SELF ASSESSMENT SYSTEM

Under applicable tax regulations, Indonesia adopts a self-assessment system. Under this system, individuals who meet both subjective and objective requirements must register as taxpayers and subsequently obtain a Taxpayer Identification Number (NPWP). The self-assessment system also applies to taxpayers when fulfilling their tax obligations. This means taxpayers must calculate, pay, and report their own taxes in accordance with applicable regulations.

NIK BECOMES NPWP

The Harmonization of Tax Regulations (HPP) Law and its implementing regulations, Minister of Finance Regulation (PMK) 112/2022, stipulate that the NPWP format for individual Indonesian residents now uses the Population Identification Number (NIK). Under this regulation, Indonesian citizens, foreign nationals, bodies, and government agencies simply need to add a 0 (zero) to the front of their current active NPWP, so that all NPWPs will eventually have 16 digits.

OBLIGATIONS OF NPWP CARD OWNERS

1. IT IS MANDATORY TO SUBMIT A TAX RETURN
   • Submission of the Tax Return must comply with the specified deadline. For Periodic Tax Returns, taxpayers must submit the report no later than 20 days after the end of the Tax Period. For Income Tax Returns for Individual Taxpayers, the report must be submitted no later than 3 months after the end of the tax year. For Income Tax Returns for Corporate Taxpayers, the report must be submitted no later than 4 months after the end of the tax year. If the Tax Return is not submitted within the specified time period, the taxpayer will be subject to administrative sanctions in the form of a fine. The fine for individual taxpayers is Rp100,000. Meanwhile, the fine for corporate taxpayers is Rp1,000,000.
2. OBLIGED TO PAY TAXES
   • The nominal amount of tax is determined based on the applicable regulations and the conditions of the taxpayer concerned. Specifically for individual taxpayers who are employees, the income taxation system is through PPh 21 tax deductions by the company where the employee works. Meanwhile, for taxpayers who have their own business or earn income that has not been subject to tax, the taxpayer must calculate the tax owed themselves, make the tax payments themselves, and report it in the Annual Tax Return. The individual Taxpayer (WP) tax rate applies to annual Taxable Income (gross income minus components of Non-Taxable Income):
     • 5% for taxpayers with income of IDR 50 million
     • 15% for taxpayers with income of IDR 50 million – IDR 250 million
     • 25% for taxpayers with income of IDR 250 million – IDR 500 million
     • 30% for taxpayers with income above IDR 500 million

TAX ON INHERITANCE

Inheritance is the transfer of property from a deceased person (the owner) to the intended recipient (the heir). Inheritance generally includes both movable and immovable property, and it is said that inheritance can increase the wealth and economic capacity of the beneficiary.

However, Law Number 36 of 2008 Article 4 paragraph (3) stipulates that inheritance is included in the Tax Objects that are exempt from Income Tax (PPh). Therefore, inherited assets are an economic addition that is not subject to Income Tax (PPh).

UNDISTRIBUTED INHERITANCE

If an individual taxpayer dies and leaves an undivided inheritance, the individual’s NPWP cannot be removed from the tax administration. The undivided inheritance becomes a Tax Subject replacing the individual and must still be reported as an Annual Tax Return for ‘Undivided Inheritance’. If the Undivided Inheritance is a productive asset that generates income that is a Tax Object, the Income Tax payable on the Undivided Inheritance must be paid and reported on the Annual Personal Income Tax Return.

If an inheritance exceeds IDR 1 billion, the heir must still report the inheritance when filing their Annual Tax Return, but it remains exempt from Income Tax (PPh). This reporting is part of the Common Reporting Standard (CRS), which can become a standard in the implementation of the era of financial information transparency (Automatic Exchange of Information/AEoI).

THE HERITAGE HAS BEEN DISTRIBUTED

The subjective tax liability for an “Undivided Inheritance” ends when the inheritance is fully divided, at which point the tax obligation transfers to the heirs. For inheritances that have been fully distributed, the status of the inheritance is no longer a Tax Subject. The transfer of rights to the inheritance to the heirs is not a tax object, but the heirs are required to report the inheritance in the Individual Annual Tax Return in the Asset List section. If the assets are productive assets that generate income that is a Tax Object, the Income Tax payable must be paid and reported in the Individual Annual Income Tax Return of the heir.

The conditions for acquiring movable or immovable property as an inheritance that is not a tax object are:

1. The inherited movable and immovable assets have been reported in the testator’s Annual Tax Return or as Undivided Inheritance
2. Taxes owed (if any) on income used to acquire assets by the individual who inherits must be paid in full first.

If the two conditions above cannot be met, then when the inheritance is inherited, it is no longer a Non-Taxable Object but becomes an Income Tax (PPh) object because it is considered that the income used when acquiring the asset has not been taxed.

PDF: Inheritance Tax