The prevailing taxation law in Indonesia that regulates Income Tax through Law No. 36 of 2008 concerning the Fourth Amendment of Law No. 7 of 1983 on Income Tax (“Income Tax Law”). Income Tax Law applies to all who is classified as Tax Subjects, including individual Expatriates doing business in Indonesia, whether he/she is a resident or a non-resident of Indonesia. Article 2 of Income Tax Law defines individual Tax Subjects as follows:
Please note that the status of Non-Resident Taxpayer for foreign individuals will change to Resident Taxpayer after he/she has been living and working in Indonesia for more than 183 (one hundred eighty three) days in one taxable year, whether the foreign individual is staying in Indonesia with a Business Visa or Working Permit. The days are calculated from the first day of the individual’s arrival in Indonesia.
Please be informed that all Individual Taxpayers are legally responsible for ensuring that they have registered with the tax office in Indonesia and comply with the regulations and payment of the taxes due, including those who are classified as foreign individual taxpayers in Indonesia. Though your Employers (in form of PT or Perseroan Terbatas) may have agreed in your Employment Contract to pay your taxes, you are still personally liable for their payment. It is advised for you to have a copy of receipts from your Employer which shows that your income taxes has been paid for you on a monthly basis.
NPWP (Nomor Pokok Wajib Pajak or Taxpayer Identification Number)
The Indonesian Tax Office (Direktorat Jenderal Pajak or “Tax Office”) requires all Resident Individuals in Indonesia to have their own personal tax numbers, known as Nomor Pokok Wajib Pajak, also known as “NPWP”. This requirement applies also to Expatriates who have resided in Indonesia in a period long enough to be classified as Resident Taxpayers.
To register for an NPWP, Resident Taxpayers must register at the Tax Service Office in your city of residence. For example, Expatriates living in Jakarta are required to register with the Tax Office for Foreign Bodies and Expatriates (“KPP BADORA”).
The document requirement for the registration of NPWP are as follows:
Pursuant to the Law No. 28 of 2007 concerning the Third Amendment of Taxation General Provisions and Procedures, failure to secure a NPWP could mean imprisonment for a maximum of (6) six years, and a maximum fine of (4) four times the total amount of tax due.
Income Tax Rates for Individual Expatriates
Pursuant to Article 17 (1) of Income Tax Law in Indonesia, the tax rates applicable to each taxable income brackets is as follows:
An extra 20% is levied on people who do not have a NPWP on top of progressive income tax rates as stated above. Please be informed that in Indonesia, Income Tax Rates are regionally variable. There are also several tax exemptions which may or may not be applicable. It is advised to consult with your accountant or your tax and financial consultant if you have any reservations regarding your taxable income in Indonesia.
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.
Up until 1 January 2016, there are (65) sixty five countries with effective Tax Treaty in place in Indonesia, including countries such as the United States, United Kingdom, Australia, France, Germany, China, Hong Kong, Japan, India, Malaysia, Singapore, Philippines, and many more. You can request your lawyer in Indonesia to confirm and provide the Tax Treaty and required form from the Tax Office.
Other Income Taxes
Pursuant to Article 26 (1) of Income Tax Law in Indonesia, the following income shall be subject to witholding tax of 20% (twenty percent) of the gross income:
- Interest, including premium, discount, and compensation for loan repayment guarantees;
- Royalties, rent and other income in connection with the use of the property;
- Compensation in connection with services, works, and activities;
- Prizes and Awards;
- Pension and other periodic payments;
- Premium of swap and other hedging transactions; and/or
- Gains from the discharge of indebtedness.
HOW CAN SMART LEGAL CONSULTING HELP YOU?
SMART Legal Consulting is an Indonesian Corporate Legal Services. We assist foreign individuals working and/or doing business in Indonesia in obtaining legal documents required for their residency in Indonesia, such as Expatriate Work Permit, Business Visa and Taxpayer Identification Number (NPWP).
If you need immediate assistance, please contact the SMART Help Desk at: