding tax. However, this may be reduced under the Japan-Indonesia Double Taxation Avoidance Agreement , as explained later.

Withholding tax at 20% typically concludes the tax liability for non-residents, and no annual tax return is required.

Residents, however, must file an annual tax return (SPT Tahunan) covering all global income, and the withheld amounts are treated as prepayments to be settled at year-end.

Mid-Year Transition Between Resident and Non-Resident Status

Japanese expatriates who leave Indonesia mid-year may qualify as non-residents if their stay is less than 183 days in that tax year.

For instance, if you arrive in July and stay for fewer than 183 days before returning to Japan, the Indonesian tax office may treat part of the year as resident and part as non-resident.

In practice, many expats choose to file as a full-year resident and settle any overpayment through refund claims.

Under the Japan-Indonesia tax treaty , double taxation is avoided by determining residency based on total days and primary economic ties.

Therefore, it’s common to obtain your NPWP immediately upon arrival if planning a long-term assignment. For short-term stays (under 183 days), you may be treated as a non-resident and only subject to withholding tax.

Residency Rules for Indonesians Abroad

For reference, Indonesian nationals leaving Indonesia for overseas work can also be classified as non-residents if they meet certain conditions—such as staying abroad for over 183 days—and notify the tax office accordingly.

This shows that taxpayer classification depends on actual circumstances—not nationality—with determination based on length of stay and residential ties .

Structure and Calculation of Personal Income Tax in Indonesia

As previously mentioned, Indonesia applies a progressive tax system with five tiers based on taxable income. Below is the current structure after the 2022 revisions:

• IDR 0 – 60,000,000 : 5%
• IDR 60,000,001 – 250,000,000 : 15%
• IDR 250,000,001 – 500,000,000 : 25%
• IDR 500,000,001 – 5,000,000,000 : 30%
• Over IDR 5,000,000,000 : 35%

What is “Taxable Income”?

“Taxable Income” (PKP / Penghasilan Kena Pajak ) refers to income after allowable deductions—mainly the PTKP threshold and, where applicable, business expenses.

Let’s look at a practical example:

• Annual Income (Indonesian-sourced salary) : IDR 600,000,000 (about IDR 50,000,000/month)
• PTKP (single, no dependents) : IDR 54,000,000
• PKP = IDR 600,000,000 – IDR 54,000,000 = IDR 546,000,000

Here’s how the progressive tax applies:

• First IDR 60,000,000 at 5% = IDR 3,000,000
• Next IDR 190,000,000 (60M–250M) at 15% = IDR 28,500,000
• Next IDR 250,000,000 (250M–500M) at 25% = IDR 62,500,000
• Remaining IDR 46,000,000 (500M–546M) at 30% = IDR 13,800,000

Total annual tax: ~IDR 107,800,000 , or about IDR 8,983,000/month .

In reality, employers handle these calculations monthly via withholding tax (PPh21) , and then reconcile at year-end.

Impact of Dependents on Taxable Income

If you have a spouse or dependents, your PTKP threshold increases , lowering your taxable income and overall tax burden.

For example, if you’re married and have one child (K/1):

• IDR 54,000,000 (base PTKP)
• IDR 4,500,000 (spouse)
• IDR 4,500,000 (first child)

= IDR 63,000,000 PTKP

The more dependents you have, the larger the tax-free allowance becomes (up to three dependents), resulting in lower tax liabilities for the same level of income.

Tax Rates for Non-Residents

As explained earlier, non-residents are generally subject to a flat 20% withholding tax on Indonesian-source income, with no deductions or PTKP allowed.

While 20% is the standard domestic rate, it can be reduced under international tax treaties.
For example, under the Japan-Indonesia tax treaty , the withholding rate for technical service fees is capped at 10% for non-residents.

We’ll explain this in more detail in the section on double taxation avoidance agreements .

Tax Deductions and Relief Measures

Although Indonesia offers fewer itemized deductions than Japan, some categories may qualify for partial credit or exemption:

Examples include:

• Pension contributions
• Charitable donations
• Life and health insurance premiums

Certain income, such as disability allowances or regional hardship allowances, may also be partially exempt or taxed at reduced rates.

For employees, companies typically calculate tax liabilities based on Indonesian tax law, so individuals rarely need to manage detailed deductions themselves.

However, freelancers and self-employed individuals should carefully track deductible expenses and ensure accurate reporting.

Tax Registration (NPWP) and Filing Procedures in Indonesia

If you earn income in Indonesia regularly, obtaining an NPWP (Taxpayer Identification Number) is a legal requirement.

An NPWP functions like a national tax ID , and is often requested for bank account openings, visa renewals, and other administrative tasks.

How to Obtain an NPWP

Once you qualify as a taxpayer (typically after being classified as a resident), you should apply for an NPWP immediately. You can do this at your nearest tax office or online via the e-Registration system .

For foreign nationals such as Japanese expatriates, the required documents are generally:

• Copy of passport
• Copy of stay permit (KITAS or KITAP)
• Employment certificate from the employer (if employed)

As of 2024, the DJP (Directorate General of Taxation) allows foreigners to register online. By entering required information and uploading documents, you can receive your 16-digit NPWP , issued in card or electronic format.

NPWP Integration with NIK

Until July 2024, both the old 15-digit NPWP and the new NIK-linked 16-digit NPWP remain valid. After that date, full transition to the new system is expected.

At tax offices, integration of your NIK and NPWP is supported upon request.

Importance of Early NPWP Acquisition

For Japanese expatriates, acquiring an NPWP soon after arrival is highly recommended:

• Required for work permits (IKTA) and extensions
• Needed for opening bank accounts and applying for loans
• Without an NPWP, withholding tax is increased by 20% , even for the same income

For example, if the regular withholding tax is 10%, it could rise to 12% without an NPWP. Hence, early acquisition brings significant tax advantages.

Filing and Payment Process

Once you have an NPWP, you must file and pay taxes according to your income type.

For Salaried Employees:

• Employers deduct and pay PPh21 (withholding tax) every month.
• At year-end, individuals must file an annual tax return (SPT Tahunan) by March 31 of the following year.

Recently, the Indonesian tax authority (DJP) has introduced an e-Filing system , allowing taxpayers to submit returns online. While not available in Japanese, the English version is functional and user-friendly for expatriates.

If there is a discrepancy between withheld and actual tax owed:

• Underpaid? Settle by the deadline.
• Overpaid? Apply for a refund.

For Freelancers and Self-Employed Individuals:

• Pay PPh25 (estimated monthly tax) via banks or online platforms.
• Based on last year’s income, the tax office issues an estimated monthly payment.
• You must pay by the 15th of each month and reconcile at year-end.

Using the Simplified UMKM Tax Regime

Under the simplified tax system, those with annual revenue under IDR 500 million pay 0.5% of gross revenue , with no need for complex filings.

This system is especially beneficial for small business owners, freelancers, and sole proprietors.

Obligations After Obtaining an NPWP

After getting your NPWP, you must report changes such as address or job transitions to the tax office.

If you plan to leave Indonesia for a long time:

• You can temporarily suspend or cancel your NPWP
• If you still have assets or ongoing income in Indonesia, it may be better to keep your NPWP active and continue filing annual returns.

Your NPWP acts as your tax identification number , and all records are linked to this number.

Annual Filing Requirement

Even if you had zero income , you are still obligated to file an annual return.

Failure to file can result in penalties and interest charges. More importantly, unresolved tax filings can affect future visa applications or departure clearance.

Practical Implications for Japanese Expatriates and Freelancers

Now, let’s examine how the above regulations specifically affect Japanese expatriates and freelancers working in Indonesia.

Case: Expatriate Employees with Local Contracts

Japanese expatriates assigned to Indonesia and paid by a local entity are generally subject to Indonesian income tax on their local salary. If your stay exceeds 183 days, you are classified as a tax resident and must obtain an NPWP.

Local entities handle PPh21 (withholding tax) and issue Formulir 1721-A1 summarizing income and deductions for the year.

You can use this form to complete your annual tax return (SPT Tahunan) via e-Filing, and no additional tax is generally due if withholding was properly handled.

Double Taxation Risk and Handling Foreign-Sourced Income

Some expatriates receive part of their salary from Japan (so-called dual compensation). In such cases, even as a resident in Indonesia, foreign-sourced income may still be declared locally.

However, under the Japan-Indonesia tax treaty , the following conditions allow for exemption from Indonesian tax:

• Stay in Indonesia is 183 days or less in a year
• Salary is paid by a non-Indonesian employer
• Salary is not borne by a permanent establishment in Indonesia

If these conditions are met, your Japan-based salary is not taxed in Indonesia. However, if not, you must declare the foreign income and apply for a foreign tax credit to avoid double taxation. This requires submission of Japanese tax documentation when filing your Indonesian return.

Treatment of Housing Allowances and Benefits-in-Kind

In-kind benefits such as housing allowances, company cars, or education subsidies may be non-taxable under certain conditions:

• Company-provided housing under corporate ownership
• Clear business use of company vehicles
• Education subsidies defined as part of general employee benefits

Since this depends on local payroll handling, review your payslip and Formulir 1721-A1 to confirm tax treatment.

Changing Status Mid-Year (from Resident to Non-Resident)

If you complete your assignment and return to Japan mid-year, your tax status may change from resident to non-resident depending on total stay.

For example, if you return in July and stayed less than 183 days, Indonesia may classify you as a non-resident for the second half of the year.

In practice, most expats file as residents for the entire year and claim a refund for over-withheld tax. Before returning to Japan, consult your local tax office about appointing a tax representative and handling your NPWP going forward.