INDONESIA Law and Practice Contributed by: Agus Ahadi Deradjat (Agung), Gustaaf Reerink, Adri Dharma, Karina Widyaputri and Ilma Sulistyani, ABNR Counsellors at Law
4.5 Employee Representations Under the Indonesian Labour Law and Law No 21 of 2000 concerning Trade Unions/Labour Unions, as amended, every employee has the right to establish or join a labour union. While participation is voluntary, the law affirms and protects this right as part of broader labour protections. A labour union must consist of at least ten members to be validly established. Once formed, the union must submit a written registration to the local office of the Manpower Agency and notify the employer of its reg - istration. The employer is legally obligated to acknowl - edge this notification. A company may host multiple labour unions, and membership is typically evidenced by a union-issued membership card. Labour unions are empowered to advocate for and protect the interests of their members. Their core functions include: • negotiating collective labour agreements with employers; • representing workers in industrial dispute resolu - tion and labour institutions; • establishing welfare-related initiatives; and • engaging in other lawful labour-related activities. Unions may also organise strikes, manage organisa - tional finances, and participate in bipartite and tripar - tite co-operation forums.
sourced income, typically at a flat rate of 20%, unless reduced by an applicable tax treaty. The employer acts as the withholding agent and must calculate, withhold, pay, and report the employee’s Article 21 Income Tax monthly and provide a yearly tax slip (Form 1721 A1). Employees also contribute to social security pro - grammes, including 1% for BPJS Kesehatan (health), 2% for BPJS Jaminan Hari Tua (pension savings), and 1% for BPJS Jaminan Pensiun (pension programme). Employers, in turn, contribute 4% to BPJS Kesehatan (health), 3.70% to BPJS Jaminan Hari Tua (pension savings), 2% to BPJS Jaminan Pensiun (pension pro - gramme), 0.24–1.74% to BPJS Jaminan Kecelakaan Kerja (work accident protection), and 0.30% to BPJS Jaminan Kematian (death benefit). These contributions by both employees and employ - ers are calculated based on the employee’s basic sal - ary and fixed allowances. However, some components of the BPJS programme are subject to a salary cap, meaning contributions are not calculated on the full salary. For example, BPJS Kesehatan (health) is capped at a maximum salary of IDR12 million/month, while BPJS Jaminan Pensiun (pension programme) is capped at IDR11,086,300/ month (starting from 1 March 2026). Any salary exceeding these limits is not subject to additional contributions under those specific programmes. 5.2 Taxes Applicable to Businesses A company is considered resident (and subject to tax on worldwide income) if it is established or domiciled in Indonesia. Non-resident companies are taxed only on Indone - sian-sourced income, generally through withholding tax. Companies doing business in Indonesia are subject to several taxes, including corporate income tax at a standard rate of 22%; VAT effectively at 11%; and withholding tax (WHT) on payments to resident tax - payers, generally 15% for interest and royalties, and
5. Tax Law 5.1 Taxes Applicable to Employees/ Employers
An employee is subject to Indonesian income tax at progressive rates ranging from 5% to 35%, if they meet the tax residency criteria. That means that they reside in Indonesia, stay in Indonesia for more than 183 days within any 12-month period, or are present during a fiscal year with the intention to reside (eg, evidenced by a work permit or employment contract). Otherwise, the individual is treated as a non-resident and is subject to a final withholding tax on Indonesian-
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