The end of September will also see the end of the minimum 2 percent penalty rate for those taking advantage of the tax amnesty.
Expatriates working and living in Indonesia are confused as to whether they are required to participate in the program and what the consequences are if they do not participate. Does Indonesian Law No. 11/2016 concerning the tax amnesty provide rights for expatriates to participate in the program?
The Indonesian Taxation Law applies a time test on foreigners who live in Indonesia to be domestic taxpayers. Article 2 of Law No. 36/2008 concerning the fourth amendment to Law No. 7/1983 concerning income tax (the Income Tax Law) regulates material and formal requirements as to the status of foreigners who become domestic tax subjects and are required to have a taxpayer identification number (TIN).
The material requirement is to obtain income from activities within the Indonesian territory, while the formal requirement is a length of stay in Indonesia of 183 days within a period of one year, or foreigners residing in Indonesia for a period of one tax year who intend to stay in Indonesia.
The intention to stay in Indonesia can be implied, for example, by an employment contract with an Indonesian company.
Furthermore, Article 3 of the Tax Amnesty Law regulates that all taxpayers are eligible to participate in the tax amnesty. This means that every individual who is already materially and formally qualified as a tax subject will be given a TIN and be eligible for the tax amnesty.
The Indonesian income tax system encompasses worldwide income for its citizens, with the result that all Indonesian citizens who earn income anywhere in the world must pay income tax imposed by the Indonesian Income Tax Law, unless they have been taxed by the country where the income is earned, taking into account the tax treaties between both countries.
However, it is also ruled that citizens who do not live in Indonesia for 183 days within a one-year period are not required to have a TIN and thus are not required to utilize the tax amnesty as long as they do not have any kind of earnings in Indonesia.
This provision is attached to Indonesian citizens. Ownership of a TIN should be distinguished from a person’s citizenship status. Therefore, all income earned and property owned by expatriates in their country of origin, or in any other countries outside Indonesia, need not be reported.
Income tax imposed on expatriates can be divided into foreign and domestic tax subjects.
The income earned in Indonesia by expatriates as foreign taxpayers is subject to Article 26 of the Income Tax Act, that is 20 percent final of the gross amount earned.
The types of income consist of:
2. interest, including premiums, discounts and rewards in connection to loan repayment guarantees,
3. royalties, rents and other income with respect to the use of property,
4. rewards with respect to services, employment and activities,
5. prizes and awards,
6. pensions and other periodic payments,
7. premium swaps and other hedging transactions, and
8. advantages for debt relief.
Note that theses kinds of expatriates have no obligation to have a TIN or to file a tax return.
In the case that the expatriate holds a domicile letter from a partner country to a tax treaty with Indonesia, then the rate on the tax treaty will be applied.
Conversely, expatriates as domestic taxpayers earn income from sources as follows:
1. income from employment, such as salaries, benefits, honorariums and so forth,
2. income from independent personal services, such as income as a doctor, notary, actuary, accountant, lawyer and so on,
3. income from business and activities, which consist of merchandise business services, as well as other industries, such as animal husbandry, agriculture, fisheries and so on,
4. income from capital in the form of movable or immovable property, such as interest, dividends, royalties, rents and sale of property or rights that are not used for business, and
5. other earnings, such as debt relief and rewards.
To meet the successful expectations of the government in its tax amnesty program, a positive rationale must first be put forward to persuade all taxpayers to participate and help collect state revenues.
Therefore, expatriates who fulfill material and formal requirements to be domestic tax subjects and are registered as domestic taxpayers by holding a TIN can participate in the tax amnesty.
This raises another question: what kind of property should be disclosed by expatriates participating in the tax amnesty?
Expatriate skepticism seems to stem from the definition of wealth in the Tax Amnesty Law, which defines “the accumulation of additional economic capability in the form of all wealth, both tangible and intangible, whether movable or immovable, whether used for business or not for business, inside and/or outside the territory of the Republic of Indonesia”. This is why it is called worldwide income.
To answer this ambiguity is Article 32A of Law No. 16/2009 concerning the fourth amendment of Law No. 6/1983 concerning general provisions and tax procedures.
The article specifies the tax treaty as a device specifically applicable to law (lex specialis) governing the taxation rights of each country in order to provide legal certainty and to avoid double taxation and prevent tax evasion.
By the definition, income obtained in the country of expatriates’ origin must already be taxed and beyond the object of the tax amnesty.
Meanwhile expatriates, as domestic taxpayers, might also earn untaxed additional income or own property in Indonesia obtained by untaxed income from Indonesia and have the right to participate in the tax amnesty.
The tax amnesty program is a right, not an obligation, for taxpayers. Expatriates who are eligible to join the tax amnesty are those who are qualified as domestic tax subjects and considered as domestic taxpayers.
Wealth that should be revealed by expatriates includes domestic incomes or assets derived from income obtained in Indonesia and not yet reported or fully reported in their annual tax return, as long as they have an obligation to pay it.
Wealth in their home country or outside Indonesia obtained from revenue outside Indonesia is not included as an object of the tax amnesty.
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