INDONESIA LAW AND PRACTICE Contributed by: Agus Ahadi Deradjat (Agung), Gustaaf Reerink, Adri Dharma, Karina Widyaputri and Ilma Sulistyani, ABNR Counsellors at Law
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-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 programmes, 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 Kes- ehatan (health), 3.70% to BPJS Jaminan Hari Tua (pension savings), 2% to BPJS Jaminan Pensiun (pension programme), 0.24–1.74% to BPJS Jaminan Kecelakaan Kerja (work accident protection), and 0.30% to BPJS Jaminan Kema- tian (death benefit). These contributions by both employees and employers are calculated based on the employ - ee’s basic salary and fixed allowances.
er individual or collective – must follow the same legal process. 4.5 Employee Representations Under the Indonesian Labour Law and Law No 21 of 2000 concerning Trade Unions/Labour Unions, every employee has the right to estab - lish 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 mem - bers 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 registration. The employer is legally obligated to acknowledge this noti - fication. 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 resolution and labour institutions; • establishing welfare-related initiatives; and • engaging in other lawful labour-related activi - ties. Unions may also organise strikes, manage organisational finances, and participate in bipar - tite and tripartite co-operation forums.
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