Individual Income Taxes for Expatriates in Indonesia
This is a brief overview of the requirements, calculation and payment of personal
income taxes in Indonesia.
The Employer's and Individual's Role in Personal Income Tax
Your employer is the body responsible for the calculation of any taxes that need to
be withheld from your salary, monthly payment of these taxes to the tax authorities,
and provision of annual numbers to the employee. The individual employee must
then file an annual income tax return 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 (Nomor Pendaftaran Wajib Pajak Registration number for those obligated to pay taxes), assuming that employees only
had this one source of income.
Currently, 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
taxes 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.
Of special concern to expatriates in when your salary is quoted and paid net.
Though your employer may have agreed in your contract to pay your taxes - you
are still personally liable for their payment. 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 compensation package expressed in gross
amounts. It then is defensible that as you only received the net amount the employer
has deducted tax and is therefore liable for the payment to the Tax Office.
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 felt your local employer had paid your taxes according to your
agreement, you may find in fact that the taxes were not paid and you are then
legally liable for back taxes.
Each employee is supposed to receive their monthly tax calculation from their
employer, and at the end of the year or the latest by March of the next year, the
company has to produce Form 1721-A1, which summarizes how much taxes the
company has been paying for each employee. The employee needs to use Form 1721A1 to be included in their personal annual income tax return.
NPWP ... The Tax Identification Number
The Indonesian tax office (Direktorat Jenderal Pajak) requires all resident
individuals in Indonesia to have their own personal tax numbers, Nomor
Pendaftaran Wajib Pajak or NPWP. This regulation includes expatriates. Naturally
this excludes young children who are too young to work.
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.
The tax office requires all expatriates resident in Indonesia to register with the tax
office and obtain their own separate tax number (NPWP) and pay monthly income
taxes, file annual tax returns, and pay tax on their income earned outside Indonesia,
less tax paid in other jurisdictions on the additional overseas income (see tax treaties
with other countries).
The government defines an individual taxpayer, who is required to register for
NPWP and file income tax returns, as:
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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, selfemployment or exercise of profession;
Individual taxpayers who receive income from capital; and
Foreigners who reside or 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
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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 may not be obligated to pay
Indonesian income tax (only taxes from your home country).. 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 receive a good referral, as remember you yourself are
legally accountable for any non-payment of taxes.
To register you need:
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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 ID page of passport and
does not request the other items mentioned above, the bureaucrats at the Tax
Office ask for them as a matter of course.
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.
Enforcement and Linkage of NPWP to other Activities
The Indonesian tax office continues its drive to widen the taxpayer base by trying to
register all salaried Indonesian nationals for their own NPWP number. They have
started linking this requirement to certain other registrations and regulations to
further enforce this regulation. An NPWP may be required for a variety of other
activities:
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buying a motorbike
getting a driver's license
building a house
opening a bank account
renewing registration of a vehicle over a certain value
having a credit card limit in excess of a certain amount
payment of housing tax on houses over a certain value
applying for a passport (for Indonesians)
Let us know if you have other occasions (besides those listed above) where you, as a
foreigner, are required to present an NPWP. We'd like to forewarn others!
What Income is Included
The Indonesian personal taxation system is based on worldwide income. This
includes:
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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: Housing, Cars, School fees, as well as
income from 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.
Credit is given for income tax paid overseas, subjected to limits and perhaps
dependent on double taxation treaties between Indonesia and your home 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 investments can be taxed by the Indonesian
government, it is best to consult your accountant and your financial consultant to
determine how regulations will affect any current and future investment strategies.
Tax Rates for Resident Individual Taxpayers
Taxable Income
Rupiah
Rate
Rp 1-50 million
5%
portion of income between Rp
50-250 million
15%
portion of income between Rp
250 million-500 million
25%
portion over Rp 500 million
30%
An extra 20% is levied on people who do not have a tax number (NPWP) on top of
progressive income tax rates above.
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. Check
with your tax professional to ask their advice on these perks that could be
considered additional income.
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:
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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.
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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 from.
You will do monthly reports to the tax office concerning this.
You will make monthly payments on your own extra income and make an
annual return.
By virtue of what you do outside employment or as self employed, 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. We
suggest you refer them to your employer's HR department whenever possible.
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 papers will expire. But they may hold your
personal shipment until such time as the audit is completed.
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 (Skill & Development Fund Fee) 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 by the employer as a part of the
process for obtaining a work permit. It is separate from and has nothing to do with
an expat's individual income taxes.
Working Forms used to help prepare your tax information
Each NPWP holder is issued a SPT book (Setoran Pajak Tahunan) where they can
learn about the describes the rules regarding tax.