Our guide to Payroll in Indonesia

Doing Business in Indonesia

Indonesia, the largest economy in southeast Asia, presents a vibrant landscape for entrepreneurs and businesses looking to tap into the region's dynamic market. With a population exceeding 270 million people, Indonesia offers a vast consumer base, rich natural resources, and a strategic geographic location that serves as a critical hub for international trade. Here's what you need to know about embarking on a business venture in this burgeoning economy.

Indonesia's economy is a diverse mix of modern industries and traditional agriculture. it's a market with significant potential for growth in sectors such as manufacturing, services, agriculture, and digital technology. The country's GDP has been steadily growing, making it an attractive destination for foreign investment.

Straddling key international shipping lanes, Indonesia offers unparalleled access to Asean markets and beyond. Its location provides businesses with the opportunity to engage not only with the domestic market but also with other emerging economies in the Asia-Pacific region.

The Indonesian government has been actively working to improve the business climate by simplifying regulatory processes, enhancing the ease of doing business, and offering incentives for foreign investors. Recent reforms aim to attract more FDI by opening up previously restricted sectors and simplifying investment procedures. Indonesia offers a range of incentives to encourage foreign investment, including tax holidays, import duty exemptions, and land-related incentives, particularly for investments in Special Economic Zones (SEZ) and certain high-priority sectors.

Doing business in Indonesia comes with its set of challenges, including navigating the complex regulatory environment, dealing with bureaucracy, and understanding the diverse cultural landscape. However, with careful planning and local guidance, these challenges can be managed effectively.

Indonesia offers a compelling mix of opportunities and challenges for businesses looking to expand in southeast Asia. With its large market, strategic location, and government support for investment, Indonesia is positioned as a key player in the region's economic landscape.

By navigating the regulatory environment and embracing the cultural diversity of the Indonesian market, businesses can unlock significant potential for growth and success in this vibrant economy.

For those considering Indonesia as their next business destination, the time to explore the possibilities is now. With the right approach and local partnerships, doing business in Indonesia can be a rewarding venture that opens doors to the vast southeast Asian market.

Investing in Indonesia

Indonesia, with its sprawling archipelago, rich cultural heritage, and burgeoning economy, stands out as a beacon of opportunity in Southeast Asia. From a business perspective, the country offers a compelling case for investment, driven by its demographic dividends, growing economy, strategic location, and reform-driven government. Here’s why businesses are looking towards Indonesia as their next investment destination.

Indonesia boasts a large and youthful population, with over half of its 270 million people under the age of 30. This demographic presents a dual advantage: a sizable workforce and a burgeoning consumer market. The young population is increasingly urban and tech-savvy, driving demand in sectors such as digital services, e-commerce, education, and consumer goods.

The digital economy in Indonesia is among the fastest-growing in the world, propelled by widespread internet adoption and a booming startup ecosystem. The government’s support for digital infrastructure and innovation, coupled with a large online consumer base, presents vast opportunities in fintech, e-commerce, edtech, and other digital services.

Thriving with abundant natural resources, including minerals, oil, gas, and palm oil, Indonesia offers investment opportunities in extraction, processing, and related sectors. The country’s commitment to sustainable and responsible resource management opens avenues for green investments and renewable energy projects.

Indonesia’s diverse culture and market landscapes offer a rich testing ground for products and services. Businesses that successfully navigate this diversity can tap into niche markets and consumer segments, tailoring their offerings to meet varied preferences and needs.

While challenges such as bureaucratic complexity and infrastructural gaps exist, they also present opportunities for businesses to offer solutions and innovations. The government’s focus on infrastructure development and digital transformation is creating demand in construction, technology, and services sectors.

Investing in Indonesia is not merely a venture into a single market but an entry point into a dynamic region with vast potential. The combination of a large, young consumer base, economic resilience, strategic location, and a pro-investment climate makes Indonesia an attractive destination for businesses aiming for long-term growth and regional expansion.

For businesses eyeing global diversification and growth, Indonesia offers a landscape filled with opportunities waiting to be explored. The key to success lies in understanding the market, leveraging government incentives, and embracing the rich cultural tapestry that defines this vibrant nation.

Foreign Direct Investment

Indonesia's commitment to becoming a prime destination for Foreign Direct Investment (FDI) is evident in its wide array of opportunities across various sectors and the comprehensive incentives designed to attract and facilitate foreign investments. The Indonesian government recognize the importance of FDI for the country’s economic growth and development and have laid out a conducive ecosystem for investors.

FDI Opportunities in Indonesia

Indonesia's diverse economy presents numerous opportunities for foreign investors, with particular focus on sectors that leverage the country's strategic assets, including its large population, abundant natural resources, and growing digital economy. Key sectors include:

• Manufacturing: Automotive, electronics, textiles, and garments are areas with established foreign investment, with increasing opportunities in green and sustainable manufacturing practices.
• Infrastructure and Transportation: Significant investments are needed in road, sea, and air transport infrastructure, as well as urban mass transit systems, to support Indonesia’s growing economy and population.
• Energy and Mining: Opportunities in renewable energy projects, including solar, wind, and hydro, in response to Indonesia’s commitment to renewable energy sources. The mining sector also offers prospects in nickel, bauxite, and tin mining, crucial for global electronics and battery production.
• Agriculture: With its vast agricultural potential, Indonesia seeks investments in food processing and agriculture technology to enhance productivity and sustainability.
• Digital Economy: The booming digital market in Indonesia, especially in fintech, e-commerce, and startup incubation, presents vast opportunities for innovative digital investments.
• Tourism and Hospitality: The government is keen on developing its tourism sector beyond Bali, promoting investments in new destinations and supporting infrastructure.

Government Incentives for FDI in Indonesia

• To attract FDI, the Indonesian government offers a range of incentives, making the investment process more appealing and financially viable for foreign businesses:
• Tax Incentives: These include tax holidays for investments in certain sectors or regions, reduced corporate income tax rates, and allowances for investment in designated priority sectors.
• Customs Incentives: Exemptions or reductions on import duties for machinery, equipment, and raw materials for use in production or for investment in specific industries.
• Investment Allowances: Additional deductions from taxable income, based on the amount invested in certain sectors or regions.
• Ease of Doing Business Reforms: Continuous efforts to streamline business registration, licensing, and land acquisition processes to reduce the time and cost of setting up operations in Indonesia.
• Special Economic Zones (SEZs) and Industrial Estates: Offering enhanced infrastructure, simplified administrative processes, and additional fiscal incentives to businesses setting up in these zones.
• Research and Development (R&D) Incentives: Support for R&D activities, including tax deductions and grants, especially for development of new technologies and sustainable practices.

Facilitating FDI in Indonesia

Indonesia has established several government agencies to streamline the investment process, facilitate foreign direct investment (FDI), and support investors throughout their investment journey. These agencies play a crucial role in enhancing the ease of doing business in Indonesia, offering guidance, regulatory assistance, and incentives. Here's an overview of the key agencies and their functions:

Investment Coordinating Board (BKPM)

The BKPM serves as the primary interface between the government and investors. It's responsible for promoting investment opportunities, facilitating foreign investment, and ensuring the investment process is as smooth as possible. The BKPM offers a range of services, including investment registration, providing information on investment procedures and policies, facilitating necessary licenses and permits, and assisting with land acquisition issues. It also acts as a problem solver for investors facing bureaucratic hurdles.

Ministry of Trade

The ministry on trade in Indonesia is responsible for formulating and implementing trade policies and regulations. It plays a significant role in creating a conducive trade environment for both domestic and foreign businesses. The minister of trade offers services related to export and import licensing, trade promotion, and international trade negotiations. The ministry also works on enhancing Indonesia's trade relations with other countries, opening up more opportunities for investors.

Ministry of Finance

The Ministry of Finance in Indonesia manages the country’s fiscal policy, including taxation matters relevant to foreign investors. It plays a crucial role in designing tax incentives for FDI. They provide information and services related to taxation for businesses, including corporate income tax, VAT, and import duties. The ministry also administers fiscal incentives for investment in specific sectors or regions.

Ministry of Industry

The ministry of industry in Indonesia focuses on the industrial sector's development, working towards increasing competitiveness, innovation, and investment in the industry. They offers support for industrial development, including facilitating access to industrial areas, providing information on industry standards, and managing industrial incentives.

Ministry of Energy and Mineral Resources

The ministry or energy and mineral resources in Indonesia is responsible for the energy and mineral sectors, crucial areas for Indonesia’s economy and attractive sectors for foreign investment. The ministry regulates and promotes investment in the energy and mineral sectors, offering information and assistance related to energy policies, mining licenses, and related incentives.

Directorate General of Customs and Excise

Part of the Ministry of Finance, the Directorate General of Customs and Excise in Indonesia is a body that manages customs services, including the importation of goods and related duties. They offer guidance on customs procedures, tariffs, and exemptions for investors, especially those importing machinery, equipment, and raw materials for production purposes.

Indonesian Agency for Creative Economy (BEKRAF)

Before being merged into the Ministry of Tourism and Creative Economy, BEKRAF was dedicated to fostering the creative economy sector, including arts, media, and design, which is increasingly significant for Indonesia’s economic diversification. Although now part of a larger ministry, the focus remains on promoting and facilitating investment in the creative economy, providing support for startups, and innovating in creative sectors.

These government agencies collectively create a supportive ecosystem for foreign investment in Indonesia, offering comprehensive services from pre-investment information to post-investment support.

Indonesia’s rich opportunities, supported by targeted government incentives, positions the country as a compelling destination for foreign direct investment in Southeast Asia. The strategic focus on key growth sectors, coupled with a commitment to improving the ease of doing business, underscores Indonesia’s openness to global investors. For businesses looking to expand their footprint and tap into the growing ASEAN market, Indonesia represents a frontier replete with potential and promise.

General Information:

Full Name: Republic of Indonesia

Population: 283,4 million (Word Bank Data as of 2024)

Capital: Jakarta

Major Language: Indonesian

Major religion: Islam

Monetary Unit: 1 Rupiah (USD 1 = IDR 16.000 range as of January 2026)

Main Exports: Oil, gas, palm oil, coal, electrical appliances, plywood, rubber, and textile

GNP per Capita: $4,910 (Word Bank Data as of 2024)

Internet Domain: .co.id, .id, .or.id

International Dialing Code: +62

How to say:

Hello: Halo

Good morning: Selamat pagi

Good evening: Selamat sore

Do you speak English? Apakah Anda bisa bahasa Inggris?

Good bye: Selamat tinggal

Thank you: Terima kasih

See you later: Sampai ketemu nanti

Registrations and Establishing an Entity

Investment must be made by way of establishing new or purchasing shares in an existing limited liability company. A PMA company must satisfy the requirements of the negative list and have an approved deed of establishment or articles of association, which must be signed before an Indonesian notary.

Foreign Investors who wish to invest in a PMA Company must first obtain an in-principle approval from BKPM. BKPM will issue approval approximately 5 to 10 working days after receiving a completed application and required supporting documentation, although satisfying BKPM’s requirements often mean approvals take longer than this.

For certain lines of business (for example, mining, oil and gas, education), the recommendation of the relevant government regulating institution must be obtained before BKPM will issue its approval.

Once BKPM approval has been obtained, the foreign company may establish or invest in a PMA Company. Establishing a new PMA Company usually takes approximately 4 to 8 weeks. Payroll can be set-up in parallel of company establishment but hiring of employees and reporting to the statutory bodies are recognized after the company if officially incorporated and registered.

Banking

It is not mandatory to make payments to employees and the authorities from an in-country bank account; however, it is highly recommended that an in-country bank account is used to make the payments for book-keeping and tax audit purposes.

Banks in Indonesia are open Monday to Friday 8 AM to 3 PM and closed on weekends for most branches and banking transactions.

Working Week

The working week in Indonesia is Monday to Saturday (companies choose either 5 or 6 days’ workweek). The working day for commercial offices is usually eight hours, with a 40 hour work week and overtime maximum of 4 hours in 1 day and 18 hours in 1 week. The maximum number of days anyone can work in Indonesia is 6 days per week.

Employment Law

Leaves and holidays

In Indonesia, employees are granted a statutory entitlement to 12 days of paid annual leave following a year of continued service.

Beyond annual leave, Indonesian labor laws mandate employers to offer additional paid leave for various personal reasons, ensuring employees have the necessary time to attend to significant life events. The entitlements for such personal leave are as follows:

Tunjangan Hari Raya – THR (Religious Holiday Allowance in Indonesia)

In Indonesia, the provision of a religious holiday allowance (Tunjangan Hari Raya or THR) by employers to their employees is a legal requirement. This allowance is a form of annual bonus that must be disbursed to employees at least one week before their respective religious holiday, based on the employee's faith, amounting to one month's wages (dependent on the length of service). THR is labor allowance that must be paid by the employer to the worker or his family before the religious holiday in cash and/or other form.

The holidays recognized for the THR include:

• Eid-il-Fitri for Muslims
• Christmas for Catholics and Protestants (acknowledged separately)
• Nyepi for Hindus
• Vesak for Buddhists
• Chinese New Year for those of the Confucian faith

Traditionally, businesses across Indonesia have aligned the payment of THR for non-Muslim employees with the Christmas season and for Muslim employees in anticipation of Eid-il-Fitri.

THR Eligibility and Calculation

Eligibility:

1. Employer must pay THR for employee that has minimum of 3 months of continuous service
2. Former permanent employee that his employment terminated in period of 30-days before the religious holiday is still eligible for THR
3. Former contract employee with contract terminated before the religious holiday is not eligible for THR

Payment:

1. Employer must pay THR once a year in accordance to employee’s religion
2. Payment must be made at least 7 days before the religious holiday of each employee (unless employee and employer has agreement for other time of payment), but general implementation usually many companies make payment 14 days before religious holiday and few companies make payment 1 month before the religious holiday.
3. Religious holidays in Indonesia considered for THR payment are: Muslims: Eid al-Fitri, Christians: Christmas, Buddhists: Waisak (Vesak), Hindus: Nyepi

Amount:

1. THR amount is minimum 1 monthly salary / wages (= basic salary + other fixed allowance) for workers that have minimum 12 month of service.
2. For workers that have > 3 months of service and < 12 months of service, THR amount is apportioned accordingly (= month of service / 12 x 1 monthly salary)

Violation:

For employers who violate the obligation to pay THR allowance shall be subject to punishment.

Business Penalties for Non-Payment of THR

• Employers who neglect the THR payment are subject to a fine amounting to 5% of the total THR due, which is allocated for the welfare of the employees. This penalty does not exempt the employer from the responsibility of disbursing the THR.
• Non-compliant businesses also face administrative sanctions, including limitations on business operations, and either the permanent or temporary closure of production facilities, or a halt to business activities. These measures underscore the importance of the THR in safeguarding employee welfare and promoting fair labor practices in Indonesia.

Maternity

Employers are required to provide healthcare coverage for pregnant employees, covering prenatal care, delivery, and postnatal care. This is part of the broader mandate for employers to ensure the health and safety of their employees at work.

Indonesian law grants female employees a total of 3 months (12 weeks) of maternity leave, with at least six weeks post-delivery. A maximum of 6 weeks can be taken pre-delivery.

The payment for maternity leave in Indonesia is the responsibility of the employer. Female employees are entitled to their full salary during the 12-week maternity leave period, which is split equally before and after childbirth.

Employers are required to continue all employment benefits during the maternity leave period, including healthcare coverage that encompasses prenatal care, delivery expenses, and postnatal care. This comprehensive support reflects the commitment of Indonesian law to protect working mothers and their children.

In the event of a miscarriage, the employee is entitled to 1.5 months of paid maternity leave or as certified by an obstetrician.

Female employees who return to work after maternity leave have the right to breastfeeding breaks. These breaks are in addition to the regular rest periods and are provided until the child reaches the age of two years.

Paternity

The father is entitled to two days paid leave once the baby is born. Businesses may wish to offer additional paternity allowances.

Sick Leave in Indonesia

Employees are entitled to paid sick leave in case of illness or injury that is evidenced by a medical certificate or official doctor’s note.

Female employees are also entitled to two days of menstrual leave (the first and second day of menstruation).

Employees are also entitled to long-term paid medical leave provided that such leave is recommended in writing by a doctor and lasts for a period greater than one year. An employee who is experiencing a prolonged sickness continues to be entitled to the payment of wages, as follows:

• First four months: 100% of the wages
• Second four months: 75% of the wages
• Third four months: 50% of the wages
• Subsequent months: 25% of the wages

National Service

Indonesia has a form of national service, known as compulsory military service, although it operates differently compared to many other countries. Indonesia does not enforce mandatory military service for all citizens upon reaching a certain age; instead, Indonesia's approach to national service is more voluntary in nature, with the Indonesian National Armed Forces consisting largely of volunteer professionals.

Indonesia has implemented regulations that allow for the possibility of conscription during times of war or if the country faces a shortage of military personnel. The Indonesian government maintains the right to enact conscription under specific circumstances outlined in its national defense and military laws.

Tax & Social Security

The Tax Year runs from 1st January to 31st December.

Income Tax

All individual tax residents (including expatriates) have to register with the Tax Office and obtain a Tax ID number.

The employees with non-taxable income should also register to obtain a Tax ID for reporting their annual income to tax office (in order for the tax office can easily track and record their income).

Taxation in Indonesia is determined based on residency.

Resident taxpayers are defined as individuals who:

• Are domiciled in Indonesia or

• Stay in Indonesia for more than 183 days in any 12-month period or

• Are present in Indonesia during a tax year and intend to reside in Indonesia

A foreigner who qualifies to be a resident taxpayer becomes a tax resident from the date of arrival in Indonesia until the date of final departure from Indonesia.

An Indonesian national is considered a tax resident from birth, unless he or she leaves Indonesia permanently. If an Indonesian national is leaving Indonesia temporarily, for example, for a working assignment to another country for a period of 6 months or more, then he/she can be considered as a non-resident during the assignment period and will be taxed only on Indonesian sourced income.

In 2024, Indonesia introduced a significant update to its income tax structure for individual taxpayers through Government Regulation 58 of 2023 (GR 58/2023). This regulation, effective from January 1, 2024, aims to streamline the process of monthly withholding tax calculation by introducing an effective tax rate (ETR) system, while maintaining the progressive income tax rate for annual calculations in December as per Article 17(a) of the Income Tax Law. The final tax underpayment will be based on the December recalculation amount minus the tax that has been withheld from January to November.

Monthly Income Tax Calculation

Under GR-58, the Effective Tax Rate (ETR) is calculated based on the individual’s monthly gross income, without the need for annualization or subtracting specific deductions from this income. This approach incorporates considerations for standard deductions, including non-taxable income thresholds, work-related expenses, and contributions to pension schemes, directly within the ETR calculation. This simplifies the tax calculation process by integrating deductions directly into the tax rate applied to gross income, facilitating a more straightforward calculation for taxpayers each month.

Taxpayer Categories and Effective Tax Rates (ETR)

Taxpayers are categorized based on their marital status and the number of dependents and monthly income received. The monthly ETR is applied on all income received by an individual on a monthly basis. The categories are as follows:

Category A is for individuals with a marital status of:

1. Single with no dependents

2. Single with one dependent

3. Married with no dependents

Category B is for individuals with a marital status of:

1. Single with two dependents

2. Single with three dependents

3. Married with one dependent

4. Married with two dependents

Category C is for individuals with a marital status of:

1. Married with three dependents

Daily ETR

For non-permanent workers who earn their income on a daily, weekly, per unit, or piece-rate basis, the Effective Tax Rate is calculated using the income these workers receive within these periods. When income is not distributed daily, the ETR calculation uses the average daily earnings, determined by the total income divided by the number of workdays.

The ETR for daily incomes are as follows:

• A 0% tax rate applies to daily incomes of up to IDR 450,000.

• A tax rate of 0.5% is applied to daily incomes exceeding IDR 450,000 and up to IDR 2,500,000.

• GR-58 currently does not specify the ETR for daily incomes above IDR 2,500,000

Monthly Effective Tax Rates (ETR) Categories:

Annual Income Tax Calculation

In 2026, Indonesia’s annual personal income tax (PPh Article 21) uses progressive rates ranging from 5% to 35% on taxable income.

The progressive tax brackets for annual taxable income in 2026 are:

1. Up to IDR 60 million: 5%
2. Above IDR 60 million - IDR 250 million: 15%
3. Above IDR 250 million - IDR 500 million: 25%
4. Above IDR 500 million - IDR 5 billion: 30%
5. Above IDR 5 billion: 35%

• Corporate Income Tax: The general corporate tax rate is 22%.
• Withholding Taxes (WHT/PPh):
• Article 21 (PPh 21): Withheld on employment income (salary, bonuses).
• Article 23 (PPh 23): Withheld on dividends, interest, royalties, and services paid to residents.
• Article 26 (PPh 26): Withheld on income paid to non-residents (generally 20%).
• Non-Taxable Income (PTKP): The lowest annual income amount exempt from tax for individuals.
• Benefits In Kind (Natura): Recent regulations subject certain in-kind benefits to tax, with specific exemptions.
• Tax Administration: Taxpayers must obtain a Tax ID Number (NPWP), calculate, pay, and report taxes via annual tax returns (SPT)

Social Security

In Indonesia, the National Social Security System (Sistem Jaminan Sosial Nasional or SJSN) mandates participation for all employees, including expatriates and their dependents, ensuring broad coverage across various facets of social security. The administration of these programs is divided between two main organizations:

• The Social Security Administrator for Health (BPJS Kesehatan) for employees and dependents’ health insurance.

• The Workers Social Security (BPJS Ketenagakerjaan) for employees’ work accident and death insurance, as well as social security and pension funds.

Workers Social Security Scheme Contributions in Indonesia

The Workers Social Security Scheme outlines specific areas of coverage, with contributions calculated as a percentage of the employees' monthly wages. Employers are responsible for a significant portion of these contributions, ensuring comprehensive coverage for their workforce. The scheme's structure and contribution is as follows:

* BPJS Kesehatan (Healthcare Scheme):

1. The premium is calculated with a salary cap of 12 million rupiah (approximately US$821), while the basis for other premiums is capped at a six months' salary of 5 million rupiah (approximately US$352). The cap usually increase annually.
2. The mandatory premium will cover husband, wife, and up to three children. Additional family members can be covered with additional premium payments borne by the employee.

** BPJS Ketenagakerjaan: There is a cap on regular salaries/wages for calculating the pension insurance contribution, which the cap usually increase annually.

Job Loss Security Program in Indonesia

Unemployment Benefit is a protection program given to workers/laborers who have been terminated. This program is given to maintain a decent life while the participants have not found work yet. Unemployment Benefit benefits are in the form of cash, access to job market information, to job training.

This benefit is given to participants who have been terminated, have not returned to work, and have a commitment to return to the job market, provided that the participant has had a contribution of Unemployment Benefit for at least 12 months in 24 months and has paid a contribution for at least 6 consecutive months.

Reporting

Books and records should be maintained in Rupiah and in the Indonesian language, and kept for 5 years in Indonesia. Foreign investment companies, certain entities with foreign affiliations or taxpayers that prepare their financial statements in US Dollars as the functional currency in accordance with the Indonesian financial accounting standards may maintain English language and US Dollar bookkeeping, subject to approval from the Minister of Finance. While for contractors of oil and gas cooperation contract and companies operating under Mining Contracts of Work, only a notification is required.

Compliance Time Table

Payroll

The payroll cycle in Indonesia is normally monthly and is paid on the last working day of the month or as agreed in the employment contract.

Reports

Payroll reports must be kept for at least 5 years (for documents dated 2009 and after) and a minimum of 10 years is required for all documents preceding 2009.

New Starts

Companies are required to register for a tax ID number, during the incorporation process, and with BPJS Health and BPJS Manpower, after this has been completed. As per law, companies with a minimum of 10 employees must register with BPJS Manpower. However, it is recommended that multinational companies with less than 10 staff also register all their employees as the benefits outweigh the costs.

Currently, the individual taxpayer is legally responsible for ensuring that they've registered with the tax office and comply with the regulations and payment of the taxes due. Some companies, as per contract, for expatriates may have agreed to pay taxes on their behalf; however they are still personally liable for annual tax withholding reporting. The company will provide employees with their annual tax withholding form by early the following year.

Documents required for registration -

1. A Completed Registration Form
2. Photocopies of all the pages of the passport
3. Photocopy of work permit
4. Certificate of domicile for employee and employer
5. Photocopy of employer's tax ID number (NPWP)
6. Letter of Authorization, authorizing the company representative to register and handle the companies tax matters
7. While the registration form only asks for a copy of the ID page of the passport and does not request the other items mentioned above, the officials at the tax office ask for them as a matter of course.

For new starts, according to the regulations, failure to secure an NPWP could mean imprisonment for a maximum of six years and a maximum fine of four times the total amount of tax due.

Leavers

Usually leaving employees must give minimum one month’s notice to their employer. This allows the employer proper time to prepare deactivation to all statutory bodies and for internal final payroll processing.

Permanent Employees

If a permanent employee resigns voluntarily or the permanent employee is absent for 5 working days or more in a row without a written statement accompanied by valid evidence and has been summoned by the employer 2 times properly and in writing, then the employee will eligible to get the separation money and compensation (untaken annual leave, transportation costs for the employee and his/her family to the place where the employee was recruited, and other matters as stipulated in the relevant employment agreement, company regulations or collective labor agreement).

Contract Employees

Compensation money is a form of severance that contract employees (PKWT) receive when their work contract is completed or ends. Companies are obligated to provide compensation payment to contract (PKWT) employees.

Compensation money is given to employees with a minimum of 1 month of continuous service. If the employment contract is extended, the money will be given before the extension. Then, the next compensation is given after the extended contract is completed. Compensation does not apply to foreign workers who are employed on a PKWT basis.

The Formula for calculating the amount of compensation for contract employee:

PKWT compensation money = (years of service / 12) x 1 month wage*

*) Wages (Salary or Fixed Salary & Allowances)  

Employee Benefits

National Minimum Wage

In Indonesia, minimum wages are conducted on a regional basis (including regions and cities) and not nationally. The government has announced a five to seven percent average increase for the 2026 provincial minimum wage (UMP), with some regions seeing hikes exceeding 8%. This policy aims to protect middle-class purchasing power and fuel economic growth.

It is crucial for employers, especially those with operations spanning multiple regions, to stay updated on the applicable minimum wages for their specific locations to ensure compliance with the law.

Expenses

Depending on internal policy, some companies prefer the form of a taxable travel allowance, especially with the new benefits-in-kind tax regulations that came into effect in 2023; other forms of reimbursement based on verified receipts, including provision of company transport, will need to meet the tax office’s conditions on non-taxable status.

All allowances and fringe benefits are taxable. Reimbursement or company cars expenses can become company expenses if they don’t go through payroll, but may also be taxable due to the new benefits-in-kind tax regulations. It is best to check with the company’s tax specialist to ensure proper classification, book-keeping and tax payment (if applicable) as the regulations are based on specific conditions.

Statutory National Holidays in Indonesia 2026

There are multiple statutory holiday schedules within Indonesia. Below are the statutory national holidays in Indonesia for 2026:

Collective Leave:

The Indonesian government has scheduled 8 days of collective leave (cuti bersama) in 2026, paired with 17 national holidays, focusing on major religious festivals like Eid al-Fitr, Nyepi, and Chinese New Year. These, added to weekends, create significant long weekends and mudik (homecoming) opportunities

Based on the Joint Decree of 3 Ministers (SKB 3 Menteri) for 2026, the, Collective Leave (Cuti Bersama) is not mandatory for the private sector.

Private sector companies have the discretion to determine their own Cuti Bersama policy based on operational needs.

Visas & Work Permits

Indonesia offers a range of visa and work permit options tailored to meet the needs of foreign nationals looking to engage in business activities or employment within the country. Here's an overview of the key types of visas and work permits relevant to businesses in Indonesia:

Business Visa

Designed for foreign nationals intending to conduct business negotiations, attend meetings, seminars, conferences, or conduct short-term business activities in Indonesia. It does not permit employment and is typically valid for up to 60 days and can be extended with approval from Indonesian immigration authorities.

Social-Cultural Visa

Suitable for those engaging in social-cultural activities, including educational programs or family visits, which may indirectly relate to business activities, such as cultural exchange or networking events. Initially granted for 60 days, with the possibility of extensions for up to 6 months.

Limited Stay Visa (VITAS) and Limited Stay Permit (KITAS)

Required for foreign nationals planning to work, conduct research, or engage in long-term projects in Indonesia. It's the most common visa for expatriates employed in Indonesia. Issued for periods ranging from 6 months to 2 years, depending on the employment contract or project duration, and can be extended.

Multiple Entry Business Visa

Allows for multiple entries into Indonesia for business purposes, such as establishing a business or conducting regular business activities, without the intention of taking up employment. Valid for one year, with each stay not to exceed 60 days.

Investor KITAS

Specifically designed for foreign investors who are shareholders or directors in Indonesian companies. Can be issued for 1 or 2 years, depending on investment size, and is extendable.

Work Permit (IMTA)

Foreign nationals employed in Indonesia must obtain an IMTA from the Ministry of Manpower. The IMTA is applied for by the employer and is a prerequisite for obtaining a KITAS. Matches the period of the KITAS, and must be renewed alongside the KITAS renewal.

Retirement Visa

Although not directly related to business activities, this visa option is available for retired foreign nationals who wish to live in Indonesia, potentially allowing for informal business consultations or advisory roles. Issued for one year and is renewable for up to 5 years.

Compliance and Application Process

Obtaining the appropriate visa or work permit involves navigating the Indonesian immigration system, which requires thorough documentation, including sponsorship letters from Indonesian companies, proof of qualifications, and evidence of financial capability. The process can vary based on the specific visa or permit, with applications submitted either domestically within Indonesia or at Indonesian embassies or consulates abroad.

There is no formal obligation for investors to hire Indonesian citizens, however, expatriate employees may only hold certain positions. A foreign worker is required to have a contract with the company that is providing the job in Indonesia. The duration of the contract depends on the company and can be 1 year, with extension possibility. The processing at the Indonesian embassy or representative office can take around 1 week or more.

It is advisable for companies to have local staff in management that is familiar with the Indonesian rules & regulations and can sign off the statutory reports, especially the annual employee tax withholding forms.

Key Changes for Indonesia for 2026:

Key changes in Indonesia's tax and labor landscape for 2025–2026 are heavily focused on economic stimulus, sector-specific tax incentives for labor-intensive industries, and the modernization of tax administration through the Coretax system.

Social Security

Effective March 1, 2025, through February 2026, the maximum monthly wage for BPJS Ketenagakerjaan pension (Jaminan Pensiun/JP) contributions is increased to Rp 10,547,400. This adjustment follows PP Nomor 45 of 2015 and reflects an increase from the previous ceiling, impacting the calculation of JP contributions (2% employer, 1% employee) for high-income earners.

BPJS Health Premium

Change in Badan Penyelenggara Jaminan Sosial (BPJS) Healthcare Minimum Wage Cap for 2026, which mean the calculation for BPJS Healthcare contributions will updated based on the regency/municipal.

Indonesia - Value Added Tax (VAT)

Value Added Tax (VAT), known in Indonesia as Pajak Pertambahan Nilai (PPN), is a consumption tax levied on most goods and services, with the standard rate increasing to 12% as of January 1, 2025. Applicable to production, distribution, and digital services, it is paid by the final consumer, while businesses with annual revenue over IDR 4.8 billion must register as VAT collectors. Key details regarding VAT in Indonesia:

• Standard Rate: The rate is 12% (raised from 11% in 2022).
• Digital Services: A 10% VAT is applied to certain digital goods and services provided by non-resident businesses.
• Exemptions: Essential goods, basic necessities (rice, meat, eggs), and services like education or health services are exempt.
• Registration: Businesses exceeding IDR 4.8 billion in annual turnover must register for VAT, while smaller businesses may do so voluntarily.
• Reporting: Monthly VAT returns are required, generally due by the end of the following month.

Tourist Refund: Foreigners can claim a VAT refund on goods purchased from registered retailers, provided the total VAT amount is at least IDR 500,000

Labor Law

Key changes to Indonesian labor law for 2025–2026, driven by a late 2024 Constitutional Court ruling and subsequent government regulations, focus on strengthening worker protections, increasing minimum wages, and enhancing social security benefits, while balancing investment needs. The regulatory framework is shifting toward a more balanced, slightly more pro-employee stance after the initial "Omnibus Law" reforms.

Key Labor Law Changes 2025–2026:

• 2026 Minimum Wage Adjustments (GR 49/2025): The 2026 Provincial Minimum Wage (UMP) is determined under Government Regulation No. 49 of 2025, which marks a significant shift, projecting increases of 5% to 7% based on inflation and economic conditions. This regulation reinstates the focus on a "decent living standard".
• Limitation on Fixed-Term Contracts (PKWT): Following the Constitutional Court decision, fixed-term employment (PKWT) is strictly limited to a maximum of five years, including extensions.

• Foreign Workers: Priority is legally reaffirmed to be given to Indonesian workers over foreign nationals.
• Termination Disputes: The deadline for termination lawsuits is now counted from the failure of mediation efforts (MK Decision No. 132/PUU-XXIII/2025).
• Retirement Age: The minimum age to access national pension benefits is gradually increasing, reaching 59 years as of January 2025

Further Information For more information, or assistance with Indonesia tax enquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.