Expatriate 101: Understanding Personal Income Tax in Indonesia

There are various types of taxes in Indonesia. However, if you are planning to move and work in the country, income tax in Indonesia is what you need to learn first. Even if you are not an Indonesian, you may be taxed if you fulfilled the criteria of Indonesian tax resident.

The tax in Indonesia is determined through self-assessment. Therefore, you will also need to understand why type of tax you should pay and how much. This can be confusing for an expatriate living in Indonesia. However, this article will discuss more about income tax and its implementation.

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Who is eligible?

Not all foreign workers living in Indonesia are eligible to pay personal income tax in Indonesia. They have to fulfill certain criteria to be considered an Indonesian tax resident. The criteria are not based on the nationality, but the length of stay instead. 

If you meet the criteria below, then you are considered an Indonesian tax resident and is eligible to pay taxes in Indonesia:

• Anyone who lives in the Indonesia for more than 183 days within 12-month period regardless of the visa they use.
• Anyone who intends to live in the Indonesia for more than 183 days despite spending less than 183 days in the country.
• Anyone who still earn any type of income in Indonesia despite working outside the country for more than 183 days within 12-month period. In this case, the tax residents must pay their Indonesian income only. 

Some individuals are not eligible of income tax in Indonesia due to their special legal status even if the live for more than 183 days in a year. These are the criteria:

• Personnel of foreign diplomat and consulate
• Foreign military and civilian employees in a foreign armed services;
• International organizations’ representatives specified by the Finance Minister in Indonesia.

Scope of taxable income

The system of taxes in Indonesia mentioned that income is defined as an economic capacity increase. There are various types of economic capacity increase that are considered as income and therefore, taxed by law. 

Here are the economic gains that are considered as income and are taxed by law:

• Income from an employment;
• Income from independent business;
• Passive income which includes royalties, dividends, insurance gains, interest;
• Capital gains from property transfer or sale;
• Income from property use.

Tax rate

Not all taxable individuals taxed with the same rate. If you are considered residents, then you are subject to a progressive tax. The rate of progressive tax depends on how much income you receive annually.

If your income is up to IDR 50 million per year, then you are subject to 5% income tax. For income between IDR 50 million to IDR 250 million, the tax rate is 15%. Individuals who received between IDR 250 million to IDR 500 million per year are subject to 20% tax rate. For income more than IDR 500 per year, the tax rate is 30%.

For individuals considered as non-residents, they are subject to a flat tax of 20% on their gross income.

It is important to note that various factors can deduce the annual taxable income. For example, a family is considered as a single tax reporting unit. Therefore, taxable individuals and their spouses don’t have to report their tax separately. 

Income tax usually already paid by the employer on the earned income. Therefore, employee only needs to report their annual tax return by the end of March. However, if you have other personal income that you receive regularly, you will need to pay a monthly provisional tax to the taxation office.

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Now you know how income tax in Indonesia works. You can calculate it and pay the tax yourself easily. For easier payment, you can use Flip app that allows you to transfer money to any Bank in Indonesia with minimum admin fee.

Interestingly, Flip also has great features for expatriates called Flip Globe. This feature allows you to transfer money internationally fast and easily. The transfer is processed in the same day up to 2 days depending on the destination country. With one app only, you can do a lot of things from transferring money, paying your bills, and even shopping!