Indonesia is a country with a rapidly growing economy and a complex taxation system. In this article, we will discuss how the taxation system works in Indonesia, double taxation agreements, the main taxes expats need to be aware of, special tax breaks that could apply to expats, how and when to file a tax return as an expat, and tax exit procedures for anyone leaving Indonesia to move abroad.
The Taxation System in Indonesia
The taxation system in Indonesia is divided into two categories: direct taxes and indirect taxes. Direct taxes are taxes that are paid directly to the government by individuals and businesses, while indirect taxes are taxes that are collected by businesses on behalf of the government.
Direct taxes
Direct taxes in Indonesia include income tax, corporate tax, and capital gains tax. These taxes are levied by the Directorate General of Taxation (DGT).
Indirect taxes
Indirect taxes in Indonesia include value-added tax (VAT), luxury goods sales tax (LGST), and customs duty. These taxes are levied by the Directorate General of Customs and Excise (DGCE).
Double Taxation Agreements
Indonesia has signed double taxation agreements with over 60 countries, including the United States, the United Kingdom, and Australia. These agreements are designed to prevent individuals and companies from being taxed twice on the same income.
If you are an expat living in Indonesia and your home country has signed a double taxation agreement with Indonesia, you may be able to avoid being taxed twice on your income. However, it is important to check the terms of the specific agreement as they can vary between countries.
Main Taxes in Indonesia
Income tax
All residents in Indonesia are required to pay income tax on their worldwide income. The income tax rate varies depending on income levels and ranges from 0% to 30%.
Corporate tax
Companies registered in Indonesia are required to pay corporate tax on their profits earned in Indonesia. The corporate tax rate is currently 22%.
Value-added tax (VAT)
The VAT rate in Indonesia is currently 10% and is applied to most goods and services.
Special Tax Breaks
There are several special tax breaks that could apply to expats living in Indonesia. These include:
Tax treaty benefits
Expats who are citizens of countries that have signed a double taxation agreement with Indonesia may be eligible for tax treaty benefits. These benefits can include reduced rates of tax or exemptions from certain taxes.
Tax deductions
Expats may be eligible for tax deductions for certain expenses, including moving expenses and education expenses for their children.
Filing a Tax Return in Indonesia
If you are an expat living in Indonesia, you are required to file a tax return if you meet certain criteria. If you are a resident in Indonesia, you are required to file a tax return if your income exceeds IDR 60 million per year. If you are a non-resident and earn income within Indonesia, you must also file a tax return.
The tax return must be filed annually by the end of March of the following year. The DGT provides an online platform where you can file your tax return, and it is recommended that you seek the assistance of a tax professional to ensure that you file correctly and take advantage of any applicable tax breaks.
Tax Exit Procedures for Indonesia
If you are leaving Indonesia to move abroad, you must complete a tax exit procedure with the DGT. This involves filing a tax return for the year in which you leave Indonesia and obtaining a tax clearance certificate. The tax clearance certificate confirms that all taxes owed to the Indonesian government have been paid.
It is important to complete the tax exit procedure to avoid any legal consequences or penalties. Failure to complete the tax exit procedure can result in your name being added to the blacklist maintained by the DGT, which can affect your ability to return to Indonesia in the future.
The taxation system in Indonesia is complex and can be challenging to navigate for expats. It is important to understand the main taxes, special tax breaks, and tax filing requirements to ensure compliance with Indonesian tax laws. Expats should also be aware of the tax exit procedures if leaving Indonesia to move abroad. It is recommended that you seek the assistance of a tax professional to ensure that you comply with all tax regulations in Indonesia.