Deductible Expenses in Indonesia: Which Business Costs Count
Deductible expenses in Indonesia: the test every business cost must pass, what the tax return adds back, and the costs that need a list filed with it.
References (10)
- The Income Tax Law, UU No. 7 Tahun 1983, with Articles 6, 9 and 11 as last amended by UU No. 7 Tahun 2021 on Harmonised Tax Regulations (HPP), from the 2022 tax year. Article 6(1) lists the deductible costs. Its Elucidation sets the tests of relevance and reasonableness and gives the shared-cost and share-loan examples. Article 9(1) lists what may not be deducted, and Article 9(2) requires spending with a benefit of more than a year to be depreciated or amortised. Article 11 sets the depreciation methods and useful lives, and Article 11(6a) the option for long-lived permanent buildings.
- PP No. 94 Tahun 2010, as amended. Article 10 allows non-creditable input VAT to be deducted. Article 13(a) bars the costs of income that is not a tax object, is taxed at a final rate, or is taxed on a deemed profit.
- PP No. 55 Tahun 2022. Article 18 covers promotion costs, Article 19 bad debts, Article 20 reserves and Article 21 depreciation.
- PMK No. 02/PMK.03/2010 on promotion costs. Article 2 lists what counts as promotion, Article 4 covers product samples, and Article 6 requires the nominative list attached to the annual return.
- PMK No. 105/PMK.03/2009 on bad debts, as amended by PMK No. 57/PMK.03/2010 and PMK No. 207/PMK.010/2015. Article 3 sets the conditions, and Article 4 the list and proof filed with the annual return.
- PMK No. 114 Tahun 2025 on donations, zakat and gifts, in force 31 December 2025. Article 4 sets the conditions and the 5% limit, and Articles 8 and 9 cover zakat. It revoked PMK No. 76/PMK.03/2011 and PMK No. 254/PMK.03/2010. PP No. 93 Tahun 2010, Articles 3 and 4, sets the limit and excludes donations to related parties.
- Circular SE-27/PJ.22/1986 of the Director General of Taxes, on entertainment costs and the nominative list.
- PMK No. 72 Tahun 2023 on depreciation and amortisation, promulgated 17 July 2023, sets which assets fall in each group. It revoked PMK No. 96/PMK.03/2009.
- PMK No. 169/PMK.010/2015 on the debt-to-equity ratio. Article 2 sets the ratio of four to one, Article 3 lists the exempt sectors, and Article 5 covers interest on unreported offshore private debt.
- PER-11/PJ/2025 on tax returns. Article 85(1)(b) lists the attachments to the annual corporate return, including the fiscal reconciliation and the tax depreciation list.
The deductible expenses Indonesia allows a company are the costs it spends to obtain, collect and maintain income that is taxed, kept within reasonable limits. That is the Income Tax Law, Article 6(1), as amended by UU No. 7 of 2021 on Harmonised Tax Regulations (HPP), read with its Elucidation.
Everything else stays in the company’s accounts, and the annual corporate income tax return adds it back. A handful of costs also need a list or proof filed with that return before they count.
The test every cost has to pass
The Law puts the test in three verbs: a cost is deductible when it is spent to obtain, collect or maintain income (Income Tax Law, Article 6(1)). The Elucidation adds two conditions. The spending must be reasonable, in line with good commercial practice, and it must relate to income that is a tax object. Spending to earn income that is not taxed is not deductible.
A payment to a shareholder or other related party is measured against what the work is actually worth. In the Law’s own example, a shareholder is paid IDR 50,000,000 for work worth IDR 20,000,000. The IDR 30,000,000 excess is not deductible and is treated as a dividend (Article 9(1)(f) and its Elucidation). How prices between related companies are supported is covered in our guide to transfer pricing documentation.
Timing matters too. A cost whose benefit lasts more than a year is not expensed at once; it is depreciated or amortised over its life (Article 9(2)).
None of this changes the company’s own accounts. The expense stays in the profit and loss account, and the return reverses whatever the tax rules do not accept. Each reversal is a fiscal correction, shown where the return reconciles the accounts to taxable profit (PER-11/PJ/2025, Article 85(1)(b)).
The deductible expenses Indonesia allows, and what is added back
The table sets out, kind by kind, where the line falls between a deductible cost and one the return adds back, from taxes such as value added tax (VAT) to tax penalties.
| Deductible | Added back | |
|---|---|---|
| Taxes | Land and building tax, stamp duty, hotel and restaurant tax, non-creditable input VAT | The company’s own income tax |
| Staff pay | Wages, bonuses, cash allowances, and benefits in kind since 2022 | Related-party pay above arm’s length |
| Insurance | Premiums paid for staff | Premiums for a shareholder’s personal benefit |
| Donations | The five listed kinds, and zakat | Other gifts, aid and donations |
| Provisions | Only in listed sectors, such as banking, insurance and mining | Reserves in any other business |
| Losses on asset sales | On assets used in the business | On assets held but not used |
| Tax penalties | None | Interest, fines and surcharges under the tax laws |
The table follows the Income Tax Law, Articles 6(1) and 9(1) and their Elucidation, and Government Regulation PP 94/2010, Article 10 on input VAT. The Law’s list of deductible costs runs further: materials, rent, interest and royalties, travel, waste processing, administration, promotion, and contributions to a pension fund approved by the financial services authority (OJK). Foreign exchange losses, research and development carried out in Indonesia, and scholarships, internships and training are on it too (Article 6(1)(a) to (g)).
Research and training are deducted here at their ordinary cost. The extra deduction some companies can claim on top is an investment incentive, explained in our guide to the super deductions for training and research. How perks are valued, and taxed as the employee’s income, is set out in our guide to which employee benefits are taxed.
Costs of income taxed at source
Some income is taxed at a final rate when it is paid, some is not a tax object at all, and some is taxed on a deemed profit. The costs of earning that income are not deductible, because the final rate or the deemed profit already allows for them (PP 94/2010, Article 13(a) and its Elucidation).
Interest on a loan taken to buy shares is not deductible while the dividends from those shares are exempt. It can be added to the cost of the shares instead (Income Tax Law, Elucidation of Article 6(1)(a)).
The same rule means a company still paying the final tax on its turnover has no costs to deduct against that income. Our guide to the annual return explains which companies may still use the final tax on turnover.
Where one cost serves both kinds of income, it is split proportionally, as the Law’s own example does, by the share of gross income that is taxed.
| Description | Amount |
|---|---|
| Costs shared across all income | 200,000,000 |
| Share of gross income that is taxed 300,000,000 of 400,000,000 | 3/4 |
| Deductible 3/4 × 200,000,000 | 150,000,000 |
Costs that need a list with the return
Promotion and entertainment count only when a named list of the spending goes with the annual return, as each tab sets out. PMK is a Peraturan Menteri Keuangan, a Minister of Finance regulation.
Promotion counts when it is advertising in any medium, a product exhibition, the launch of a new product, or sponsorship tied to promoting a product. Samples given away are deductible at what they cost, if that cost is not already in the cost of sales.
Where the promotion includes payments to other people, a nominative list of those payments goes with the annual return, giving each recipient and the tax withheld. The list is what makes those payments deductible (PMK 02/2010, Articles 2, 4 and 6).
The tax office accepts entertainment costs as deductible when they relate to the business and a nominative list of each occasion is attached to the annual return. That requirement rests on a long-standing circular of the Director General of Taxes (SE-27/PJ.22/1986).
Bad debts and donations
Bad debts and donations are deductible once conditions of their own are met.
A debt that genuinely cannot be collected is deductible once the company has written it off as an expense in its commercial accounts (Income Tax Law, Article 6(1)(h); PMK 105/2009, as amended, Article 3). A list of those debts, and the proof behind them, is filed with the annual return (PMK 105/2009, as amended, Article 4).
The proof can be a referral to the district court or to the state agency that collects state receivables, or the debtor’s written agreement to the write-off. A published notice also counts, as does the debtor’s acknowledgment that the debt has been written off.
Only national disaster relief, research and development in Indonesia, social infrastructure, education facilities and sports development qualify. The company must have had net fiscal income in the previous year’s return, and the donation must not create a loss.
The deduction is capped at 5% of that previous year’s net income. The recipient needs a tax identification number (NPWP), and a gift to a related party does not count (PMK 114/2025, Article 4; PP 93/2010, Articles 3 and 4). Zakat, the Islamic alms, has conditions of its own (PMK 114/2025, Articles 8 and 9).
Depreciation and borrowing costs
Tangible assets are depreciated in equal amounts over the useful life set for their group, or on the declining balance for anything except buildings, applied consistently. Land is not depreciated. Since the 2022 tax year, a permanent building that lasts longer than 20 years may be depreciated over its actual useful life instead (Income Tax Law, Articles 11(1), 11(2) and 11(6a)).
PMK 72/2023 sets which assets fall in which group, and the tax depreciation list goes with the annual return (PER-11/PJ/2025, Article 85(1)(b)).
Interest is deductible only up to a debt-to-equity ratio of four to one, and some sectors, banks and insurers among them, are exempt (PMK 169/PMK.010/2015, Articles 2 and 3). Interest on a loan from a private lender abroad is deductible only if the loan has been reported to the tax office (Article 5).
Getting the deductions into the return
The deductible expenses Indonesia allows come down to three things: the cost earns taxed income, it is reasonable, and the paperwork is there where the rules ask for it. The lists for promotion, entertainment and bad debts are far easier to keep during the year than to rebuild after it closes.
Our corporate tax work includes the annual corporate return, reconciled to your accounts, and we make the fiscal corrections it needs. Send us the breakdown of your entertainment and promotion costs, and we attach the nominative lists to the return.