Indonesia is the largest economy in Southeast Asia. It is also one of the world’s most populous countries, ranking at 4th place. This has led to the country being one of the world’s biggest consumer markets (in terms of population size) and being one of the largest in terms of purchasing power parity.

Major economic hubs:

Jakarta, Bandung, Central Java (Surabaya, Semarang, Yogyakarta)

Skills in demand:

Software Developer, Data Scientist, Full Stack Engineer

Resident Tax Information

A resident individual in Indonesia is taxed worldwide, although double taxation agreements (DTAs) might apply. However, Indonesian citizens living overseas due to work requirements for more than 183 days during a 12-month period are also subject to income tax abroad.  

Non-resident individuals earning an income in Indonesia are taxed at 20% by withholding of taxes by the employer.  

The personal income tax rates in Indonesia for resident individuals are progressive up to 35%.  

The resident income taxes are as below

Social Security

The social security benefits in Indonesia consist of  

The employer and employee contributions to each of the funds is as below

• Old-age benefits
• Healthcare insurance, and maternity benefits
• Workplace accident benefits
• Death benefits

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Statutory Benefits

The statutory benefits provided to employees in Indonesia include

• Contributions towards social security (alternatively known as BPJS ketenagakerjaan)
• Statutory leaves
• 13th-month pay – alternatively known as Tunjangan Hari Raya (THR) in Indonesia, must be paid 1 week before the religious holiday. This is ideally paid at the time of Idul Fitri for Muslim employees and in December for non-muslim employees.
• Insurance – Mandatory contributions towards insurance for employees towards the Social Security Management Board (alternatively known as Badan Penyelenggara Jaminan Sosial (BPJS)
  

Fringe Benefits

Employers commonly provide fringe benefits that do not form a part of an employee’s compensation. Fringe benefits are provided to an employee in addition to their regular salary.  

Most commonly provided fringe benefits provided to employees in Indonesia are

• Telecom and internet allowance
• Stipends for business and equipment expenses
• Transportation allowance
• Meal vouchers
• Health, life, and dental insurance

Exempt Benefits

Exempt benefits in Indonesia include

• Internet allowances
• Telecom allowances
• Premiums paid for insurance and social security contributions
• Meal vouchers

Long-term Incentives

The best way for an employer to show their appreciation of hard work and dedication is through long-term benefits. Employees will often be rewarded with company specific goals, such as stock options or other forms of equity ownership that provide incentives over time horizons greater than one year when they achieve certain performance milestones within the business unit/organization where employed.

The most commonly provided long-term incentive in Indonesia is a performance bonus.

• Phantom Stocks
• Cash-Settled Share Plans

Termination Process

If an employer wants to terminate its employees, it has to obtain approval from the Industrial Relations Court (IRC) by filing a lawsuit, or if they signed a Mutual Termination Agreement, then the Mutual Termination Agreement should be registered with the IRC.

The Labor Law prohibits an employer from dismissing an employee for the following reasons:

• The employee joins in matrimony;
• The employee is absent due to illness for less than 12 months consecutively;
• The employee performs a role in a trade union.

Notice Period

Probationary employees are given up to 30 days of notice period. On the other hand, employees after probation are given up to 3 months.

Severance Pay

Depending on the reasons for employment termination, employers need to pay standard severance, long service pay, compensation pay, and/or separation pay.