What is Indonesia’s Taxpayer Identification Number (NPWP)?

When expanding a business in Indonesia, both companies and individuals are bound to face the acquisition and management of the “NPWP” (Taxpayer Identification Number). Unlike the tax systems in Japan or Western countries, NPWP is a central element of Indonesia’s administrative and tax system, and it is closely related to everything from company registration, daily accounting processes, to visa extensions for foreigners. This article provides a clear explanation of what NPWP is, its acquisition requirements, procedures, points of caution, and the latest system trends, making it easy to understand for managers and business owners of companies entering the Indonesian market.

What is Indonesia’s Taxpayer Identification Number (NPWP)?

Official Name and Meaning of NPWP

NPWP stands for Nomor Pokok Wajib Pajak, which translates to “Taxpayer Identification Number” in Japanese. It is a unique number assigned by the Directorate General of Taxes (Direktorat Jenderal Pajak) of the Republic of Indonesia for tax administration purposes, either to individuals or companies.

This number allows tax authorities to manage taxpayer information (such as declaration history, tax payment status, arrears, etc.) in a centralized manner. In essence, it functions as a “ID card” for taxpayers in Indonesia.

Why is NPWP Needed?

NPWP is required for the following activities in Indonesia:

• Tax declarations and payments
• Opening bank accounts (especially for businesses or foreigners)
• Obtaining and extending visas
• Company registration and license applications
• Withholding tax (PPh21) declarations and payments for employees
• Export/import and customs procedures

In other words, from starting a business to daily accounting practices, as well as managing the stay of foreign individuals, NPWP is at the center of Indonesia’s tax and administrative infrastructure.

Structure of NPWP Number

The NPWP consists of 16 digits, which have the following meanings:

• The first 10 digits: taxpayer registration number (individual or company)
• The next 3 digits: tax office code (indicating the business location)
• The last 3 digits: taxpayer classification code (whether individual or corporate, taxable or not)

Example: 012.345.678.9-012.000

By looking at this number, you can determine “where it was registered” and “what type of taxpayer it is.”

Who is Required to Obtain NPWP?

In Indonesia, the following individuals and entities are required to obtain an NPWP:

Individuals

• Indonesian citizens (WNI) who are 18 years or older and have income
• Foreigners (WNA) who stay in Indonesia for more than 183 days and earn income in the country (expats, long-term freelancers, etc.)

Corporations

• Companies conducting business activities within Indonesia
• Representative offices
• Local subsidiaries of foreign-invested companies (PT PMA)

Obtaining an NPWP is not only mandatory, but failure to do so will prevent tax declarations and legal procedures, increasing the risk of fines and penalties, making early acquisition crucial.

Benefits of Having an NPWP

Not only is it a requirement, but acquiring an NPWP also provides the following advantages:

• Tax Rate Preferential Treatment: Taxpayers without NPWP are subjected to a higher tax rate (20% more) compared to those who have it.
• Improved Creditworthiness: In dealings with financial institutions and investors, having an NPWP serves as proof of the legitimacy and reliability of a company.
• Smooth Administrative Processes: NPWP is required as a necessary document in many situations, such as obtaining business licenses and validating contracts.

Digitalization of NPWP and Future Trends

Since 2022, the Indonesian government has been promoting the integration of NPWP and NIK (National Identification Number), and by 2024, many tax-related procedures will be conducted online. In the future, all taxpayers are expected to transition to a system where “NIK also serves as NPWP.” This is anticipated to improve administrative efficiency and strengthen tax compliance.

Thus, NPWP is not just a number, but an essential part of “social infrastructure” that is trusted and necessary for legally conducting business in Indonesia. It holds significant importance for both foreigners and companies.

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A Complete Guide to Corporate Tax and Tax Compliance in Indonesia

1. Corporate Income Tax (PPh Badan)

• In Indonesia, the standard corporate income tax rate is 22%. However, certain companies may be eligible for reduced rates.
• Public Companies: Companies with at least 40% of their shares publicly listed may receive a 3% tax reduction, resulting in a 19% tax rate.
• Small Enterprises: Companies with an annual turnover up to IDR 50 billion can benefit from a 50% tax discount on the portion of taxable income up to IDR 4.8 billion.
• Micro Enterprises: Businesses with a gross turnover not exceeding IDR 4.8 billion are subject to a final income tax rate of 0.5% based on turnover.

2. Value-Added Tax (VAT/PPN)

The standard VAT rate in Indonesia is 11%, applicable to most goods and services. Businesses must register for VAT if their annual revenue exceeds a certain threshold and are required to issue tax invoices (e-Faktur) for transactions.

3. Import Duties and Taxes

Companies involved in importing goods into Indonesia are subject to:

• Import Duty: Rates vary depending on the product’s classification under the Harmonized System (HS) codes.
• VAT on Imports: Standard rate of 11% applied to the import value.
• Luxury Goods Sales Tax (PPnBM): Applicable to certain luxury items, with rates varying based on the type of goods.

4. Regional Taxes

Businesses may also be subject to regional taxes, which can range from 0.2% to 75%, depending on the type of business and local regulations. For example, hospitality businesses like hotels and restaurants often face regional taxes between 10% and 12.5%.

5. Tax Obligations for Employers

Companies employing staff in Indonesia have several tax responsibilities:

• Income Tax Article 21 (PPh 21): Withholding tax on employee salaries and benefits.
• Income Tax Article 26 (PPh 26): Withholding tax on payments to foreign employees or entities.
• Social Security Contributions: Mandatory contributions to Indonesia’s social security programs, including health and employment benefits.

6. Tax Reporting and Compliance

Companies must adhere to strict tax reporting schedules:

• Monthly Tax Payments: Certain taxes, like VAT and employee withholding taxes, must be paid monthly.
• Annual Tax Returns: Corporate income tax returns are due by the end of the fourth month after the fiscal year ends, typically by April 30th for calendar-year taxpayers.
• Tax Reporting: Businesses are required to submit regular reports, including the Investment Activity Report (LKPM), to the relevant authorities.

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What is Coretax?

Coretax is an online tax platform developed by the Indonesian government to simplify the management of tax-related services. It is designed to help both individuals and businesses handle their tax obligations more efficiently through a digital system. Coretax is a part of the government’s broader efforts to modernize and streamline Indonesia’s tax administration system.

Thoughts on CoreTax in Indonesia

CoreTax is a promising and necessary initiative for tax modernization in Indonesia. It’s an effort to streamline and digitize the tax administration system, which should increase efficiency, improve transparency, and help businesses comply with tax regulations more easily. As a business or individual involved in the Indonesian tax landscape, it can lead to smoother operations over time. However, its implementation still has room for improvement.

What is the current condition of CoreTax in Indonesia?

CoreTax is in the phased rollout stage and still evolving. While the government started its implementation in mid-2024, the full adoption has faced some delays. It is operational in certain regions and tax segments, with trials and limited rollouts for specific tax areas. It is still an ongoing process for businesses to adjust to, and the government is continuing to prepare for broader use, including training staff and integrating other government systems.

What are the benefits of using CoreTax in Indonesia?

1. Centralized and Integrated System
   -CoreTax aims to combine multiple tax systems into one, reducing duplication and errors.
   -By streamlining operations, it simplifies processes for businesses and the tax authority.
2. Real-Time Processing
   -Transactions, filings, and verifications are faster and more transparent, improving tax administration efficiency.
3. Improved Taxpayer Services
   -Businesses and individuals can access tax services through user-friendly digital platforms.
   -Taxpayers can now expect faster responses and easier filing processes.
4. Better Data Accuracy
   -CoreTax uses data analysis tools to detect mismatches and help businesses avoid costly mistakes.
   -Automation leads to more accurate data tracking and compliance.
5. Increased Compliance
   -By making tax reporting more accessible and streamlined, CoreTax can help businesses maintain compliance.
   -The government can better track and prevent underreporting of income.
6. Stronger Inter-Agency Collaboration
   -CoreTax integrates with other government services, like customs and BPJS (social security), providing a holistic approach to regulatory oversight.

What are the drawbacks of CoreTax in Indonesia?

1. Implementation Delays
   -The rollout has been slower than expected, creating uncertainty for businesses trying to comply with new requirements.
2. Transition Challenges
   -Many businesses and tax officers are not yet ready for the shift, especially smaller enterprises that rely on older systems.
3. Training and Knowledge Gap
   -There is still a learning curve for businesses, particularly SMEs, as many do not have the expertise or resources to effectively use the new system.
4. Technical Glitches
   -Some businesses report issues with system bugs, slow processing, and confusion during the initial adoption period. These teething problems are common in large-scale projects but can hinder smooth implementation.
5. Data Privacy Concerns
   -With increased centralization and digitization, some concerns have emerged about the security of taxpayer data. Safeguarding this information is crucial for maintaining trust in the system.

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Summary

In Indonesia, the NPWP (Taxpayer Identification Number) is essential for individuals and businesses to handle tax-related activities, including tax declarations, company registration, and visa extensions. It is mandatory for Indonesian citizens, foreigners staying over 183 days, and businesses. Not having an NPWP can result in penalties.

The Indonesian government introduced Coretax, an online platform to modernize tax administration by integrating tax systems and simplifying processes. Coretax offers benefits like faster transactions, better data accuracy, and improved compliance. However, it is still in the rollout phase with delays, technical issues, and security concerns for digitized data. Despite challenges, it aims to increase efficiency and transparency in the tax system.

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Glossary of Terms Used in This Article

• NPWP (Nomor Pokok Wajib Pajak)
  The taxpayer identification number issued by the Indonesian tax authority, mandatory for both individuals and companies.

• NIK (Nomor Induk Kependudukan)
  The Indonesian national identity number. There is a plan to integrate it with the NPWP system in the future.

• PPh21
  A type of individual income tax levied on salaries and wages paid to employees.

• KITAS (Kartu Izin Tinggal Terbatas)
  A temporary stay permit required for foreigners who intend to stay long-term in Indonesia.

• NIB (Nomor Induk Berusaha)
  A business identification number obtained during company registration, linked to various permits and licenses.

• Direktorat Jenderal Pajak
  The Directorate General of Taxes under the Ministry of Finance of Indonesia, the government agency responsible for issuing and managing NPWP.

• PT PMA (Penanaman Modal Asing)
  A company established with foreign capital. It is a legal form for foreign-invested businesses in Indonesia.

• Coretax
  Coretax is an Indonesian tax administration system that integrates tax reporting, payment, and other tax-related processes. It is used by businesses and individuals to ensure compliance with the country’s tax regulations. Coretax provides a platform for taxpayers to manage their tax obligations, making it easier to file taxes, access payment systems, and obtain necessary documentation. This system also ensures that tax payments are processed accurately and efficiently.

FAQ (Frequently Asked Questions)

• Q1. Do Japanese nationals need to obtain an NPWP?
  Yes. If a Japanese citizen stays in Indonesia for more than 183 days and earns income, obtaining an NPWP is mandatory. This applies to expatriates or locally employed Japanese individuals.

• Q2. What are the disadvantages of not having an NPWP?
  Without an NPWP, you cannot file tax returns, and you risk fines. Additionally, various administrative procedures such as opening a bank account, visa extensions, and business registration may be restricted.

• Q3. Can NPWP be applied for online?
  Yes. The NPWP can be applied for online through the official website of the Directorate General of Taxes (e-Registration). However, for the initial application, document verification may require an in-person visit.

• Q4. Is NPWP required after retirement or when returning to Japan?
  If leaving Indonesia or ending business activities, you must deregister your NPWP. Failing to do so may lead to penalties for non-filing.

• Q5. Do I need both NPWP and NIK?
  Currently, both are often required, but there are plans to integrate NIK with NPWP in the future. Starting from 2024, the transition to a system where NIK will function as NPWP will be gradually implemented.

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