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With a population of more than 275 million and over 17,000 islands surrounded by crystal clear waters and pristine beaches, Indonesia is an attractive destination for US expats. In moving to Indonesia, you need to be aware of how taxes apply to you in Indonesia. Let’s review what a US expat needs to know about taxation in Indonesia.
Americans living abroad in Indonesia are subject to two different national tax systems.
First, virtually all US citizens must file an annual US Federal tax return, regardless of where they live.
Second, by living in Indonesia, US expats also can be subject to taxation in Indonesia.
These two national tax systems can create confusion for Americans living abroad in Indonesia, potentially facing tax liabilities in both jurisdictions. Here’s an overview of how the Indonesian tax system impacts US expats living in Indonesia.
A key issue for US expats in Indonesia is whether they qualify as tax residents of Indonesia.
If you are a tax resident of Indonesia, you generally will be taxed in Indonesia on your worldwide income.
As an exception to this general rule, tax residents who meet specific skill requirements will be taxed in Indonesia only on their Indonesian-sourced income. These skill requirements include particular expertise in science, technology, and/or mathematics (which can be proven by having a certificate of expertise from a government-appointed institution, a certificate of education, and/or at least five years of work experience). This exception will only be available for the first four years after becoming a tax resident of Indonesia.
This exception definitely should be reviewed by US expats with expertise in science, technology, and/or mathematics. Indonesian-sourced income is likely to be lower than worldwide income for a US expat and thus, a US expat can have lower tax liability in Indonesia by qualifying for this exception.
On the other hand, if you are not a tax resident of Indonesia, you will be taxed in Indonesia only on your Indonesian-sourced income.
You are considered a tax resident in Indonesia if:
Residents are taxed on their worldwide income while non-residents are only taxed on their Indonesian-sourced income, including Indonesian-sourced capital gains.
Rates for residents are progressive up to 35% based on total income. Non-resident employees are taxed at a flat rate of 20%.
Indonesian resident corporations and foreign companies carrying out business activities through a permanent establishment are taxed based on worldwide income.
The corporate income tax rate is generally a flat rate of 22%. However:
Indonesia assesses a value-added tax on sales of goods and services within Indonesia at a rate of 11%.
An annual property tax in Indonesia on land and buildings at a maximum of .3% of the regional government-determined market value.
There are no inheritance, estate, and gift taxes in Indonesia.
The national social security system in Indonesia applies to expatriates, unless they are already covered by a similar or even better system in another country. You are not required to participate. However, if you choose to contribute, it is 2% of your gross wages.
The tax filing deadline in Indonesia is March 31 taxation based on the prior January 1 to December 31 tax year.
You can request an extension of two months to file your tax return until May 31 (although this extension does not also extend the time to pay any tax liability).
Late filing of a tax return in Indonesia can result in an IDR 100,000 fine. Late payment of tax liability in Indonesia may result in a 2% interest penalty per month.
The United States has a tax treaty with Indonesia.
This tax treaty can provide critical assistance to US expats living in Indonesia. It can enable these expats to avoid double taxation of the same income in both the United States and Indonesia.
Americans living abroad in Indonesia who become resident taxpayers must obtain a taxpayer identification number. This number is known as “Nomor Pendaftaran Wajib Pajak” or “NPWP.”
Taxpayers must register for NPWP at the Tax Service Office in their city of residence. Expats living in Jakarta (Indonesia’s capital) are required to register for NPWP with the Tax Office for Foreign Bodies and Expatriates.
To register for NPWP, you need the following:
Indonesia uses a self-assessment system under which US expats and other taxpayers are trusted to report their taxable income and pay their tax liability.
The following are key tax forms in Indonesia:
All tax forms in Indonesia must be completed in Bahasa Indonesia (the official language of Indonesia).
US expats need to remember that in addition to filing tax forms in Indonesia, they can have to file tax forms in the United States, including:
US expats living in Indonesia can reduce their tax liability by taking advantage of the following tax deductions in Indonesia:
Business expenses and charitable contributions, such as for national disasters, research and development, education facility, sport development, and social infrastructure, can also be deductible in Indonesia.
A US expat who pays Indonesian tax liability solely based on withholdings and does not file a tax return may not get the benefit of all applicable tax deductions. Thus, a US expat should file a tax return in Indonesia to be able to claim the tax benefit from these deductions.
In terms of reducing tax liability for a US expat, it is also essential to take advantage of the following concepts under US tax law that can decrease US tax liability for Americans living abroad in Indonesia:
We hope this guide has provided you with more knowledge and a better understanding of Indonesia’s tax system and its impact on US expats in Indonesia. If you’d like to learn more about these issues, our team of tax experts would be happy to help you.