Foreign investors often assume that accounting requirements begin once an Indonesian company starts generating revenue. For a foreign-owned company, including a PT PMA, accounting records are needed from the point transactions begin, while tax, VAT, payroll, annual reporting, and audit obligations arise according to the company’s activities and regulatory status.
Can Accounting Wait Until a PT PMA Starts Earning Revenue?
A newly incorporated PT PMA can have accounting and tax obligations before its first customer invoice. Initial capital contributions, incorporation expenses, office costs, employee salaries, equipment purchases, shareholder transactions, and payments to service providers all need to be recorded correctly.
Tax obligations during this period depend on the transactions undertaken and the company’s tax status. A company with no revenue does not automatically have every type of monthly tax filing obligation, but withholding tax, payroll tax, or VAT obligations can arise before commercial revenue begins.
For example, a PT PMA hires an employee at IDR 30 million (USD 1,700) per month while preparing to launch operations. Even if the company has not yet made a sale, the salary creates payroll accounting and PPh 21 obligations.
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Delaying bookkeeping until revenue starts can leave the company reconstructing earlier transactions from bank statements, invoices, payroll records, and shareholder funding documents. The company must also prepare annual financial statements, while additional reporting obligations arise as it hires employees, makes payments subject to withholding tax, registers as a VATable entrepreneur (Pengusaha Kena Pajak or PKP), or undertakes other taxable transactions.
Can a Foreign Parent Company’s Accounting Policies Be Used in Indonesia?
An Indonesian subsidiary maintains its statutory financial records under the accounting standards applicable in Indonesia. Foreign parent companies may separately require financial information prepared or adjusted for group consolidation.
Indonesia applies Indonesian Financial Accounting Standards (SAK Indonesia), which include PSAK and ISAK. Although Indonesian standards have substantial convergence with International Financial Reporting Standards (IFRS), differences in effective dates and specific requirements can create adjustments between Indonesian statutory accounts and the reporting package used by an overseas parent.
A foreign group using IFRS, US GAAP, or another reporting framework cannot assume that its group accounting treatment automatically satisfies the Indonesian subsidiary’s statutory accounting requirements.
Why Accounting Records Affect Indonesian Tax
Indonesia’s tax calculations rely heavily on the underlying accounting records. Expense classification, supporting documents, revenue recognition, withholding taxes, payroll entries, and VAT records can affect the company’s tax position.
An expense recorded in the accounts, for example, is not automatically deductible for corporate income tax purposes. The company may need to make a fiscal adjustment when calculating taxable income.
The same applies to VAT. An accounting entry showing VAT paid to a supplier does not by itself make the amount creditable input VAT. The transaction and supporting tax documentation must satisfy the applicable VAT requirements.
The company’s accounting records are the starting point for its Indonesian tax calculations rather than a separate record maintained only for financial reporting.
Does VAT Only Matter Above IDR 4.8 Billion?
Indonesia’s threshold for mandatory registration as a VATable entrepreneur (PKP) is annual turnover exceeding IDR 4.8 billion (USD 272,000). A business below the threshold can elect to register voluntarily.
Once registered as a PKP, the company assumes VAT collection, invoicing, payment, and reporting obligations and may credit qualifying input VAT against its output VAT.
Voluntary registration can be relevant when a company expects significant VATable transactions or wants to credit qualifying input VAT against its output VAT, but registration also brings continuing VAT administration and reporting requirements.
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Once PKP status takes effect, VAT becomes part of the company’s invoicing and accounting process even if its turnover remains below the mandatory registration threshold.
Does Every Foreign-Owned Company Require an Audit?
Foreign ownership does not by itself require a PT PMA’s financial statements to be audited.
Under Article 68 of Indonesia’s Company Law, a statutory audit is required where a company has assets and/or annual business turnover of at least IDR 50 billion (USD 2.8 million). An audit is also mandatory where the company collects or manages public funds, issues debt instruments to the public, is publicly listed, is a state-owned Persero, or is otherwise required to undergo an audit under another law or regulation.
A PT PMA with IDR 20 billion (USD 1.1 million) in assets and IDR 15 billion (USD 851,000) in annual turnover does not meet the IDR 50 billion financial threshold merely because its shareholders are foreign. Another statutory trigger could still make an audit mandatory.
If a company falls within Article 68 and does not complete the required audit, its financial statements cannot be approved by the General Meeting of Shareholders (RUPS).
Foreign-owned companies can also choose to undergo a voluntary audit when required by a parent company, lender, investor, or internal group policy, but that is separate from the statutory Article 68 requirement.
Unsure whether your PT PMA requires an audit? Email MAP Resources Indonesia at info@mapresourcesindonesia.com
Confirming the applicable trigger determines whether the audit is a statutory obligation or a separate commercial requirement.
Review Your Accounting Requirements with MAP Resources Indonesia
MAP Resources Indonesia can review the accounting requirements applying to your Indonesian operations. Contact MAP Resources Indonesia at info@mapresourcesindonesia.com.
