CV Taxation in Indonesia: A Practical Guide for Foreign Investors

When exploring business entities in Indonesia, foreign investors often encounter the “CV” (Commanditaire Vennootschap) structure—a limited partnership that has unique tax characteristics compared to corporations. This guide provides essential information about CV taxation to ensure compliance and optimize tax burdens for entrepreneurs considering this business structure in Indonesia.

CV Taxation Fundamentals

A CV has a significantly different tax system compared to a PT (Perseroan Terbatas, equivalent to a limited liability company). In a CV, business income flows directly to the partners and is taxed according to their individual income tax rates. In contrast, a PT is taxed as a separate entity.

For active partners (complementary partners), tax responsibilities include reporting CV income in their annual tax returns. Similarly, silent partners must report their profit shares as personal income. Each partner should have a Tax ID Number (NPWP) and understand their individual tax obligations.

Personal Income Tax (PPh) for CV Partners

Partners’ income from a CV is subject to progressive personal income tax rates as follows:

5% for income up to IDR 60 million
15% for income above IDR 60 million up to IDR 250 million
25% for income above IDR 250 million up to IDR 500 million
30% for income above IDR 500 million up to IDR 5 billion
35% for income above IDR 5 billion

Partners must report CV income in their Form 1770 tax returns no later than March 31 of the following year.

Case Study: CV Income Tax Calculation

CV Maju Bersama has a net profit of IDR 300 million with two active partners (60:40 split):

Partner A (60%):

Profit share: IDR 180 million
Income tax: (IDR 60 million × 5%) + (IDR 120 million × 15%) = IDR 21 million

Partner B (40%):

Profit share: IDR 120 million
Income tax: (IDR 60 million × 5%) + (IDR 60 million × 15%) = IDR 12 million

Silent (Passive) Partner Scenario: If the CV has a silent partner with a 20% profit share (IDR 60 million):

Income tax: IDR 60 million × 5% = IDR 3 million

Tax Facilities Available for CVs

CVs can take advantage of two main tax facilities:

1. Final Income Tax at 0.5% (Government Regulation 23/2018)

Applicable for CVs with annual turnover below IDR 4.8 billion (only for the first 4 years since registering as a taxpayer)
After 4 years, CVs must switch to the normal tax system, such as Article 31E or progressive rates
Calculated from gross turnover, not profit

2. Article 31E Income Tax Law Facility

Applicable for CVs with annual turnover up to IDR 50 billion (after the initial 4-year period)
50% discount from the normal income tax rate for income up to IDR 4.8 billion
If the normal rate is 22%, the portion of profit up to IDR 4.8 billion is only taxed at 11% as specified in Article 31E

Which Tax System Applies to Your CV?

CV Condition	Tax System	Tax Rate
Age ≤ 4 years & Turnover ≤ IDR 4.8 billion	Final Income Tax 0.5% (PP 23/2018)	0.5% of turnover
Age > 4 years & Turnover ≤ IDR 50 billion	Article 31E Income Tax Law	11% for first IDR 4.8B profit, 22% for the remainder
Turnover > IDR 50 billion	Standard Tax Rate (Corporate Income Tax)	22%

Simulation: Tax Burden Comparison

CV Berkah with IDR 3.6 billion turnover and IDR 360 million profit:

Tax System	Calculation	Total Tax
Final Income Tax 0.5% (first 4 years)	IDR 3.6 billion × 0.5%	IDR 18 million
Article 31E (if eligible after 4 years)	IDR 360 million × 11%	IDR 39.6 million
Standard Rate (if not eligible for Article 31E)	IDR 360 million × progressive rate (±16%)	IDR 59 million

Key Takeaways for Entrepreneurs

If CV is ≤ 4 years old → Final Income Tax 0.5% is the cheapest option
If CV is > 4 years old & turnover ≤ IDR 50 billion → Use Article 31E for tax discount
If turnover rises above IDR 50 billion → CV must pay the standard rate (22%)

Value-Added Tax (VAT) and Taxable Entrepreneur Obligations

If a CV’s annual turnover exceeds IDR 4.8 billion, it must register as a Taxable Entrepreneur (PKP). After becoming a PKP, the CV must collect 11% VAT on sales of Taxable Goods and Services.

As a PKP, a CV can offset Input VAT against Output VAT:

Input VAT is tax paid by the CV when purchasing taxable goods or services for business purposes
Output VAT is tax collected by the CV when selling taxable goods or services to customers
The difference determines the amount of tax payable or refundable

Case Study: CV Sukses Mandiri

Here’s a simple example to understand how VAT affects a CV. Assume CV Sukses Mandiri has an annual turnover of IDR 6 billion with purchases of taxable materials and services amounting to IDR 3.6 billion per year. The VAT calculation would be:

Step 1: Calculate Output VAT

VAT collected from customers
IDR 6 billion × 11% = IDR 660 million

Step 2: Calculate Input VAT

VAT paid to suppliers
IDR 3.6 billion × 11% = IDR 396 million

Step 3: Calculate VAT Payable to the Government

Output VAT – Input VAT
IDR 660 million – IDR 396 million = IDR 264 million

Cash flow implications:

If buyers delay payment, the CV still must remit Output VAT
To optimize cash flow, ensure tax invoices are well-managed
Consider VAT refunds if Input VAT exceeds Output VAT

Digital Tax Administration and Compliance

Tax Reporting Schedule:

Monthly VAT Returns: due by the end of the following month
Annual Income Tax Returns: due by March 31 of the following year

Digital Tax Applications:

e-Faktur: electronic tax invoice creation for PKPs
e-SPT: electronic tax return preparation
e-Billing: electronic tax payment

Administrative Tips:

Use accounting software integrated with tax systems (Accurate, Zahir, Jurnal, etc.)
Separate personal and business finances
Keep transaction records for at least 10 years
Consider using tax consultant services for businesses with high complexity

How Your CV Can Save on Taxes

Identifying deductible expenses from taxable income is an important strategy in CV tax planning. Expenses such as operational costs, employee salaries, business rental fees, and other business-related costs can reduce the tax burden.

Utilizing fixed asset depreciation can also reduce taxable income. Fixed assets such as buildings, vehicles, and equipment can be depreciated according to tax regulations in accordance with PMK No.96/PMK.03/2009.

Simulation: Asset Depreciation Impact

CV Teknologi Maju purchases computer equipment worth IDR 100 million with a useful life of 4 years:

Annual depreciation: IDR 25 million
Reduction in taxable income: IDR 25 million per year
Tax savings (assuming 25% rate): IDR 6.25 million per year

Regular evaluation of tax strategies is necessary to ensure that the CV remains compliant with tax regulations and optimizes its tax burden.

Avoiding Common Mistakes

Some common administrative errors in CV taxation:

Not separating personal and business finances
Failing to keep transaction records properly
Late tax reporting and payment
Incorrectly calculating tax payable

Penalties for non-compliance include:

Late tax payment penalty: 2% per month of tax payable
Late tax return filing penalty: IDR 100,000 for Monthly Returns and IDR 1,000,000 for Annual Returns
Criminal sanctions in cases of tax evasion

To avoid mistakes, consider regular consultations with tax consultants and stay updated on the latest tax regulations.

CV to PT Transformation Process

As businesses grow, many entrepreneurs consider changing their business entity from a CV to a PT. This transformation has significant tax implications and needs to be well-prepared.

Tax Considerations in Transformation

The CV to PT transformation process must consider the following tax aspects:

Asset Transfer: Transfer of assets from CV to PT may be subject to income tax on the excess value. However, based on PMK-56/PMK.03/2015, asset transfers in the context of mergers, consolidations, or business expansions may obtain tax facilities in the form of fiscal book value recognition.
Value-Added Tax: Transfer of Taxable Goods in the context of mergers, consolidations, expansions, or business transfers may not be subject to VAT by meeting certain conditions in accordance with PP-34/2016.
PT Establishment Costs: Costs incurred in the PT establishment process such as notary services, licensing fees, and other costs may be expensed in calculating taxable income.

Transformation Steps with Tax Optimization

Pre-Transformation Tax Planning:
- Conduct asset revaluation before transformation
- Identify potential tax payable on asset transfers
- Develop tax burden mitigation strategies
Tax Document Processing:
- Apply for a new Tax ID for the PT
- Apply for PKP confirmation (if turnover exceeds IDR 4.8 billion)
- Apply for tax facilities for asset transfers
Transition Tax Reporting:
- Final tax reporting for the CV
- Initial tax reporting for the PT
- Fiscal reconciliation for the transition period

CV or PT: Which is More Advantageous from a Tax Perspective?

Aspect	CV	PT
Tax Subject	Levied on partners	Levied on the business entity
Tax Rate	Progressive 5%-35%	Flat 22%
Double Taxation	None	Yes (Corporate Tax + Dividend Tax)
Administration	Simpler	More complex
Tax Incentives	Limited	More options
Reporting	Form 1770 (Individual)	Form 1771 (Corporate)

Case Study: CV vs PT Tax Simulation

CV Sejahtera has an annual net profit of IDR 1.2 billion. Comparison:

Scenario 1: As a CV

In a CV structure, the IDR 1.2 billion profit will be subject to Personal Income Tax with progressive rates on the partners.

Detailed Personal Income Tax calculation:

Tier 1: IDR 60 million × 5% = IDR 3 million
Tier 2: (IDR 250 million – IDR 60 million) × 15% = IDR 28.5 million
Tier 3: (IDR 500 million – IDR 250 million) × 25% = IDR 62.5 million
Tier 4: (IDR 1.2 billion – IDR 500 million) × 30% = IDR 210 million

Total Personal Income Tax for a single partner: IDR 304 million.

Scenario 2: As a PT

In a PT structure, tax will be levied twice: first at the corporate level (Corporate Income Tax), then on the owner during dividend distribution.

Stage 1: Corporate Income Tax

Flat Corporate Income Tax rate: 22%
Corporate Income Tax = 22% × IDR 1.2 billion = IDR 264 million
After-tax profit = IDR 1.2 billion – IDR 264 million = IDR 936 million

Stage 2: Dividend Tax

Dividend Tax rate for domestic shareholders: 10%

Scenario 2A: 100% Profit Distributed as Dividends

Dividends = IDR 936 million
Dividend Tax = 10% × IDR 936 million = IDR 93.6 million
Total tax = IDR 264 million + IDR 93.6 million = IDR 357.6 million
Effective percentage of profit: 29.8%
Net amount received by owner: IDR 936 million – IDR 93.6 million = IDR 842.4 million

Scenario 2B: 50% Profit Distributed as Dividends

Dividends = 50% × IDR 936 million = IDR 468 million
Dividend Tax = 10% × IDR 468 million = IDR 46.8 million
Total tax = IDR 264 million + IDR 46.8 million = IDR 310.8 million
Effective percentage of profit: 25.9%
Net amount received by owner: IDR 468 million – IDR 46.8 million = IDR 421.2 million
Retained earnings in the company: IDR 468 million

Scenario 2C: 0% Profit Distributed (Fully Retained)

Dividends = IDR 0
Dividend Tax = IDR 0
Total tax = IDR 264 million
Effective percentage of profit: 22%
Retained earnings in the company: IDR 936 million

Comprehensive Comparison Table

Aspect	CV	PT (100% Distributed)	PT (50% Distributed)	PT (0% Distributed)
Corporate Tax	–	IDR 264 million	IDR 264 million	IDR 264 million
Personal/Dividend Tax	IDR 304 million	IDR 93.6 million	IDR 46.8 million	IDR 0
Total Tax	IDR 304 million	IDR 357.6 million	IDR 310.8 million	IDR 264 million
Effective Rate	25.33%	29.8%	25.9%	22%
Received by Owner	IDR 896 million	IDR 842.4 million	IDR 421.2 million	IDR 0
Retained by Company	IDR 0	IDR 0	IDR 468 million	IDR 936 million

Consider transforming from CV to PT when:

Turnover exceeds IDR 50 billion (limit for Article 31E facility)
External funding is needed
Business risk increases significantly

Conclusion

Understanding the taxation aspects of a CV is crucial for business success and regulatory compliance. The CV tax system that allocates income directly to partners has unique characteristics different from other business forms.

Need Tax Solutions for Your CV?

Limited understanding of CV taxation can create compliance risks and non-optimal tax burdens for your business. Contact us at info@lexara.id to discuss your CV tax strategy and get guidance tailored to your business needs.