If you’re a foreigner or expat working in Indonesia, it is important to fulfill tax compliances for a peaceful stress-free stay. However, learning about the country’s tax system might be followed by a long list of questions. The regulations keep changing from time to time and the filing process can be confusing.
For those reasons, this article is meant to provide comprehensive understanding for you in order to avoid any difficulties or potential sanctions regarding the tax season in March.
How Indonesia Regulates Tax Obligations for Foreigners?
Tax obligations for foreigners in Indonesia depends on their residency status. According to Indonesia’s Tax Law, if you’re a foreign worker who lives in Indonesia for more than 183 days in a year and earns income, you’ll need to pay taxes. As a tax resident, you will only pay taxes on income earned within Indonesia, even if it’s paid from outside the country as long as it’s related to your job or activities within Indonesia. Foreigners who are domestic tax subjects are automatically subject to Income Tax 21 (in Bahasa Indonesia is known as PPh 21).
On the other hand, if they do business in Indonesia through a local representative or office, they’ll also be subject to taxes as non-resident taxpayers that pay a flat 20% tax on their gross Indonesian income. That’s why, as a non-resident, they wouldn’t need to file annual tax reports because the tax responsibilities are fulfilled through the process of final tax withholding. Foreigners who are non-resident taxpayers are subject to Income Tax 26 (in Bahasa Indonesia known as PPh 26).
How Foreigners Fulfill Tax Obligations in Indonesia?
Since non-resident taxpayers or foreign tax subjects are not required to file tax reports, they only need a valid passport for tax payment and validation. Meanwhile, tax residents or domestic tax subjects need an Indonesian tax identification number or NPWP (Nomor Pendaftaran Wajib Pajak) to file their annual tax reports. The sixteen-digit number is issued by Indonesia’s Director General of Taxes. Please remember to prepare your stay permit or KITAS as a requirement to register for NPWP.
NPWP as the first requirement for paying taxes in Indonesia also applies for corporate tax. Business entities carrying out economic activities in the country are required to have a NPWP. Both local companies and foreign-owned businesses in Indonesia have the same process and requirements in applying NPWP. As the documents, the company must submit the Deed of Establishment and the ID cards of the shareholders or the Board of Directors.
Implications of Tax Obligations in Indonesia
As a foreigner in Indonesia, fulfilling tax obligations is crucial. Both individuals and companies face deadlines. Individual taxpayers must file their annual tax reports by March 31st, reporting worldwide income, including income received from outside Indonesia. Companies, on the other hand, are responsible for filing their corporate income tax returns by the end of April.
However, it’s important to note that failure of a company’s directors to fulfill their individual tax filing obligations by the March 31st deadline can invalidate the company’s corporate tax report submitted in April. This means that even if the company submits its report on time, it may be deemed incomplete or incorrect, potentially leading to delays, penalties, and further complications.
Therefore, it’s essential for both individual directors and companies to comprehend their respective tax obligations and meet the corresponding deadlines to avoid any administrative sanctions and ensure the smooth processing. Any uncertainties arise regarding specific requirements or deadlines, seeking guidance from qualified tax professionals is highly recommended.
Making Tax Obligations Easy
While fulfilling our tax obligations is essential, the process can be time-consuming and complicated. At Seven Stones Indonesia, we understand your need for efficient and reliable tax solutions. Our experienced team of professionals can assist foreign individuals and companies with various tax-related services, including:
– Tax return preparation and filing
– Tax planning and strategy
– Tax audit support
Compliance with Accuracy
Save countless hours when dealing with specific situations or complex tax matters. Do not hesitate to consult with qualified tax professionals or accountants at Seven Stones Indonesia. We can assist you to meet your tax compliance with accuracy. Contact our office today if you’d like to discuss how we can solve your various tax concerns and questions.
