Like any service company, communications agencies manage their tax affairs in line with their line of business, and this includes tax matters specific to the agency itself. Public relations, digital marketing (social media, SEO, influencer marketing, websites, blogs) are just a few of the many communications services offered by communications agencies.
With these communication services, agencies typically receive income in the form of a retainer based on an agreement between the agency and the client; however, it may also take the form of a commission based on a percentage of campaign success or a fee if the work is ad hoc (for a specific period).
All of this income will be subject to taxation according to the nature of the work.
When it comes to tax administration at communications agencies, there are several types of taxes that must be applied.
Table of Contents:
Types of Taxes in a Communications Agency
Income Tax Article 21
According to pajak.go.id, Income Tax Article 21 is a tax on income related to employment, services, or activities of any name and in any form received or earned by a resident individual taxpayer, which must be withheld by:
- an employer who pays salaries, wages, honoraria, allowances, and other payments as compensation in connection with work performed by employees or non-employees;
- a government treasurer who pays salaries, wages, honoraria, allowances, and other payments in connection with employment, services, or activities;
- a pension fund or other entity that pays pensions and other payments under any name in connection with retirement;
- entities that pay honoraria or other payments as compensation in connection with services, including the services of independent experts; and
- event organizers that make payments in connection with the conduct of an event.
In the communications industry itself, Income Tax Article 21 is typically applied to transactions involving the payment of employee salaries (employee Income Tax Article 21) and payments for work performed by individuals other than employees, such as KOLs, freelancers, influencers, etc.
Income Tax Article 23
PPh 23 is a withholding tax on services typically imposed by corporate taxpayers. Pajak.go.id states that the taxable items under Article 23 of the Income Tax Law consist of:
- Dividends
- Interest
- Royalties
- Gifts, awards, bonuses, and similar items, other than those given to individuals
- Rent and other income related to the use of property, except for rent on land and/or buildings
- Compensation for engineering services, management services, construction services, consulting services, and other services, excluding services from which income tax under Article 21 has already been withheld
Income from the agency’s own communication services is typically subject to Income Tax Article 23 at a rate of 2% of the taxable base (DPP) and is withheld by the client, so the income received has already had Income Tax Article 23 withheld.
Later, the agency will receive a PPh 23 withholding certificate that can be credited at the end of the tax period to reduce the corporate income tax owed.
Communication agencies are also entitled to withhold PPh 23 on services provided to partners or vendors collaborating with the agency and must issue a withholding certificate as proof of the PPh 23 withholding if such partners or vendors do not hold a SKB (tax exemption certificate).
VAT
The Value-Added Tax (VAT) Law defines a Taxable Business Entity (PKP) as a business entity that makes taxable supplies of Taxable Goods (BKP) and/or Taxable Services (JKP) subject to tax in accordance with the VAT Law.
Under these regulations, businesses are required to register their operations to be designated as PKP when making deliveries of BKP/JKP within the customs territory or when exporting BKP, JKP, and intangible BKP (pajak.go.id).
Simply put, when a company that has been registered as a PKP conducts a transaction involving goods or services, it is required to collect VAT on that transaction. Services provided by communication agencies are also subject to an 11% VAT, and when an agency collects VAT, it is required to issue a tax invoice to the client or service recipient.
Income Tax Article 29 and Income Tax Article 25
Income Tax Article 29 represents the remaining amount of corporate income tax owed for a given tax period after deducting tax credits such as Income Tax Article 23, Article 25, Article 24, and Article 22.
Meanwhile, Income Tax Article 25 refers to the tax installments paid by a company—in this case, a communications agency—at a fixed amount each month.
Income Tax Article 4, Paragraph 2
Pajak.go.id states that companies, as corporate taxpayers, are obligated to withhold Final Income Tax under Article 4, Paragraph 2 on the following transactions or items:
- Rent for land and/or buildings
- Transfer of rights to land and/or buildings
- Construction services
- Dividends Received by Individuals
- Lottery prizes
- Business Income Received or Earned by Taxpayers with a Specific Gross Turnover That Is Not Withheld by Government Agencies
Communication agencies typically withhold income tax under Article 4, Paragraph 2 (final income tax) on transactions such as office building rentals, venue rentals for client events, or when paying dividends received by shareholders at a rate of 10% of the taxable base.
Here are some explanations regarding taxes applicable to communication agencies; we hope you find this helpful!
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