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As a popular tourist destination, Bali continues to attract a lot of foreign investors looking to open a restaurant or accommodations. But it might surprise a lot of foreigners that there are strict laws for hospitality businesses in Bali. Compared to other business lines additional tax and compliance obligations.
Navigating regulations in Bali can be dizzying! Even renting out an Airbnb is a hospitality business, subject to strict regulation. This guide will give you key information and tips for managing your business and complying with tax regulations in Bali.
Tax Rates for Hospitality Businesses
Hospitality businesses need to take note of the following:
- Local taxes
- Service Charge
- Corporate Income Tax
Each of these items is important when you report and pay for your taxes. You will find more detailed explanations for these below.
Tourism Taxes
“Tourism tax” is a term often used for local taxes like accommodation tax and restaurant tax. Services of hospitality businesses are subject to this tax. The tax rate depends on the business’s activities.
Local Taxes (Tourism Tax)
| Business | Local tax rate |
|---|---|
| Hotel | 10% |
| Restaurant | 10% |
| Spa | 12.5% |
| Massage | 12.5% |
| Discotheque | 12.5% |
| Karaoke | 12.5% |
The business should charge this tax to its customers and must add it to the invoice.
Service charge
The service charge is an additional fee paid by the customer in hospitality businesses. The business determines the rate of their service charge. The rate must range from 5% to 10% of the customer’s bill before adding local tax.
Businesses distribute funds collected from service charges to their employees. The employer should create an internal policy about how to distribute this among the employees. Service charge fees given to the employee count as income and are subject to relevant taxes.
Example:
| Total bill before local tax and service charge | IDR 500,000 |
| Service charge (5%) | IDR 25,000 |
| Gross amount | IDR 525,000 |
| Local tax (10%) | IDR 52,500 |
| Total | IDR 577,500 |
Do you have to ask for a service charge in Bali?
As with other places in Indonesia, service charge is mandatory. Tax offices in Bali have been conducting audits to check how businesses are handling this fee. They are looking into how these businesses are charging customers. They are also keeping an eye on how they distribute the collected fees to employees.
Value-added tax
Businesses with activities that are subject to the local taxes described above are not subject to value-added tax (VAT). This means that hotels, restaurants, spas, and the like do not need to charge their customers VAT.
Corporate income tax
The corporate income tax in Indonesia is the same for all businesses including hospitality businesses. New companies may use lower tax rates if the gross annual revenue is less than IDR 4.8 billion. For its first three years, the company may use a reduced tax rate of 0.5% as long as its income is within the limit.
Once the company’s income is greater than IDR 4.8 billion, it can no longer use the reduced rate. At this point, the general tax rate will apply to the business. This ranges from 12.5% to 25%. The tax rate for businesses whose annual gross revenue exceeds IDR 50 billion is 25%.
If the company has no revenue for the year, the business will have to justify this. The tax office may also conduct an audit. If the business pays less corporate income tax than the year before, the tax office may also audit them.
Reporting requirements for hospitality businesses
As mentioned earlier, hospitality businesses must pay local taxes. To pay for this, the business must have a local tax number (Nomor Induk Berusaha – NPWPD). Businesses can get their local tax number during company registration. If the business has several locations that are subject to local tax, each location should have its own NPWPD.
Payment deadlines for local taxes are also different across different regencies. So if your business has locations in different regencies, the deadline might be different. The deadline for paying corporate income tax may be different from that of the business’ local tax. It can be hard to manage all these dates, but Emerhub can report your taxes on your behalf. Fill out the form below and one of our experts will reach out to you and help you with tax reporting.
When to pay taxes in Bali
Paying taxes in Bali follows the same rules and regulations as other places. Hospitality business owners must pay special attention to the deadline for reporting and payment of local taxes because the dates vary depending on the business’ location. Check the dates below to know when to report and pay for your taxes:
Local taxes (Reporting and payment):
| Regency/City | Deadline |
|---|---|
| Denpasar | the 20th of the following month |
| Badung | the 20th of the following month |
| Gianyar | the 15th of the following month |
| Buleleng | the 15th of the following month |
| Karangasem | the 15th of the following month |
Corporate income tax
| Deadline | |
|---|---|
| Payment | the 10th of the following month |
| Reporting | the 20th of the following month |
Investment reporting
All foreign-owned businesses must submit their Laporan Kegiatan Penanaman Modal (LKPM) or Investment Activity Report. Depending on the operational status of your business, you may have to submit this every quarter or every 6 months. This report should include your financial report, the total number of employees, and legal documents.
There are sanctions for companies that fail to submit their LKPM on time. Make sure you submit your LKPM by the 10th of the following period. Make sure you meet the deadline by having Emerhub submit your investment report for you.
Common mistakes when managing a hospitality business in Bali
Nobody wants to land in hot water with the authorities. Here are some things to keep in mind when managing your business:
- Operating an Airbnb without a company or KITAS. The local tax office and immigration authorities always monitor Airbnb listings. Because the details are public, it is easy to get caught.
- Operating an Airbnb in a residential building. Residential areas only allow long-term rentals. Operating short-term accommodations may cause trouble.
- Not paying accommodation tax or paying taxes late. Failure to pay accommodation tax will result in sanctions. Companies who pay their tax late must pay an interest of 2% each month, beginning on the first late business day.
- Simplifying tax reporting. The tax report should have a detailed summary of transactions which includes income for each date. If records are not kept or are incorrect, the business could face tax penalties.
- Not including service charges in customers’ bills or not giving the service charge income to employees. As stated above, the service charge is mandatory. Businesses who do not comply may also face tax penalties.
