One of the key items in the Job Creation Law is the implementation of the territorial tax system from the worldwide tax system previously.

 

This article is an update on the Income Tax of Expatriates who work in Indonesia, which now for some jobs (mostly related to engineering expertise) may enjoy the territorial tax system.

 

With reference to the Regulation of the Minister of Finance Number 18 of 2021 article 7 Paragraph 2, foreign citizens who have become domestic tax subjects are subject to Tax only on income received or obtained from Indonesia provided that:

a. Have certain expertise; and

b. Valid for 4 (four) Fiscal Years which are counted since becoming a domestic tax subject.

 

This provision does not apply to expatriates who take advantage of the Tax Treaty between the Government of Indonesia and the government of the Tax Treaty partner state or partner jurisdiction where the expatriate earns income from outside Indonesia.

 

Included in the definition of income received or obtained from Indonesia, namely in the form of income received or obtained by an expatriate in connection with a job, service or activity in Indonesia under whatever name and form paid outside Indonesia.

 

Before we discuss the criteria of jobs or certain expertise and further requirements, let us discuss the domestic tax subject.

 

What are the conditions for an expatriate to become a domestic tax subject?

According to Law no. 11 of 2020 regarding Job Creation, the conditions for a person to become a domestic tax subject are as follows:

 

(1) Individuals who are subject to domestic tax are Indonesian citizens and expatriates who:

a. Residing in Indonesia;

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b. Stay in Indonesia for more than 183 (one hundred and eighty-three) days within a period of 12 (twelve) months, or

c. Reside in Indonesia in a Tax Year and have the intention to reside in Indonesia.

 

(2) An individual who resides in Indonesia is an individual who: 

a. Residing in a place in Indonesia which: 1. is controlled or can be used at any time; 2. owned, rented, or available for use; and 3. not as a stopover by the individual; 

b. Having the main activity center in Indonesia which is used by private individuals as a center for personal, social, economic, and/or financial activities or affairs in Indonesia; or 

c. Carry out daily habits or activities in Indonesia, including activities that become hobbies or hobbies.

 

(3) The period of 183 (one hundred and eighty-three) days is determined by calculating the length of time that an individual tax subject has been in Indonesia within a period of 12 (twelve) months, either continuously or intermittently. break up with part of the day is fully counted as 1 (one) day.

 

(4) Individual tax subjects are deemed to have the intention to reside in Indonesia can be proven by documents in the form of:

a. Permanent Stay Permit Card (KITAP);

b. Limited Stay Visa (VITAS) with a validity period of more than 183 (one hundred and eighty-three) days;

c. Limited Stay Permit (ITAS) with a validity period of more than 183 (one hundred and eighty-three) days;

d. A contract or agreement to carry out work, business, or activities carried out in Indonesia for more than 183 (one hundred and eighty-three) days; or

e. Other documents that may indicate the intention to reside in Indonesia, such as a rental contract for residence for more than 183 (one hundred and eighty-three) days or documents showing the transfer of a family member.

 

What kind of jobs or certain expertise are eligible for the provision?

 

According to the Minister of Finance Regulation 18/2021, expatriates with certain expertise include foreign workers who occupy certain positions and foreign researchers.

 

Expatriates with certain expertise who are employed by the Employer, shall meet the requirements regarding:

a. The use of foreign workers who can occupy certain positions as determined by the minister in charge of government affairs in the manpower sector; or

b. Foreign researchers appointed by the minister in charge of government affairs in the research field.

 

The criteria for certain expertise include:

a. A foreign nationality;

b. Have expertise in science, technology, and/or mathematics, as evidenced by:

1. A certificate of expertise issued by an institution that has been appointed by the Government of Indonesia or the government of the country of origin of the foreign worker;

2. Education certificate; and/or

3. Work experience of at least 5 (five) years, in the field of science or work in accordance with the field of expertise; and

c. Has an obligation to transfer knowledge.

 

(4) Certain positions are contained in Attachment II of Regulation of the Minister of Finance Number 18 of 2021 as follows:

 

  Job Code Job Position (ExpertIse)
1. 2113 Chemical
2. 2114 Geology and Geophysics
3. 2131 Biology, Botanical, Zoology, Etc
4. 2133 Environment Protectionism
5. 2141 Production and Industrial Engineering
6. 2142 Civil Engineering
7. 2143 Environment Engineering
8. 2144 Mechanical Engineering
9. 2145 Chemical Engineering
10. 2146 Mining, Metallurgy, Etc
11. 2149 Other Engineering
12. 2151 Electrical Engineering
13. 2152 Electronic Engineering
14. 2153 Telecomunication Engineering
15. 2163 Product Designer and Apparel
16. 2164 City Planning and Traffic
17. 2166 Graphic Design and Multimedia
18. 2310 University Lecturer
19. 2511 System Analyst
20. 2512 Software Developer
21. 2513 Web Developer and Multimedia
22. 2514 Application Programming
23. 3121 Mining Supervisor
24. 3139 Process Control Technician
25. 3155 Air Traffic Transportation Safety Electronic Device Technician

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Requirement to Submit The Application Letter to the Tax Office (PMK 18/2021 Article 11) 

Foreign citizens who choose to be subject to income tax only on income received or obtained from Indonesia as referred to in Article 7 paragraph (2) shall submit an application to the Director General of Tax. The application letter shall use the format as contained in Attachment III of PMK 18 of 2021. Such application shall be done by submitting an application electronically through a certain channel determined by the Director General of Tax.

 

If a certain channel is not yet available, the application letter can be made in writing by submitting:

a. Directly; or

b. By post or courier service company or with proof of delivery of letters, to the Tax Office where the Taxpayer is registered.

 

On the request submitted, the Head of Tax Office on behalf of the Director General of Tax based on the results of the research issues:

 

a. The letter of approval for the application for the imposition of Income Tax only on income received or obtained from Indonesia, if the requirements as referred to in Article 8 are met; or

b. Rejection letter for the application for the imposition of Income Tax only on income received or obtained from Indonesia, if the requirements are not met, within a maximum period of 10 (ten) working days after receipt of the complete application.

 

Expatriate Income Tax Reporting

 

Income tax reporting for expatriates shall be made annually through a tax return, which is submitted no later than March 31 of the following year. Based on PMK 18 of 2021 Article 12, the following are the provisions for reporting income tax for foreign citizens or expatriates in Indonesia:

 

(1) Expatriates report income through an annual tax return for:

a. Income received or obtained from Indonesia, if a letter of approval for the application for imposition of income tax is issued only on income received or obtained from Indonesia; or

b. Income received or obtained from Indonesia and from outside Indonesia, if a rejection letter is issued on the application for the imposition of income tax, only on income received or obtained from Indonesia.

 

(2) Before reporting income as referred to in paragraph (1) PMK 18 of 2021 Article 12, the expatriate will calculate income in accordance with the provisions of the legislation.

 

(3) Provisions regarding the calculation of Income Tax imposition only on income received or obtained from Indonesia are listed in Appendix V of PMK 18 of 2021 which has been discussed in our other articles. Read more about the case example in our article.

 

Can expatriates with certain expertise who have been subject to domestic tax before the enactment of PMK 18/2021 be taxed only from income in Indonesia?

 

According to PMK 18 of 2021 Article 13 expatriates with certain expertise who have been subject to domestic tax before the enactment of the Minister of Finance Regulation can be subject to Income Tax only on income received or obtained from Indonesia as long as they meet the following requirements:

a. 4 (four) Fiscal Years; and

b. Have submitted the application letter to the Director General of Taxes as referred to in Article 11 paragraph (1) PMK 18 of 2021

 

If the application is approved, the imposition of Income Tax is only on income received or obtained from Indonesia, calculated from the enactment of Law Number 11 of 2020 concerning Job Creation until the expiration of the period.

 

When will the Minister of Finance Regulation Number 18 of 2021 take effect?

 

The enactment of the Regulation for the Implementation of the PMK 18/2021 Job Creation Law is on 17 February 2021.

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