Understanding Inheritance and Tax Implications in Indonesia

Inheritance is the transfer of assets from a deceased individual (the estate owner) to designated recipients (heirs). This encompasses movable and immovable assets, typically exempt from income tax as per Indonesian Law Number 36 of 2008 Article 4 paragraph (3). Therefore, inheritance can bolster the heir's wealth without incurring income tax.

Heirs should grasp tax regulations regarding inheritance, including reporting it in the Annual Tax Return. Despite boosting heirs' financial capabilities, inheritance isn't taxed under Income Tax Law, especially if undivided.

Presenting a death certificate or will to financial institutions like banks exempts inherited assets from income tax. However, whether inheritance has been distributed impacts its tax status.

In the case of undistributed inheritance, the estate owner is still responsible for paying taxes and reporting assets in the Annual Tax Return. If the inheritance is not reported and the value exceeds IDR 1 billion, it must still be reported in the Annual Tax Return, even if not subject to Income Tax. If the estate owner has income below the Non-Taxable Income, the inheritance may not be subject to Income Tax. If there are still unpaid taxes, the heir, as the owner of the estate, must pay according to the applicable laws.

Distributed inherited assets may avoid taxation if specific conditions are met: compliance with tax regulations regarding family relationship between the estate owner and heir, reporting the assets in the estate owner's Annual Tax Return, and payment of taxes. Meeting these exempts the estate owner from taxes on inherited assets, but failure to meet them keeps the assets subject to Income Tax, resulting in taxation for the estate owner.

Accounting, Audit, Corporate Tax, Inheritance Tax, Tax advisory, Tax and Business Advisers, Tax Consulting