Let's talk about direct taxes levied on foreign individuals in Indonesia. If you are engaged in entrepreneurial activities or planning to start a private business, it's useful to have at least a basic understanding of this matter.
The first thing foreign individuals need to pay attention to is the personal income tax (PPH OP - pajak penghasilan orang pribadi), which is similar to Russia's personal income tax (NDFL).
When earning income in Indonesia, whether you own a business or work for an Indonesian company, you are required to pay income tax (taxes on dividends and other income) on all income earned in Indonesia. The tax obligation for an individual applies throughout their stay in the country.
The income of non-resident foreign individuals is subject to a flat rate income tax of 20% on the gross income derived from conducting commercial activities in the country. This is stipulated in Article 111 No. 2 of Perppu 2/. 2022, paragraph (1) of Article 26 of UU PPh.2.
Gross income is the revenue amount minus the cost of goods or services.
Indonesia's tax legislation states that foreign citizens become residents and are considered tax subjects if they stay in the country for more than 183 days within a 12-month period or fiscal year. For residents, income tax rates range from 5% to 35% depending on the income amount.
Income tax (PPh) rates are progressive, meaning the tax rate increases as your income grows.
Percentage Rate and Taxable Income
KITAS Work Visa
To work or engage in any commercial activity in Indonesia, you need to have a KITAS work visa, which is issued for a duration of 1 year and is a temporary residence permit, along with an IMTA work permit.
Other types of KITAS visas (such as family, retirement, sponsorship, etc.) are not suitable for working. Indonesian authorities closely monitor this. Those caught violating these rules face deportation, sometimes with blacklisting for a long period, preventing further visits to the country. If you are an employee, make sure to discuss this with your employer before starting any collaboration. Sometimes, employers refuse to cover the cost of KITAS issuance, and in such cases, consider the implications of working in such a place, as working without a visa leads to similar consequences. Sooner or later, someone will report it to the immigration service.
Regarding income tax, your employer will deduct it from your salary and remit it to the tax office, handling tax and accounting reporting. If you are self-employed, you will need to file your own reports or hire an accountant.
To ensure you submit documents on time or if you have additional questions regarding personal income tax, it's recommended to contact the agency LegalIndonesia, which can assist with various services:
- Filing tax and accounting reports
- Investment reports
- Tax consulting
- Obtaining tax identification numbers (NPWP), and more.
Telegram - @legalindonesia / @LegalIndonesiaBot
WhatsApp – https://wa.me/628179677771
NPWP - Taxpayer Identification Number
One of the documents required for all working individuals for tax purposes is the NPWP (Taxpayer Identification Number). This number is assigned as a tool for tax administration and is used to identify taxpayers in fulfilling their tax rights and obligations.
The documents needed for tax registration include:
- Copy of the passport.
- Copy of the work permit (IMTA).
- Copy of the limited stay permit (ITAS).
- Completed registration form.
- Power of attorney for a tax specialist/representative to conduct the registration process.
- Copy of the NPWP of the sponsoring company.
Filing a Tax Return
To file a tax return, you need to have a registered NPWP number.
Most tax authorities accept tax returns electronically. To do this, you will also need to register and obtain an electronic identification number (eFIN).
Foreigners under the Investor KITAS program are not obligated to register to obtain NPWP. However, an increased tax rate will be applied to them when calculating income tax.
If a foreigner stays in Indonesia for a short period and receives income once, they are still subject to income tax. For example, foreign musicians or artists performing in Indonesia.
Some foreign workers are exempt from income tax, namely: foreign consular and diplomatic personnel, military personnel, foreign civil servants, and international representatives specified by the Minister of Finance.
EPO - Exit Permit for Deregistration from Taxation
Foreigners leaving Indonesia and not planning to return for work must provide a special document called an "Exit Permit" (EPO) to the local immigration office, along with a tax compliance certificate (Surat Keterangan Pemenuhan Kewajiban Perpajakan or SKPKP) issued by the tax inspection where they are registered. This is required to prove that they have fulfilled their tax obligations while in the country. If a foreign citizen does not submit an EPO, the government may still consider them a taxpayer, even if they have already left the country.
Deregistration from Taxation in Indonesia
Before the tax office approves the deregistration, they must conduct an audit of the tax returns and required documents.
For the audit, you need to provide all documents related to your work activity. These may include bank statements, payslips, employment contracts, and tax payment documents.
To be deregistered for taxation, the following documents are required:
- A letter from the individual requesting the deregistration of their taxpayer identification number due to departure from Indonesia and cessation of work with the company.
- A statement from the company indicating that the individual no longer works for the company.
- The original tax identification card (NPWP).
- A power of attorney allowing a tax specialist/representative to proceed with the deregistration.
The submission of income tax returns (SPT) must be done no later than three months after the end of the tax year, which means no later than March 31 of the following year for the reporting period. Payment and filing of the reports must be done on time, or else administrative penalties in the form of a fine of 100,000 IDR for each declaration will be imposed.