Income Taxation of Foreign Expatriate "Expat" Workers in Indonesia

This is a brief overview of the requirements, calculation and payment of personal income taxes in Indonesia from an expatriate or "expat" perspective.  Please also see my related article on Employment in Indonesia as an Expat.

The Employer's and Individual's Role in Personal Income Tax:

Your employer is the body responsible for the calculation, payment and annual return of all employees for the year in question. Under the old system, the income tax of an individual who only has one source of income was processed by his or her employer. Employers were able to pay the tax of all their employees under one NPWP number, assuming that employees only had this one source of income.

Now things have changed ... the individual taxpayer is legally responsible for ensuring that they've registered with the tax office and comply with the regulations and payment of the tax due.


Employers have three choices for the personal income tax calculation:

1. Employee's salaries are classified as Gross and tax is calculated on this, withheld from employee and paid via the banking system to the tax office. 
2. Employee's salaries are classified as Net and then grossed up to establish a gross amount from which the tax is calculated to bring the remainder back to the net amount as expressed in the employment letter. 
3. The tax is calculated on the net and treated as a fringe benefit.

Though your employer may have agreed in your contract to pay your taxes - you are still personally and ultimately liable for the appropriate and correct payment of your income taxes. This is of special concern or consequence to expatriates whose salaries were quoted and paid net.  Ask your employer to show you receipts showing that taxes have been paid for you on a monthly basis. The form required is 1721-A1, which is the actual annual return and a S.S.P. which is the actual proof of payment. It's very good to have your package expressed as gross. 

        


Those expatriates working for local PT companies (not the case for multinational firms) may find that in the past their employer “negotiated” their tax with the tax officials. This could come back to haunt you in the future. If your salary was quoted net, and you trusted in good faith that your local employer had paid your taxes according to your agreement, you may find in fact that the taxes were not paid in full, or even at all, and you could find yourself being liable for back taxes, penalties, interest and big problem on your hands!!

 


The Tax Identification Number (NPWP):


Since 1984, the tax office has required all resident individuals in Indonesia to have their own personal tax number or "NPWP" (Nomor Pendaftaran Wajib Pajak). This regulation includes expatriates. 


This regulation has not been enforced in the past due to the reliance on individuals having no source of income outside their employment or whose earnings fall outside the minimum level for inclusion in the tax scheme. The government assumption was that companies were paying the tax for their employees but in fact it wasn't happening in many local firms.

In 2000, the tax office stepped up the drive to require all expatriates resident in Indonesia to register with the tax office and obtain their own separate tax number (NPWP) and pay monthly taxes and file annual tax returns, and pay tax on their income earned outside Indonesia, less tax paid in other jurisdictions on the additional overseas income.

The government defines an individual taxpayer and taxable income as:

• Employed individuals who earn income in excess of the non-taxable income, 
• Employed individuals who receive income outside of their main salary, 
• Individual taxpayers who receive income from trade/business activities, self-employment or exercise of profession; 
• Individual taxpayers who receive income from capital; and 
• Foreigners who reside or who are present in Indonesia for more that 183 days within a single period of 12 months or who are present in Indonesia and have the intention to live in Indonesia. This 12 month period is based on today going back 12 months. It is not a calendar year. (The “intention” to live in Indonesia is seen by such actions as applying for a work permit, owning or renting a house for an extended period, and bringing family members to Indonesia.)  Please be advised that, according to the law,  those who must pay Indonesian income taxes if they've been here the 183 days in a calendar year, includes, those expats here on KITAS, KITAP, business visa or social/visit visas! 
• If you stay less than 183 days in a year, then you are not obligated to pay income tax. You must prove it by showing your visa stamp and fill out FORM 1770 Individual and Monthly SSP (Surat Setoran Pajak). Of course you must have an income tax number first to complete this form.
• Dependent spouses are included in the husband's tax number and do not have to have a separate number.

Where to Register:

Taxpayers must register at the Tax Service Office in your city of residence.  Expats living in Jakarta are required to register with the Tax Office for Foreign Bodies and Expatriates (KPP BADORA).

Your registration, monthly tax payment and annual return can be prepared and submitted by appointed representative, usually an accountant specializing in tax matters. Be sure that you use a reputable agent or accountant as stated previously, you yourself are ultimately responsible for the correct and appropriate filing and payment of income taxes.

To register you will need the following documents:

• a completed registration form 
• photocopies of all the pages in your passport 
• photocopy of your work permit 
• certificate of domicile for you and your employer 
• photocopy of your employer's NPWP 
• Letter of Authorization, authorizing your representative to register and handle your tax matters. 
• While the registration form only asks for copy of the first or ID page of your passport only and does not request the other items mentioned above, the Tax Office will request them nevertheless as a matter of course or SOP.

Once you have registered, taxes are due and payable beginning not later that the 15th day of the following month and reports should be submitted to the tax office by not later than the 20th day of the same month.  

Linkage and Enforcement of NPWP to other Activities:

Beginning in 2001, the Indonesian tax office renewed its drive to widen the taxpayer base by registering all Indonesian Nationals for their own NPWP number. They have started linking this requirement to certain other registrations and regulations to enforce it.

There is a regulation proposed that will require an NPWP for all Indonesians applying for a passport, renewing registration of a vehicle over a certain value, having a credit card limit in excess of a certain amount and the payment of housing tax on houses over a certain value.

It is anticipated that expatriates will be linked up and data captured on them as well when conducting certain financial or immigration transactions in Indonesia in much the same way as financial transactions above a certain amount are tracked by the Treasury Dept through your social security or taxpayer ID number in the USA. 

What Income is Taxable:

The Indonesian personal taxation system is based on worldwide income. This includes:

• Any salary paid to you for your current position, whether it be onshore or offshore 
• Dividend and interest income, both onshore and offshore 
• Rental income both onshore and offshore 
• Capital Gains from Sale of Property, both offshore and onshore

"Benefits in Kind" are generally excluded from taxable income and include such employer provided benefits as; housing allowance, automobile or transportation allowance, school fees; as well as income from an inheritance. However, if your company pays you for housing in one lump sum, and then you make the payments; the tax office may construe that lump sum as income. In this case, it may be better for your employer to pay the housing costs direct to the landlord. You take the money as an advance, not as housing allowance. The company then expenses one month at a time as housing, which is then treated as a fringe benefit and not as taxable income.

Credit is given for income taxes paid overseas, subjected to limits and also depends on double taxation treaties between Indonesia and your country.  You may also receive credit for tax taken on interest income for local bank accounts and time deposits and other interest earning methods that are taxed.

Since income from Overseas Investment can be taxed, it is best to consult your accountant and your financial consultant to determine how these new regulations will affect any current and future investment strategies. Have an "Asset Protection" plan in place or at least be cognizant of the ramifications and consequences of investments and acquisitions both here in Indonesia and abroad in your country of origin.  

Tax Rates

Taxable Income	Rupiah Rate
Rp 1-25 million	5%
Rp 25 to 50 million	10%
Rp 50-100 million	15%
Rp 100-200 million	25%
over Rp 200 million	35%

Deductions for an individual are Rp. 2,880,000, wife 2,880,000 and up to three children Rp. 1,440,000. Position Expense (Biaya Jabatan) is a deduction with a maximum 5% from gross income or a maximum of Rp 1,296,000.


If your company pays for house rental, car, etc. then it could be considered your income or not. It depends on how the company will treat the expense. It may go to your income tax report as an income, or may go to the company income tax report as an expense. There are no exemptions for personal house rental, car, etc. Insurance premiums paid by the company are seen as additional income.

You will receive credit against tax due for local tax prepayment through FISKAL departure tax, so save those receipts.

Consequences of Tax Registration:

Many expats are used to being taxed on worldwide income but the Indonesia system is far broader than first meets the eye. As a registered tax person (body) you become liable for the full range and consequences of the system:

• You will be required to do an annual return on your servants and drivers that are your personal employees and not on the company payroll. 
• When you rent a bus for your group's tour you will withhold tax from the bus company. 
• When you receive an advance from your company to rent a house/apartment you will be required to withhold tax from the owner. 
• You will pay the appropriate amount of tax via the banking system to the tax office and give proof to the person/company that you withheld it from. 
• You will do monthly reports to the tax office regarding this. 
• You will make monthly payments on your own extra or supplemental income (outside of regular salaried employment) and make an annual return. 
• By virtue of what you do outside of regular employment, or as a self-employed independent contractor or "consultant", you may also be liable for registration for PPN (VAT/GST). 
• Understand too that once the tax office has your personal residence and employment information, individuals from the tax office may choose to approach you on an individual, personal basis for various reasons.

                                                                       

Failure to Register:

According to the regulations, failure to secure an NPWP could mean imprisonment for a maximum of six years and a maximum fine of four times the total amount of tax due. Audits could be conducted on past years and would rely on local and overseas tax statements and bank records.

Canceling Your Tax Number:

Once you are registered you can only cancel the NPWP number by having a tax audit. This will be extremely difficult as it take 2 - 3 years for the tax office to perform such audit meanwhile your new job in another country is beckoning, or you are returning home. The government cannot keep you in Indonesia until the audit is completed as your immigration KITAS will expire; however, they may hold your personal shipment of your goods furniture, etc. until such time as the audit is completed.  

To combat this from potentially occurring, simply get an EPO (exit permit only) stamp in your Passport (which effectively cancels your current Visa when you leave), give Immigration the impression (only if asked) that you're just going out of Indonesian to cancel your current KITAS (temporary visit visa) and will be re-entering Indonesia shortly under a new KITAS...then simply LEAVE and don't come back or cancel your NPWP from abroad ! Or alternatively, just don't cancel your NPWP and leave it dormant. If you no longer have any income in Indonesia, it can't be taxed anyway with or without an active NPWP or taxpayer ID number.




Double Taxation Agreements:

The Indonesian Tax Office has the authority to contact the tax offices in countries that have a Double Tax Treaty with Indonesia to ask for information about you from their database. Likewise your country can ask for information from the Indonesian Tax Office, if there is a Double Tax Treaty in place.


Other Taxes:

The DPKK is a tax that is paid by your employer to the Manpower ministry ostensibly to be used in training Indonesian workers. The cost is US$100/month and must be paid in full as a part of the process for obtaining a work permit. It is separate from and has nothing to do with income taxes.

Tax Forms: 

I have already given you enough free information above.  If you need further assistance in filing and preparing your income taxes, I will be happy to assist or represent you for a professional consultation fee of course.