What American Expats Should Know About Taxes in Indonesia
- Living as an Expat in Indonesia
- Indonesia at a Glance
- What Are Indonesia Taxes like for US Expats?
- Who Has to File Taxes in Indonesia?
- Who Qualifies as a Tax Resident in Indonesia?
- Is Foreign Income Taxed Within Indonesia?
- Indonesian Income Tax Rates
- Other Taxes in Indonesia
- Social Security in Indonesia
- Indonesia Tax Deadline
- Does the US Have a Tax Treaty with Indonesia?
- What Tax Forms Do Americans Living in Indonesia Have to File?
- What Tax Deductions Are Available for Expats Living in Indonesia?
- Navigating Tax Compliance for US Expats in Indonesia
Living as an Expat in Indonesia
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.
Indonesia at a Glance
- Primary Tax Forms: Form 1770 and Form 1770S
- Tax Year: January 1 – December 31
- Tax Deadline: March 31
- Currency: Indonesian rupiah (IDR)
- Population: More than 275 million
- Number of US Expats: Estimated 5,000 to 10,000
- Capital City: Jakarta
- Primary Language: Bahasa Indonesia
- Tax Treaty: Yes
- Totalization Agreement: No
What Are Indonesia Taxes like for US Expats?
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.
Who Has to File Taxes 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.
Who Qualifies as a Tax Resident in Indonesia?
You are considered a tax resident in Indonesia if:
- You are present in Indonesia for more than 183 days in any 12-month period; or
- You are present in Indonesia and intend to reside in Indonesia.
Is Foreign Income Taxed Within Indonesia?
Indonesia has specific tax regulations governing foreign income. As a resident of Indonesia, you will be required to pay tax on your global income. This means that any income earned outside Indonesia will be taxed as well. On the other hand, non-residents are only subject to taxation on their Indonesian-sourced income, including capital gains arising from sources within Indonesia.
The Indonesian government has been implementing various measures to attract foreign investment, and its tax laws are part of these efforts. The country has introduced tax incentives and exemptions for foreign investors to encourage foreign investment. The country’s taxation system is continually being updated to make it more attractive to foreign investors, leading to more foreign direct investment in the country.
Indonesian Income Tax Rates
Rates for residents are progressive up to 35% based on total income. Non-resident employees are taxed at a flat rate of 20%.
|Taxable Income||Tax Rate|
|Up to IDR 60 million||5%|
|Above IDR 60 million to IDR 250 million||15%|
|Above IDR 250 million to IDR 500 million||25%|
|Above IDR 500 million to IDR 5 billion||30%|
|Above IDR 5 billion||35%|
Other Taxes in Indonesia
Corporate Income tax
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:
- Public companies that satisfy a minimum listing requirement of 40% and certain other conditions are subject to a flat corporate income tax rate of 19%; and
- Small companies (i.e., corporate taxpayers with an annual turnover of not more than IDR 50 billion) are entitled to a 50% tax discount from the standard corporate income tax rate, which is imposed proportionately on taxable income on the part of gross turnover up to IDR 4.8 billion.
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.
Inheritance, Estate, and Gift Taxes
There are no inheritance, estate, and gift taxes in Indonesia.
Social Security in Indonesia
Indonesia has a national social security system in place for its residents, including expatriates living and working in the country. If you’re an expat living in Indonesia, you’ll be covered by the national social security system unless you’re already enrolled in a similar or better social security program in your home country.
The social security program is not mandatory for expatriates, and you have the choice of whether or not to participate. However, if you choose to contribute, the social security payment is 2% of your gross wage.
The social security system in Indonesia provides a safety net for its citizens, including healthcare, employment benefits, and pension schemes. This program is designed to support and protect the welfare of its citizens and residents, ensuring that all citizens have access to basic social welfare services.
Indonesia Tax Deadline
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.
Does the US Have a Tax Treaty with Indonesia?
Yes, US expats living in Indonesia can benefit from the tax treaty between the two countries. This tax treaty serves as a crucial tool to prevent double taxation of income earned by US citizens living in Indonesia. It provides guidance and regulation to avoid any potential overlapping of tax obligations between the two countries.
The treaty includes provisions that allow US expats in Indonesia to exclude their Indonesian-sourced income from US taxation up to a certain amount. Additionally, the treaty also provides for reduced tax rates for certain types of income, such as dividends and royalties.
By utilizing the provisions of the US-Indonesia tax treaty, US expats can avoid the burden of double taxation and effectively reduce their tax liability.
What Tax Forms Do Americans Living in Indonesia Have to File?
Americans living abroad in Indonesia who becomes 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:
- 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; and
- If applicable, a Letter of Authorization is required that authorizes your representative to handle the matter.
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:
- Form 1770 – Annual Individual Income Tax Return.
- Form 1770-I – Calculation of Domestic Net Income.
- Form 1770-II – List of Tax Withheld or Collected.
- Form 1770-III – Income Subject to Tax and Non-Taxable Income.
- Form 1770-IV – List of Assets and Liabilities.
- Form 1770S – Annual Individual Income Tax Return (for individuals who do not conduct business).
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:
- IRS Form 1040 – Individual Income Tax Return.
- IRS Form 8938 – Statement of Specified Foreign Financial Assets.
- FinCEN Form 114 – Report of Foreign Bank and Financial Account (commonly known as “FBAR”).
What Tax Deductions Are Available for Expats Living in Indonesia?
US expats living in Indonesia can reduce their tax liability by taking advantage of the following tax deductions in Indonesia:
- Occupational support expenses – 5% of gross income up to a maximum of IDR 6,000,000.
- Pension contribution – 1% of gross income up to a maximum of IDR 9,077,600.
- Personal allowance – IDR 4,000,000.
- Allowance for the spouse – IDR 4,500,000.
- Allowance for dependents – IDR 4,500,000 per dependent (up to a maximum of three dependents).
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:
- Foreign Earned Income Exclusion. The foreign-earned income exclusion lets you exclude a certain amount of foreign-earned income (currently $112,000) from US taxation.
- Foreign Tax Credit. The foreign tax credit allows you to reduce your US tax bill on a dollar-for-dollar basis by the taxes you pay to a foreign government.
- Foreign Housing Exclusion (Deduction). The foreign housing exclusion (deduction) permits you to decrease your US tax liability based on certain foreign housing expenses.
Navigating Tax Compliance for US Expats in Indonesia
We hope our guide on Indonesia’s tax system and its implications for US expats living in Indonesia was helpful and has provided you with a deeper understanding of the topic. If you want to learn more or need assistance, our team of knowledgeable tax experts is ready to assist you.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.