All individuals in Indonesia who are earning income above the non-taxable income threshold, or receiving income outside their basic salary, or earning revenue from a business/trade or professional service in Indonesia are subject to Indonesian personal income taxes. In addition to the personal income tax requirement, resident tax-paying individuals are required to have their own Tax Identification Number (NPWP) from the Indonesian Tax Office (Direktorat Jenderal Pajak)[i]. Resident Individual is defined as a foreigner who has a dwelling place in Indonesia, which is not temporary and not as a stopover to carry out daily activities in Indonesia; or an Indonesian national who was born in Indonesia and has a place of domicile in Indonesia.
In this article, we are going to highlight the most important things that a foreigner should know about personal income taxes in Indonesia.
Type of Personal Income Taxes
PPh 21 Income Taxes
If you are a foreign employee residing in Indonesia with a Work Permit (KITAS), you are subject to PPh 21 Income Tax. Your employer will deduct the tax from your salary and pay it directly to the tax office. Foreigners under an Investor KITAS are not required to register for an NPWP, however, if you do not have an NPWP a 20.0% surcharge will be applied to your tax rate. For example, if with an NPWP you would have faced a tax rate of 15.0%, without an NPWP you would face a tax rate of 18%.
PPh 26 Income Taxes
If you are only staying temporarily in Indonesia and you receive an income in Indonesia, you are also subject to Indonesian income tax (PPh) 26. For example, a musical artist from the UK who performs in Indonesia and is hired by an Indonesian promoter will be subject to local income tax. In this example, the promoter would withhold the PPh 26 income Tax (Withholding Tax) from the artist.
Exemptions
Certain foreign workers are exempt from personal income taxes, namely foreign consular and diplomatic personnel, military personnel, foreign civil servants and international representatives specified by the Minister of Finance.
Tax Rates
Income Tax (PPh) 21 rates are progressive—meaning that your rate of tax increases as your income grows higher. The rates are as follows:
| With NPWP | Without NPWP (20% higher rate) | ||
|---|---|---|---|
| Annual Income Threshold | Rate | Annual Income Threshold | Rate |
| < IDR 50 million | 5% | < IDR 50 million | 6% |
| IDR 50 million – 250 million | 15% | IDR 50 million – 250 million | 18% |
| IDR 250 million – 500 million | 25% | IDR 250 million – 500 million | 30% |
| > IDR 500 million | 30% | > IDR 500 million | 36% |
PPh 26 Income Tax is taxed at a flat rate of 20%.
Non-taxable Incomes and Reliefs
As of 2016[iii], the non-taxable income threshold is IDR 54,000,000 per year for single individuals and IDR 58,500,000 per year for married individuals. Additional relief of IDR 4,500,000 per year is provided for each direct family member or adopted child who is fully dependent (at most 3 children/dependants for each family).
| Non-taxable income for Single Individuals |
Non-taxable Income for Married Individuals |
||
|---|---|---|---|
| TK/0 | IDR 54,000,000 | K/0 | IDR 58,500,000 |
| TK/1 | IDR 58,500,000 | K/1 | IDR 63,000,000 |
| TK/2 | IDR 63,000,000 | K/2 | IDR 67,500,000 |
| TK/3 | IDR 67,500,000 | K/3 | IDR 72,000,000 |
| TK – Tidak Kawin (single), K – Kawin (married) e.g. K/2 – married with 2 dependents. | |||
Personal Income Tax: Crime and Regulation in Indonesia
A distress warning may be issued to an errant taxpayer if a valid tax collection instrument is not paid within the required time frame. The underpaid tax listed in a tax collection instrument must be paid within a month after the instrument’s date by the person involved. Late payments are usually subject to a 2% per month interest penalty. Taxpayers are only obligated to pay the minimum amount agreed to in the tax audit closing conference if they register an objection or, at a later stage, an appeal about the specific tax assessment letter under the existing Tax Administration Law.
If an underpaid tax is not paid within the specified time, the offending taxpayer will receive a seven-day warning notice. If a tax is not paid within 21 days of receiving a warning letter, a distress warrant is issued. If no agreement is reached within 48 hours of the distress warrant being issued, a confiscation order is issued. If the unpaid tax is not paid within fourteen days of the confiscation order being issued, an auction announcement is made for the confiscated assets. If the unpaid tax is not paid within 14 days of the auction announcement, a public auction is undertaken. In some situations, an interest penalty of up to 48 percent of the unpaid tax may be imposed.
Foreigners ailure to pay taxes is prohibited, according to article 21 (5) of the amended personal income tax law of 2008, and the penalties range from sanctions to jail.
Closing Thoughts: Personal Income Tax in Indonesia
Foreigners who will leave Indonesia and have no intention to return for work have to submit an Exit Permit Only (EPO) document to the local immigration office by providing their Tax Obligation Compliance Certificate (Surat Keterangan Pemenuhan Kewajiban Perpajakan or SKPKP) issued by the Tax Office where they are registered, to prove that they have fulfilled their tax obligations while in Indonesia. If you don’t submit the EPO, the government might still consider you as a domestic tax subject even if you have already left the country.
If you have any further questions regarding the personal income taxes in Indonesia that we have not addressed in this article or need assistance in filing your tax return, please reach out to us at anita@permitindo.com or via this link. Our team will get in touch with you shortly afterwards.
References
[i] Law No 28 Year 2007 of Taxation General Provisions and Procedures
[ii] Law No 36 Year 2008 of Income Tax
[iii] Minister of Finance Regulation No.101/PMK.010/2016
[iv] Law No 21 Year 2008 of Personal Income Tax
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