One of the most commonly asked questions that expats in Indonesia have is whether income earned in Indonesia is taxable, and if so, what the rates are. They may also want to know about filing procedures and if these can be done online. Although you can find answers to these questions on the internet, you might find information that are scattered in bits and pieces. You may end up with more questions than answers.
This article is the one-stop resource you need. As someone who has lived for years as an expat in Indonesia, I can help you understand some crucial information about Indonesian tax regulations and how to file your income tax.
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- Do Expats Pay Income Tax in Indonesia?
- How to Determine Tax Type
- Personal Income Tax Rates
- Dividends, Investments, and Apartment Rentals Tax Rates
- Withholding Tax System
- Tax Deductions/Exclusions
- Getting Your Tax Identification Number (TIN)
- Tax Filing and Timelines
- Are Pensions Taxable in Indonesia?
- Is Foreign Income Taxable in Indonesia?
- Digital Nomads Tax Liabilities
- Double Tax Agreement in Indonesia
- Now, on to You
Do Expats Pay Income Tax in Indonesia?
Just like most countries in the world, expats in Indonesia must pay income taxes. A foreigner working in Indonesia is not, by any means, exempt from this policy. Indonesia is not a tax-haven country.
The tax resident type determines if a foreigner who generates income in Indonesia will have to pay taxes, and this applies to all classification of workers.
How to Determine Tax Type
The earnings of an expat in Indonesia are taxed based on the duration of residence. Determining whether you’ll be paying taxes as an expat will depend on whether you are a:
- Tax resident
- Non-tax resident
A tax resident is someone who is physically present (i.e., living and working) in Indonesia for more than 183 days. An expat who lives and works in Indonesia for this length of time (or longer) falls into this category. And all income generated will be taxed based on existing Indonesian taxation laws.
On the other hand, a non-tax resident is someone who is in Indonesia for less than 183 days per year and whose earnings, therefore, are not subjected to Indonesian income taxes.
Personal Income Tax Rates
Indonesia applies progressive tax rates to individual earnings, including expats’. This means that the higher the income generated, the higher the tax rates are.
Refer to the following table for the tax rates in Indonesia:
|Salary range per annum||Tax rates|
|Up to IDR 60 million||5%|
|Above IDR 60 – 250 million||15%|
|Above IDR 250 – 500 million||25%|
|Above IDR 500 – 5 billion||30%|
|Above IDR 5 billion||35%|
After all the exemptions and other deductibles have been subtracted from your annual income, the rates will be applied to determine the amount of taxes you need to pay. Your employer will then compute the annual income tax based on the agreed salary.
Once the computation is finalized, your employer will make monthly deductions off your salary and pay the taxes directly to the state treasury or Kas Negara. An employer will give you the document as proof of the tax deduction, which can be used later on for your tax filing, which can be done via the Tax Directorate General’s website.
Dividends, Investments, and Apartment Rentals Tax Rates
If you are a tax resident, you may be generating income from other sources in addition to what you earn from your full-time job. These other sources may include dividends, investment income, and earnings from renting out properties like an apartment or house. The following tax rates will apply to these income:
|Other income streams||Tax rate|
So, if you own an apartment in Indonesia and have it rented, you need to allocate 10% of the rental cost for tax purposes. The same goes for investment income generated by buying and selling stocks or earning dividends.
Note that for earnings on dividends and stocks, taxes are automatically deducted from your earnings.
Withholding Tax System
To maximize tax collection, the Indonesian government implemented a withholding tax system. This system allows an employer, a financial institution, or any service provider to withhold a certain percentage of income from your paycheck or investment gains and store said amount to the state treasury accounts and submit proof of deductions to the Directorate General of Taxes office or via its website.
It is ultimately the Indonesian government that determines the type of income sources for which withholding taxes will be levied. An employer’s role is to deduct and withhold taxable income and pay it every month to the Indonesian State Treasury account through government-appointed banks or via the post office.
The most important thing you should remember as an expat is that the amount of the withholding tax you need to pay is calculated based on your annual salary. For income earned on stocks and dividends, financial institutions will withhold the taxable amount and pay it on your behalf. You will then receive a proof or certificate of withholding tax, which will be used to fill out tax reports.
Several factors are taken into consideration to determine tax exclusions in Indonesia.
Personal Tax Relief
Taxpayers in Indonesia, both locals and foreigners, are entitled to general tax deductions, which will be determined based on two things: marriage status and number of dependents. In general, a resident taxpayer is entitled to a tax relief of IDR 54,000,000 per annum.
For married taxpayers, a IDR 4,500,000 tax relief per annum applies. For taxpayers with dependents, a IDR 4,500,000 tax relief applies for each dependent up to a maximum of three dependents.
Social Health Insurance
Contributions to the Indonesian Social Health Insurance (Badan Penyelenggara Jaminan Sosial or BPJS) system are deducted from a taxpayer’s taxable income. An employee makes a 2% contribution from their salary, while the employer makes a 3.7% contribution.
Another tax deductible is pension contribution, which is 1% of employees’ monthly salary.
Occupational expenses, such as rent, transportation, and food, can qualify as deductibles too. Note that tax deductibles will depend on the agreed amount between you and your employer, and it’s capped at 5% of your monthly salary.
For updated amounts and rates of deductibles, you can refer to the Directorate General of Taxes website. It’s best to determine all deductible expenses to reduce the amount of taxes that you need to pay.
Getting Your Tax Identification Number (TIN)
The tax identification number (Nomor Pokok Wajib Pajak or NPWP) is a unique set of numbers used to identify individuals, businesses, and other entities that pay taxes. The TIN is essential in carrying out taxation obligations and rights and is used to file tax returns and claim tax benefits.
Expats in Indonesia are legally required to obtain a TIN. The process is quite straightforward as you will only be required to submit a photocopy of your passport and KITAS (Indonesia work permit) or KITAP (Indonesia permanent stay visa). In Indonesia, the employer normally handles the process of obtaining employees’ TIN as this is a part of their recruitment and hiring process.
A tax resident expat without an employer can also apply for a TIN by registering their place of work in the Directorate General of Taxes support office. To do this, you will need to fill out a form and submit supporting documents such as a photocopy of your passport and KITAS/KITAP. Staff in the tax directorate office can assist you in obtaining a TIN.
You can also apply for a TIN online. To do so, you need to register, fill out the forms, and submit all documents to the Directorate General of Taxes website. You will then be given instructions on how to obtain a TIN.
Tax Filing and Timelines
In Indonesia, the filling of tax reports normally falls on April 30. You can still file taxes after the said date, but you will incur penalties for late filing. One tax year is the same period as one calendar year (i.e., January 1 – December 31).
Income tax reports can be filed with the tax directorate offices near most office locations, or it can be done online via the tax bureau’s official website.
For online submissions, expats need to obtain an Electronic Filing Identification Number (EFIN), a code provided by the Directorate General of Taxes used to file tax reports electronically.
To get one, you need to download and fill out a form from the Directorate General of Taxes website. Once done, you’ll get an EFIN number that you can use to file tax returns online. You will receive a notification via email once the filling process is completed.
Doing all these may seem easy, but I suggest consulting with the accountant at your place of work before filing your taxes yourself. This way, you can avoid any errors that may result in penalties or fines.
Are Pensions Taxable in Indonesia?
Taxes for pension funds of foreigners in Indonesia are normally determined based on the person’s visa status. If you’re a foreigner who decides to retire in Indonesia and obtain a retirement visa, your pension funds are not taxable. However, you must provide all the necessary documents and review other requirements, which you can find in the official website of the Directorate General of Immigration.
If you are previously a taxpayer resident and decide to retire in Indonesia, your monthly retirement fund will be subjected to taxes similar to locals’. If you obtain a lump sum of below IDR 50 million, then you won’t have to pay taxes. On the other hand, a 5% tax will apply to a lump sum of above IDR 50 million.
Is Foreign Income Taxable in Indonesia?
Foreign earned income of non-tax residents whose duration of stay in Indonesia is less than 183 days is non-taxable.
If you’re a tax resident, any foreign income earned during your residence in Indonesia will be taxable within a tax year. However, you don’t need to pay taxes for foreign income if you send said income into Indonesia in the next tax year.
If foreign earned income was already subjected to taxes abroad, you need to obtain proof of deductions to apply for tax exclusion in Indonesia when filing a tax report.
Digital Nomads Tax Liabilities
At the height of the pandemic in Indonesia, digital nomads began flocking to the country’s top tourist destinations like Bali because people, locals and foreigners alike, were suddenly able to work from anywhere. The issue of digital nomads’ tax liabilities in Indonesia then became a hot topic.
In the end, though, it was resolved that taxes still won’t be imposed on foreign digital nomads’ foreign earned income particularly those whose duration of stay in the country is less than 183 days.
Currently, the Indonesian government is drawing up a new policy regarding this, as the continued arrival of digital nomads in the country could potentially impact its economy for which rules regarding visas will be necessary.
To get more up-to-date information about the digital nomads visa, read our guide to digital nomads visa in Bali.
Double Tax Agreement in Indonesia
Double tax agreements (DTA) are tax treaties between Indonesia and other countries that aim to prevent dual taxation on the same income. With this agreement in place, expats in Indonesia avoid paying taxes twice. Indonesia has tax treaties with countries like the US, Canada, Singapore, and Malaysia, to name a few.
For a complete list of countries with a DTA with Indonesia, visit the Directorate General of Taxes website. Note that with some countries, tax reports must be filed in the country of origin and Indonesia. Learn your country of origin’s policies regarding tax treaties to avoid getting involved in a tax evasion case.
Now, on to You
Moving to a new country for work can be daunting. Apart from having to learn the country’s culture and integrating yourself into the society, you also have to understand rules and regulations regarding things like taxation. This is why as an expat, you need to have a clear understanding of your income streams. Most importantly, you need to know which ones are taxable in which countries.
You also need to make sure you have all the necessary documents, such as a foreign income form, because you will need these when filing your income tax returns.
if you’re uncertain about some details, don’t hesitate to consult the accountant at your company to ensure that all your income tax affairs are in order and all tax reliefs/exclusions are factored in. You can also consult with a third-party consultant if you need additional advice.
And if you want to learn more about how taxation in Indonesia works, you can get more information regarding existing tax policies from the Directorate General of Taxes website.
With your tax affairs all sorted out, you can rest easy and sleep soundly at night knowing the tax man won’t be coming after you. I hope this article helps!