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Indonesia - Income Tax

Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

The monthly Indonesian individual tax return is due for payment and lodgment by the 15th and 20th of the following month, respectively.

The annual Indonesian individual tax return should be lodged by 31 March of the following year. Any tax payable should be settled before the tax return is lodged.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Indonesia?  

Residents

Indonesian tax residents are required to file annual individual tax returns when their total income derived from sources in and out of Indonesia exceed the minimum threshold, which is between IDR54,000,000 for a single individual and IDR72,000,000 for a married individual with three children/dependents effective 1 January 2016.

Spouses may choose to file jointly or separately. The law requires couples with separate Tax Identification Number to calculate the tax payable based on the combined family gross income, then report the tax payable in each tax return based on the prorated income.

The obligation to withhold, remit, and report tax on cash compensation paid in connection with employment rests with the local employing entity. Income tax withheld by employers must be remitted on a monthly basis by the 10th of the following month and reported by the 20th of the following month.

The obligation to remit and report tax on income received from non-employment sources for a calendar year (such as interest, dividend, rental income, and capital gain) rests with the individual.

An individual taxpayer is obliged to comply with the following procedures:

  • registration
  • payment of monthly installments
  • lodgment of an annual individual income tax return
  • deregistration.

Registration

In order to file a tax return, an individual must register to obtain a tax identification number (NPWP). The documents required for registration of an expatriate are:

  • a copy of passport
  • a copy of work permit (IMTA or Notifikasi)
  • a copy of limited stay permit (ITAS)
  • the completed registration form
  • a letter of authority for tax professional/representative to conduct the registration process.
  • A copy of the sponsoring company’s NPWP (required by some tax offices)

Monthly installments

Individuals are required to calculate the provisional monthly income tax installments for the current fiscal year in their annual income tax returns based on the previous year’s income (local employment income taxed at the source and certain irregular income can be excluded for this purpose). The monthly tax payment should be settled by the 15th of the following month, and filed by 20th of the following month. For example, the January 2019 provisional tax has to be paid by 15 February 2019, and filed by 20 February 2019.

Late payment will be subject to 2 percent interest penalty per month while late filing will be sanctioned with a penalty of IDR100,000.

It should be noted that tax refunds are paid only after a full tax audit. Therefore, care should be taken to avoid overpayment of taxes.

First-year expatriate

The monthly installments should be determined based upon taxable offshore income for each month, and taking into account the income tax already paid offshore. This includes investment income such as dividends, interest, and so on, and any employment compensation received overseas.

It is advisable to be conservative when calculating the estimated amount of tax to be paid since any overpayment of tax by the individual on their annual (final) return will be subject to an immediate tax audit.

Annual individual income tax return

Filing

The annual individual tax return should be filed by 31 March of the year following the end of the calendar year. If there is any amount due, the payment has to be made before the tax return is lodged.

The penalty for late filing of the annual tax return is IDR100,000. Late payment of tax is subject to an administrative penalty of 2 percent per month, calculated from the payment due date.

Extension of time to file the annual individual income tax return

Taxpayers who are unable to submit the annual individual tax return on time may request an extension of time to file the return up to 31 May (Form 1770-Y) by attaching a “tentative” current year taxable income. However, obtaining an extension of time to file does not provide an extension of time to pay and there is no certainty that the tax office will approve the request for an extension.

Attachments

The following documents should be attached to the annual income tax return (Form 1770/1770S):

  • tax payment slip to show that the balance of income tax payable according to the tax calculation has been paid
  • list of assets and liabilities
  • copy of Employers’ Certificate of Income Tax on Earnings (Form 1721-A1)
  • list of taxpayer’s dependents
  • letter of authority for tax consultant/representative to submit the tax return
  • supporting documents for foreign tax paid (such as copies of home country/ territory tax returns, tax payment vouchers, and so on)
  • copy of work permit.

Non-residents

Non-residents are taxed on income from Indonesia only, at a final flat rate of 20 percent.

The obligation to withhold, remit, and report tax on cash compensation paid in connection with employment rests with the local employing entity. Income tax withheld by employers must be remitted on a monthly basis by the 10th of the following month and reported by the 20th of the following month.

Non-residents do not have an obligation to register for an NPWP or file any individual income tax return.

Tax rates

What are the current income tax rates for residents and non-residents in Indonesia?

Residents

Income tax table for 2015

Taxable income bracket Total tax on income below bracket Tax rate on income in bracket
From IDR To IDR IDR Percent
1 50,000,000 0 5
50,000,001 250,000,000 2,500,000 15
250,000,001 500,000,000 32,500,000 25
500,000,001 Over 95,000,000 30

Non-residents

Non-residents are taxed at a flat rate of 20 percent.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Indonesia?

Resident taxpayers are defined as:

  • any individual present in Indonesia for more than 183 days in any 12-month period or
  • any individual present in Indonesia during a tax year with the intention of residing in Indonesia.

Generally, individuals who come to Indonesia with an intention to work and reside in Indonesia with a valid work permit and stay permit are treated as tax residents of Indonesia from the date of arrival.

An expatriate is resident until the date of final departure from Indonesia. An Indonesian national is considered a resident from birth unless they leave Indonesia permanently. An Indonesian national working overseas for more than 183 days in a 12-month period is also considered as non-resident. They will only be taxed on their Indonesian-source income, provided that they have paid income tax on offshore employment earnings and has official proof of overseas residence (e.g. employment pass, stamped passport, overseas residency cards, certifications from an Indonesian embassy, etc.).

An individual who is resident in Indonesia for tax purposes is required to file an individual income tax return. In order to file a tax return, an individual must obtain a tax identification number (NPWP).

A twenty percent tax surcharge will be applied to the earnings of an employee who does not have an NPWP while earning income above the personal deduction threshold.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country/territory for more than 10 days after their assignment is over and they repatriate.

No.

What if the assignee enters the country/territory before their assignment begins?

There is no regulation which forbids an assignee to enter Indonesia before their assignment begins, however they should already have a valid working visa before starting work in Indonesia.

Termination of residence

Are there any tax compliance requirements when leaving Indonesia?

Upon leaving Indonesia permanently, an expatriate must submit an application to cancel their tax registration. The tax office will perform a tax audit on the taxpayer’s returns and supporting documents prior to granting approval to deregister. Therefore, the individual should ensure all tax related documents, including bank statements, foreign tax paid documents, salary slip, employment contract, and so on are readily available in anticipation of a tax audit

The following documents are required for deregistration:

  • deregistration form
  • a letter from the individual requesting deregistration of the tax registration number due to no longer working at the company and leaving Indonesia
  • a statement letter from the company that the individual is no longer working at the company starting from the effective date
  • original tax registration (NPWP) card
  • copy of Exit Permit Only (EPO)
  • letter of authority to enable the tax professional/representative to handle the tax deregistration.

What if the assignee comes back for a trip after residency has terminated?

The assignee may come back to Indonesia on a social or business visa; however, without a valid working visa, they are not allowed to work in Indonesia. The business visa only allows the individual to enter Indonesia for promotional or research purposes, not to exercise employment.

Communication between immigration and taxation authorities

Do the immigration authorities in Indonesia provide information to the local taxation authorities regarding when a person enters or leaves Indonesia?

Yes, there have been some cases in which the tax authorities received notification from the immigration authorities regarding the arrival of expatriate assignees. On 15 May 2018, the Directorate General of Taxation (DGT) and the Directorate General of Immigration (DGI) signed cooperation agreement No. KEP-144/PJ/2018 and IMI-UM.01.01-2015. This regulation provides for the exchange of information, joint intelligence activities, collaboration within law enforcement and training in tax and immigration processes. The regulation states that DGT will provide DGI with taxpayer’s identity data and DGI will provide DGT information regarding passports, transit and visa details, and stay permits.

Filing requirements

Will an assignee have a filing requirement in the host country/territory after they leave the country/territory and repatriate?

The assignee will still have an obligation to file their final individual income tax return for the period residency in Indonesia (from 1 January to the date of their permanent departure from Indonesia). The final year tax return is due immediately after permanent departure.

Economic employer approach

Do the taxation authorities in Indonesia adopt the economic employer approach to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in Indonesia considering the adoption of this interpretation of economic employer in the future?

Currently the taxation authorities in Indonesia assume that the assignee’s employer is the entity that:

  • sponsors the work permit and stay permit for the individual
  • bears the total remuneration cost of the assignee
  • has control or authority over the assignee’s employment.

It is expected that the employer should be a resident entity.

Indonesia is not a member of the OECD. However, the tax authorities may adopt the economic employer approach if they believe that there is any tax avoidance or abuse. 

De minimus number of days

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days2?

Not applicable.

Types of taxable compensation

What categories are subject to income tax in general situations?

Income is defined as any economic benefit received or accrued by a taxpayer that is used for consumption or that increases the wealth of the taxpayer, in whatever name or form.

The following types of income are subject to tax:

  • compensation or payments received or earned in connection with work or services
    1. An expatriate is taxed on their actual salary, although salary guideline levels are sometimes used by the tax office where there is evidence of undeclared or under declared income. (Expatriates working in the offshore oil drilling sector are subject to tax at statutory-deemed salary levels, not actual salary.)
  • lottery, prizes, and awards
  • gross profits from individual business activities
  • gains from the sale or transfer of assets
  • refunds of tax payments already deducted as expenses
  • interest
  • dividends, in whatever name or form, paid by a corporation, payments of dividends by an insurance company to policy holders
  • royalties
  • rents from property
  • annuities received or accrued
  • gains from cancellation or forgiveness of indebtedness
  • income or distribution from trust

Intra-group statutory directors

Will a non-resident of Indonesia who, as part of their employment within a group company, is also appointed as a statutory director (i.e., member of the Board of Directors in a group company situated in Indonesia) trigger a personal tax liability in Indonesia, even though no separate director's fee/remuneration is paid for their duties as a board member?

No, as long as they do not obtain a Work Permit in Indonesia.

a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in Indonesia?

No.
b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in Indonesia (i.e. as a general management fee where the duties rendered as a board member is included)?

Yes

c) In the case that a tax liability is triggered, how will the taxable income be determined?

Based on the amount cross-charged/borne by Indonesian entity.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Indonesia? If so, please provide a general definition of these areas.

The followings are the types of income which are exempt from tax:

  • benefits-in-kind:
    1. unless these amounts are taken as a deduction in determining the taxable income of the employer and/or
    2. unless the employer is tax exempt or is subject to tax on a final tax or deemed profit basis, or does not have the obligation to file corporate tax return (e.g. Pure representative office)
  • income tax borne by the employer (unless grossed-up)
  • gift or assistance received from a close family member, and religious, educational, or social institutions or small scale entrepreneurs including co-operatives, unrelated to the business or profession of the parties involved
  • inheritance
  • payments from an insurance company because of accident, illness, or death of the insured, and payments of scholarship insurance
  • scholarship with approval from the Ministry of Finance.

Expatriate concessions

Are there any concessions made for expatriates in Indonesia?

None.

Salary earned from working abroad

Is salary earned from working abroad taxed in Indonesia? If so, how?

Due to worldwide income reporting, any income earned during the period of residence in Indonesia is subject to income tax in Indonesia. If income tax is already withheld/paid overseas, the amount can be claimed against the Indonesian tax payable up to a certain maximum.

An Indonesian citizen working overseas for more than 183 days in a 12-month period may qualify as a non-resident and, consequently, is exempted from tax on their foreign income in Indonesia, if they can prove that they do not reside in Indonesia.

The term ‘resides’ is defined as having “a place of residence in Indonesia”, either occupied by the individual alone or together with their family, and either owned, rented or available for use as:

  • residence (permanent dwelling place), which is not temporary and not for visits only
  • a place to perform their daily activities or habits (ordinary course of life) related to economic, financial or personal social activities in the community, membership of organizations, groups or associations in Indonesia 
  • a place to perform their habits (place of habitual abode) as a hobby or favorite activity either routine, frequent or not.

Additionally, as proof of overseas residence, the individual should be prepared to provide official identification documents showing residence in the foreign territory, such as identity card, student card, employment pass, notification letter from an Indonesian Embassy, or a page in the passport duly stamped by foreign immigration.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Indonesia? If so, how?

Capital gains are treated as normal income subject to income tax. However, sale of locally listed shares are subject to a final tax at 0.1 percent of gross sales proceeds, and sale of domestic real estate is subject to 2.5 percent final income tax on the sale price. Purchase of domestic real estate is subject to a 5 percent tax on transfer of title.

Gains from stock option exercises

Timing of withholding tax imposition is heavily influenced by when the cost is recognized in the local employing entity’s records. Information in the below table assumes that the option is not cross-charged to the Indonesian entity.

Residency status Taxable at:
  Grant Vest Exercise Sale
Resident N Y Y Y
Non-resident N N N N

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Indonesia? If so, please discuss?

Capital gains are taxed at normal resident tax rates.

Are there capital gains tax exceptions in Indonesia? If so, please discuss?

None.

General deductions from income

What are the general deductions from income allowed in Indonesia?

An individual tax subject who is a resident of Indonesia is allowed the following deductions against employment income:

  • Occupational expenses for permanent employee: 5 percent of gross employment income up to IDR6 million per year.
  • Deduction on pension annuity for retiree: 5 percent of gross income up to IDR2,400,000 per year.

These deductions are prorated according to the period of residence in the tax year. Additional deductions include the following.

  • Personal allowance of between IDR54,000,000 (for a single individual) and IDR72,000,000 (for a married individual with three children/dependents) per year. 
  • Aids and donations, including ones made to government-authorized religious organizations can be claimed as a deduction by enclosing a copy of the official receipt.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Indonesia?

Current year grossed up.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Indonesia? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on. 

Employee income withholding tax

Employee income tax is automatically withheld, paid, and reported by the company on a monthly basis as withholding tax obligation rests at the payer. 

Personal income tax installments

For personal income, the first year assignee may calculate a conservative amount of monthly income tax to be self-paid and reported to the tax authorities. For second and following years’ assignees, the amount of monthly installment should be paid according to the amount of tax calculated in the previous year’s tax return.

When are estimates/prepayments/withholding of tax due in Indonesia? For example: monthly, annually, both, and so on.

The monthly employee withholding tax should be paid and reported by the 10th and 20th of the following month, respectively.

The monthly individual income tax should be paid and reported by the 15th and 20th of the following month, respectively.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Indonesia? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Indonesian tax can be reduced by tax paid or due abroad on income received or accrued abroad by an individual in the same fiscal year. The permitted foreign tax credit for such year shall be limited to the total Indonesian income tax due on foreign income.

Note that the Indonesian tax authority uses the ordinary-credit-per-country/ territory approach where tax credits can only be claimed against tax due on income from the relevant country/ territory. For example, foreign taxes paid in the United States can be claimed only against tax due on U.S.-source income.

General tax credits

What are the general tax credits that may be claimed in Indonesia? Please list below.

In the case of a registered resident taxpayer, tax due for a tax-year may be reduced by the following:

  • withholding of tax on income from employment
  • collection of tax on income from business
  • withholding of tax on income in the form of interest, dividends, royalties, rents, and other remuneration
  • prepayments made by the taxpayer themselves for the tax year
  • tax paid or due abroad on income received or accrued abroad by the taxpayer in the same year.

Sample tax calculation

This calculationassumes a married taxpayer resident in Indonesia with two children whose 3-year assignment begins 1 January 2016 and ends 31 December 2018. The taxpayer’s base salary is USD100,000 and the calculation covers 3 years.

  2016
USD
2017
USD
2018
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = IDR14,000.00.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Indonesia.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.
  • The employee has obtained a tax identification number.

Calculation of taxable income

Year Ended 2016
IDR
2017
IDR
2018
IDR
Days in Indonesia during year 366 365 365
Earned income subject to income tax      
Salary 1,400,000,000 1,400,000,000 1,400,000,000
Bonus 280,000,000 280,000,000 280,000,000
Cost-of-living allowance 140,000,000 140,000,000 140,000,000
Housing allowance 168,000,000 168,000,000 168,000,000
Company car 0 0 0
Moving expense reimbursement 280,000,000 0 0*
Home leave 0 70,000,000
0
Education allowance 42,000,000 42,000,000 42,000,000
Total earned income 2,310,000,000 2,100,000,000 2,030,000,000
Other income (interest) 84,000,000
84,000,000
84,000,000
Total income 2,394,000,000
2,184,000,000
2,114,000,000
Deductions: 73,500,000 73,500,000
73,500,000
Total taxable income 2,320,500,000
2,110,500,000
2,040,500,000

* Assume received after leaving Indonesia.

Calculation of tax liability

  2016
IDR
2017
IDR
2018
IDR
Taxable income as above 2,323,500,000
2,110,500,000
2,040,500,000
Indonesian tax thereon 641,150,000
578,150,000
557,150,000
Less:      
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Indonesian tax 641,150,000
578,150,000
557,150,000

Exchange rate used for calculation: USD1.00 = IDR14,000.00.

1. Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty, which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country/territory for a period of less than 183 days in the fiscal year (or a calendar year of a 12-month period), the employee remains employed by the home country/territory employer but the employee's salary and costs are recharged to the host entity, then the host country/territory tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country/territory.

2. For example, an employee can be physically present in the country/territory for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

3. Sample calculation generated by PT KPMG Advisory Indonesia, the Indonesian member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on Indonesian Income Tax Law No 17/2000, Income Tax Law No 36/2008, Regulation of the Directorate General of Taxation No PER-16/PJ/2016, Regulation of the Minister of Finance No 250/PMK.03/2008, No.252/PMK.03/2008 and No. 101/PMK.010/2016.

© 2019 PT KPMG Advisory Indonesia, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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