Bali Villa

Understanding and Planning for Corporate Taxes in Bali

Being a business proprietor in Bali necessitates a comprehensive understanding of potential corporate taxes associated with your enterprise’s activities and financial outcomes. Taxes often ignite debate, and foreign entrepreneurs may underestimate their importance until they face issues with local taxation authorities. Conversely, some may be so overwhelmed by the perceived intricacies of tax obligations that they defer launching their enterprise. Nevertheless, with prudent planning and procedures, Bali’s corporate taxes can be effectively navigated without excessive complications or time commitments. This article delves into key types of corporate taxes in Bali that companies may need to consider. –

Preemptive Tax Planning.

It’s crucial to implement sound accounting methods to streamline your Bali-based business’s tax recording and payment procedures. Key practices to adopt include:

  • Differentiating between personal and company expenses
  • Utilizing accounting software
  • Organizing revenue and expenses to allow informed managerial decisions (e.g., through a chart of accounts)
  • Monitoring accounts payable and receivable
  • Regularly recording transactions

If these practices seem daunting, fear not. Tax planning professionals can help to establish these methods in your company from its inception. A well-structured chart of accounts can be a potent tool for business management, enabling tracking of different activities’ profitability. 

Allowable Expenses as a Shareholder in Bali 

As a shareholder in a Bali-based company, you may record various expenses as investments in the enterprise. Tools or equipment purchased for business use are common examples. Ensure these expenses are made from your account and included in the quarterly investment report.

If you personally fund company goods with the expectation of reimbursement, always obtain a receipt. This allows for recording the purchase as a reimbursement; without a receipt, it becomes an allowance and incurs personal income tax. 

Avoiding Common Corporate Tax Pitfalls in Bali 

Two common misconceptions about tax planning in Bali are that it’s either irrelevant for small businesses or prohibitively expensive. In truth, tax planning can be quite affordable and can yield long-term savings if initiated early. Efficient bookkeeping and tax reporting also allow you to concentrate on your business’s primary activities. 

Our tax team frequently assists clients with issues like inconsistent transaction recording, miscalculations of income tax, missed reporting deadlines, lost receipts, and scattered data across spreadsheets, which complicates tracking paid invoices and outstanding payments. 

We will now delve into two principal taxes that Bali-based companies are obligated to pay:

income tax and withholding tax. 

Corporate Income Tax in Bali 

Any company domiciled in Bali is liable for corporate taxes regardless of where it generates its income. 

Reduced Corporate Taxes for New Companies in Bali 

New Bali-based companies might qualify for a flat 0.5% income tax (also known as Final tax) on their gross annual revenue, provided they meet the following criteria:

  • The company was established within the last three years
  • The gross annual revenue does not exceed Rp. 4,8 billion

If your company meets these requirements, the income tax calculation is simple – apply 0.5% to your gross annual revenue. It’s pertinent to note that tax is computed on revenue, irrespective of whether the company made a profit. 

Standard Corporate Income Tax 

In 2020, Indonesia’s government announced a reduction in corporate income tax rates. Previously, the tax was 25% of net profit, but it was reduced to 22% for the fiscal year 2021 and 20% for the fiscal year 2022. 

The corporate income tax is calculated based on a company’s net income (profit). 

Reduced Corporate Taxes for Companies with Annual Revenue Below Rp. 50 Billion. 

A majority of Bali-based companies earn less than Rp. 50 billion annually. Such companies might qualify for a 50% income tax rate deduction for revenue not exceeding Rp. 4.8 billion. 

Withholding Tax Payments in Bali 

The Indonesian government leverages withholding tax as a primary method to collect income taxes. This typically comes from personal withholding tax (PPH21) from salary payments, and tax on goods and services (PPH22) from payments for goods and services. 

Who Pays Withholding Tax in Bali? 

As a standard practice, any payments you make are subject to withholding tax. Essentially, you’re collecting income tax on behalf of the recipient. A common error companies make is neglecting this, potentially leading to sizable tax liability. For instance, rent payments should have a 10% tax deduction, which is your responsibility, not the landlord’s. 

Withholding Tax Rates 

Withholding tax rates depend on the nature of the service provided. The comprehensive tax rate table is rather extensive, and your tax advisor should be able to pinpoint the specific rates applicable to your business. 

Transferring Funds Overseas from Bali 

Payments made to foreign companies attract a 20% tax unless the recipient is a non-Indonesian resident from a country that has a double tax treaty with Indonesia. The recipient needs to complete a DGT form and provide a certificate of domicile. The applicable withholding tax rate will then be as per the agreement between Indonesia and the concerned country. –

Value Added Tax (VAT) 

Unless a company’s gross annual revenue surpasses 4.8 billion Indonesian Rupiah, VAT registration is usually not mandatory for smaller businesses. Nonetheless, companies with lower annual incomes can opt for VAT registration. VAT registration may benefit companies such as retail businesses or those that receive a large number of tax invoices for goods or services purchased. 

It can allow for refunds or offsets of VAT paid on purchases or the difference between VAT collected via sales and VAT paid on purchases. It’s important to assess your business’s unique needs and circumstances when deciding on VAT registration.

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