The tax system in Indonesia
If you plan to live in Indonesia for more than 183 days over a period of 12 months, you will be considered a resident taxpayer from the date of your arrival. This article tells you more about your tax obligations during your stay as an expat in Indonesia.
When working in Indonesia, you will be required to pay local taxes, regardless of how long you have been in the country or how much you earn. According to the Indonesian constitution, the income of any person working in the country is indeed taxable, regardless of his or her salary. There is a minimum amount of 5% tax which is applicable to the lowest incomes, but there are, on the other hand, tax relief measures that can be applied in certain cases as well.
The same applies even if you are not working but are residing in the country for more than 183 days within a 12-month period. As a resident taxpayer in Indonesia, you will have to declare your assets and liabilities at the end of each tax year. It is important to be aware of the terms of any tax treaty that exists between your home country and Indonesia, as this may affect your taxation. You can obtain a domicile certificate that will prove your residency status in order to claim certain benefits under double taxation treaties. Indonesia has signed double taxation treaties with 76 countries, a list of which can be found online. If your home country is on this list, you will also need to find out about the terms of the treaty signed between the Indonesian government and your home country's, as the conditions may change from one jurisdiction to another.
In Indonesia, failure to pay taxes on time is subject to interest surcharges, which are calculated according to the interest rates set by the Ministry of Finance and that may vary according to the amount to be settled by the taxpayer. Moreover, failure to file a tax return on time is punishable by a late filing fine of IDR 100,000. Under certain circumstances, this can be considered a criminal act that can result in a prison sentence.
Good to know:
In addition to income tax, you will be required to pay contributions for social security schemes, such as the country's labor scheme (BPJS Ketenagakerjaan) and healthcare scheme (BPJS Kesehatan), which are compulsory for Indonesian and foreign nationals working in Indonesia for at least half the year. When renewing your work permit, you must be able to prove your participation in these social security schemes.
For more information regarding your obligations in Indonesia, please consult a specialist or ask your employer for guidance. Note, however, that paying taxes on time is considered your responsibility as a foreigner living in the country and that any administrative delay will be considered your fault, regardless of your reasons. So be careful and take action well in advance in case of any worries or delays.
Tax obligations for expats in Indonesia
If you stay in Indonesia for more than 183 days in a year, your professional income becomes taxable, regardless of the country of origin. In addition to monthly salaries, taxable income includes bonuses, commissions, and any allowances, such as housing, education and medical care. You should also be aware that the amount of tax you pay will depend on your residency status. There are different types of visas in Indonesia, and each of these categories is subject to a specific tax regime.
As a resident taxpayer, you must register with the Indonesian tax office and obtain a tax identification number, the Nomor Pokok Wajib Pajak (NPWP). You will also need to have this tax identification number "cancelled" when you leave Indonesia permanently. Those who do not have an NPWP may be subject to a 20% surcharge in addition to the basic income tax rates.
Tax registration in Indonesia is done through the Directorate General of Taxes, which has offices in all cities and regions of the archipelago. You will have to go directly to the nearest office to your home. Once you have your NPWP, you will need to fill out the annual income tax form. This form must be accompanied by the following documents:
- the complete Indonesian tax registration form
- a photocopy of your NPWP certificate
- photocopies of all pages of your passport
- a copy of your Indonesian work permit
While living in the country, you will be taxed on your foreign income, regardless of the source, so you will need to file an annual tax return on your income, assets and liabilities. You must keep all documents showing your income, taxes paid, assets, and liabilities reported on your tax return for a minimum period of 10 years. These may include bank statements, foreign tax returns and property certificates.
Taxable income in Indonesia
The Indonesian government regularly revises the taxable rates and the different categories of income subject to taxation. The most recent tax changes in Indonesia were made in January 2022. Generally speaking, the local authorities operate an exponential and relative tax system. The more money you earn, the more tax you will pay in Indonesia. The rates for personal income since January 2022 according to the different categories of income identified by the Indonesian tax authorities are as follows:
- Up to 60 million IDR annually: 5%
- More than 60 million IDR and less than 250 million IDR annually: 15%
- More than 250 million and less than 500 million IDR annually: 25%
- More than IDR 500 million and less than IDR 5 billion annually: 30%
- More than IDR 5 billion annually: 35%.
It should be noted that tax rates have increased significantly in Indonesia over the past ten years. In 2015, the maximum tax rate was 30%, for example, and only for taxpayers whose annual income exceeded IDR 500 million. This revision of taxable income and tax rates is largely due to the significant decline in the value of the Indonesian rupiah in recent years, and especially to the economic crisis caused by the Covid-19 crisis in Indonesia.
Important:
Your annual tax return is due for the period January 1 through December 31 and must be filed with the tax office where you are registered by March 31 of the following year. The tax office now encourages taxpayers to use the electronic filing system to improve management and avoid long lines.
Deductions on tax rates in Indonesia
It should be a point to note that you may be eligible for certain deductions when calculating your taxable income. These deductions depend on your personal and family status. For instance, you will pay less tax if you are married, if you have a spouse or dependent children, if you employ Indonesian citizens, if you contribute to a government-approved pension fund, etc.
You should also be aware that in Indonesia, you will be required to make regular donations to the local community in your hometown or village, as well as to religious organizations. These contributions, which may vary in amount depending on the generosity of the donor, may also allow you to lower the tax rate on your income. Remember to declare these amounts on your tax form because even if these donations are mandatory, they are not taken into account if they are not declared and proven. It is also best to make your donations by bank transfer to keep track of them and don't forget to include proof of transfer on your completed tax form. Any contribution to an organization or charity is also tax-deductible, as well as expenses related to your professional activity (business lunches, travel, rental of premises or office, costs of professional tools such as computers or machines, etc.). However, be sure to keep all your invoices carefully.
There is also a tax deduction available to Indonesian citizens called Personal Relief, which is intended to provide relief to taxpayers in difficult financial situations. Unfortunately, as a foreigner, you are not eligible to apply for such a deduction, no matter what your financial worries may be. However, you should make sure to claim as many tax deductions as possible, and you should be able to pay much less tax, sometimes as little as half the amount you would normally have to pay to the Tax Office.
Business taxes in Indonesia
If you are planning to set up a business in Indonesia, you should understand that your company will automatically be subject to the Indonesian tax system, even if your company's financial earnings are from abroad. As with individual taxpayers, you will need to obtain your company's NPWP, a tax registration number.
There has been a significant reduction in corporate tax rates in recent years, and this trend has been further enhanced by the economic crisis caused by the Covid-19 pandemic. This momentum is expected to be maintained over the next few years.
Indonesian law requires that companies registered with the tax office submit their annual financial statements to the tax authorities and pay corporate tax within four months after the end of the fiscal year. Generally, the financial year in Indonesia is the same as the regular year (beginning on January 1 and ending on December 31). However, the Indonesian tax authorities can accommodate a different financial calendar if it is not the same for your company.
The universal tax rate for companies in Indonesia is typically 25%. However, the government has set up ways to reduce the burden of tax on companies. In practice, this means that the effective rate has been reduced to 22% in 2020 and 2021 and will be 20% in 2020. Moreover, other tools are available to allow companies to get further tax deductions. For example, if your company is a small or medium-sized enterprise (SME), it may qualify for a 50% tax reduction from the ordinary tax. After 2022, the corporate tax rate is expected to be reduced to 17%, again with the aim of encouraging national economic recovery.
Important tax dates in Indonesia
When it comes to paying taxes in Indonesia, there are certain dates to remember:
The Indonesian tax year runs from January 1 to December 31, and you must file your annual personal income tax return by March 31 of each year. Thus, your tax return for the tax year 2022 should be filed no later than March 31, 2023.
One is required to pay any interim monthly tax due by the 15th of each subsequent month. For example, the tax installment for August 2022 should be paid by September 15, 2022. An extension can be requested if necessary. In return, you will have up to two months if approved and granted by the tax office. However, you cannot request an extension of the tax deadline.
Useful link:
Indonesia Individual Income Tax Guide 2022
