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INTERNATIONAL EXECUTIVE SERVICES

Indonesia Taxation of International Executives TAX


Indonesia: Taxation of International Executives

Overview and Introduction _____________________________________________2 Income Tax ___________________________________________________________3 Tax Returns and Compliance ___________________________________________3 Tax Rates ____________________________________________________________5 Residence Rules______________________________________________________5 Termination of Residence ______________________________________________6 Economic Employer Approach __________________________________________7 Types of Taxable Compensation ________________________________________7 Tax-Exempt Income ___________________________________________________8 Expatriate Concessions ________________________________________________8 Salary Earned from Working Abroad _____________________________________8 Taxation of Investment Income and Capital Gains _________________________8 Additional Capital Gains Tax (CGT) Issues and Exceptions __________________9 General Deductions from Income _______________________________________9 Tax Reimbursement Methods __________________________________________9 Calculation of Estimates/Prepayments/Withholding _______________________9 Relief for Foreign Taxes ______________________________________________10 General Tax Credits __________________________________________________10 Sample Tax Calculation _______________________________________________10 Special Considerations for Short-Term Assignments ____________________12 Residency Rules _____________________________________________________12 Payroll Considerations ________________________________________________12 Taxable Income______________________________________________________12 Additional Considerations _____________________________________________12 Other Taxes and Levies _______________________________________________13 Social Security Tax ___________________________________________________13 Gift, Wealth, Estate, and/or Inheritance Tax _____________________________13 Real Estate Tax ______________________________________________________13 Sales/VAT Tax _______________________________________________________13 Unemployment Tax __________________________________________________13 Other Taxes_________________________________________________________14 KPMG in Indonesia ___________________________________________________15

Š 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia Overview and Introduction Indonesia adopts the self-assessment method for individuals to calculate, settle, and report income tax. The tax authorities have the right to audit any tax return to ensure the individual has calculated correctly the tax payable, within the five-year statute of limitations. For Indonesian-source income, there is an extensive framework of withholding taxes so that income tax is often collected by deduction at the source, for example in relation to employment income, interest, dividends, royalties, rent, and income from sales of property, and listed shares. The extent of the Indonesian income tax liability depends upon the individual’s residence status in Indonesia. An Indonesian tax resident is defined as an individual present in Indonesia for more than 183 days within any 12month period and/or present in Indonesia during a tax year with the intention of residing in Indonesia. Resident individuals are taxed on their worldwide income, regardless of where such income arises or for whom work or services are performed. Non-resident individuals are exempted from the worldwide income reporting obligation and tax is imposed only on income derived in Indonesia. Deductions are limited to individual personal allowances. Starting 1 January 2009, income of a resident individual that exceeds the non-taxable income threshold for a calendar year is subject to income tax at progressive rates ranging from 5 percent to 30 percent. Income of a non-resident individual is subject to income tax at a flat rate of 20 percent on gross income. Income tax is calculated and paid in Indonesian Rupiah (IDR). Amounts in other currencies are converted for tax purposes into Rupiah using exchange rates published weekly by the Ministry of Finance. Individual tax registration has only been widely enforced since 2001. As a result, there are uncertainties relating to individual taxes which have not yet been tested during tax audits or clarified in regulations or official guidance. The official currency of Indonesia is the Indonesian Rupiah (IDR). For information on practical matters that employers and employees should consider with respect to an international assignment, please refer to the companion booklet titled Planning Your International Transfer, if available. For the purposes of this publication, the host country refers to the country to which the employee is assigned. The home country refers to the country where the assignee lives when he/she is not on assignment.

Taxation of International Executives 2 Š 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia Income Tax1 Tax Returns and Compliance When are tax returns due? That is, what is the tax return due date? The monthly Indonesian individual tax return is due for payment and lodgment by the 15th and 20th of the following month, respectively. The annual Indonesian individual tax return should be lodged by 31 March of the following year. Starting for the 2008 tax year, annual tax payment is due before the lodgment deadline. What is the tax year-end? 31 December. What are the compliance requirements for tax returns in Indonesia? Residents Indonesian tax residents are required to file annual individual tax returns when their total income derived from sources in and out of Indonesia exceed the minimum threshold, which is between IDR 15,840,000 (approximately USD 1,584) for a single individual and IDR 21,120,000 (approximately USD 2,112) for a married individual with three children/dependents. Spouses may choose to file jointly or separately. The obligation to withhold, remit, and report tax on cash compensation paid in connection with employment rests with the local employing entity. Income tax withheld by employers must be remitted on a monthly basis by the 10th of the following month and reported by the 20th of the following month. The obligation to remit and report tax on income received from non-employment sources for a calendar year (such as interest, dividend, rental income, and capital gain) rests with the individual. An individual taxpayer is obliged to comply with the following procedures. z

Registration.

z

Payment of monthly installments.

z

Lodgment of an annual individual income tax return.

z

Deregistration.

Registration In order to file a tax return, an individual must register to obtain a tax identification number (NPWP). The documents required for registration of an expatriate are: z

a copy of passport;

z

a copy of his/her work permit;

z

the registration form;

z

a copy of employers tax registration number (if the company’s address is used); and

z

a letter of authority for tax professional/representative to conduct the registration process.

1

Income tax information based on the Indonesian Income Tax Law No 17 Year 2000, Income Tax Law No 36 Year 2008, Decision of the Directorate General of Taxation No KEP-545/PJ./2000, Regulation of the Minister of Finance No 250/PMK.03/2008 and Regulation of the Minister of Finance No 252/PMK.03/2008 and provided by PT KPMG Hadibroto, the Indonesian KPMG member firm on KPMG International.

Taxation of International Executives 3 Š 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia Monthly Installments The individual is required to calculate the provisional monthly income tax installments for the current fiscal year in his/her annual income tax return based on the previous year’s income (employment income taxed at the source and certain irregular income can be excluded for this purpose). The monthly tax payment should be settled by the 15th of the following month, and the tax return is to be filed by 20th of the following month. For example, tax on income received in January 2009 has to be paid by 15 February 2009, and the monthly return has to be filed by 20 February 2009. It should be noted that tax refunds are paid only after conducting of a full tax audit. Therefore, care is required to avoid overpayment of taxes. First-Year Expatriate The monthly installments should be determined based upon taxable offshore income for each month, and taking into account the income tax already paid offshore. This includes investment income such as dividends, interest, and so on. The employer is responsible for withholding, remitting, and reporting tax paid on employment income. It is advisable to be conservative when calculating the estimated amount of tax to be paid since any overpayment of tax by the individual on his/her annual (final) return will be subject to an immediate tax audit. Annual Individual Income Tax Return Filing The annual individual tax return should be filed by 31 March of the year following the end of the calendar year, and starting for 2008 tax year, if there is any amount due, the payment has to be made before the tax return is lodged. Penalties for late filing of tax returns are: z

IDR 100,000 for monthly tax return; and

z

IDR 100,000 for annual tax return.

Late payment of tax is subject to an administrative penalty of 2 percent per month for a maximum of 24 months, calculated from the date the tax was due. Extension of Time to File the Annual Individual Income Tax Return Starting from the 2008 tax year, a taxpayer who is unable to submit the annual individual tax return on time may request an extension of time to file the return up to 31 May (Form 1770-Y). However, obtaining an extension of time to file does not provide an extension of time to pay. Attachments The following documents are to be attached to the annual income tax return (Form 1770). z

Tax deposit slip to show that the balance of income tax payable according to the tax calculation has been paid.

z

List of assets and liabilities.

z

Copy of Employers’ Certificate of Income Tax on Earnings (Form 1721-A1).

z

List of taxpayer’s dependents.

z

Letter of authority for tax consultant/representative (if the tax return is signed by proxy).

z

Original copy of the fiscal exit tax receipt (which is considered a prepayment of the individual’s income tax).

z

Supporting documents for foreign tax paid (such as copies of home country tax returns, tax payment vouchers, and so on). Taxation of International Executives 4

© 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia z

Copy of work permit.

Non-Residents Non-residents are taxed on income from Indonesia only, at a final flat rate of 20 percent. The obligation to withhold, remit, and report tax on cash compensation paid in connection with employment rests with the local employing entity. Income tax withheld by employers must be remitted on a monthly basis by the 10th of the following month and reported by the 20th of the following month. Non-residents do not have an obligation to register for an NPWP or file any individual income tax return. Tax Rates What are the current income tax rates for residents and non-residents in Indonesia? Residents Income tax table for 2010 Total Tax on Income below Taxable Income Bracket Bracket From To IDR IDR IDR 1 50,000,000 0 50,000,001 250,000,000 2,500,000 250,000,001 500,000,000 32,500,000 500,000,001 Over 95,000,000

Tax Rate on Income in Bracket Percent 5 15 25 30

Non-Residents Non-residents are taxed at a flat rate of 20 percent. Residence Rules For the purposes of taxation, how is an individual defined as a resident of Indonesia? Resident taxpayers are defined as: z

any individual present in Indonesia for more than 183 days in any 12-month period; or

z

any individual present in Indonesia during a tax year with the intention of residing in Indonesia.

Generally, individuals who come to Indonesia with an intention to work and reside in Indonesia with a valid work permit and stay permit would be treated as tax residents of Indonesia from the date of arrival. An expatriate is resident until the date of final departure from Indonesia. An Indonesian national is considered resident from birth unless he/she leaves Indonesian permanently. An Indonesian national working overseas for more than 183 days in a 12-month period is also considered as non-resident. He/She will only be taxed on his/her Indonesian-source income, provided that he/she has paid income tax on his/her offshore employment earnings. An individual who is present in Indonesia for tax purposes is required to file an individual income tax return if he/she obtains income which exceeds the personal deduction threshold (non-taxable amount) of between IDR 15,840,000 (for a single individual) and IDR 21,120,000 (for a married individual with three children/dependents) per year (approximately between USD 1,584 and USD 2,112 at the current exchange rate). In order to file a tax return, an individual must be registered and obtain a tax identification number (NPWP). Twenty percent tax surcharge will be applied to the earnings of an employee who does not have an NPWP while earning income above the personal deduction threshold.

Taxation of International Executives 5 Š 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate. None. What if the assignee enters the country before their assignment begins? There is no regulation which forbids an assignee to enter Indonesia before his/her assignment begins, however he/she should already have a valid working visa before he/she can start working in Indonesia. Termination of Residence Are there any tax compliance requirements when leaving Indonesia? Upon leaving Indonesia permanently, an expatriate should submit an application to cancel his/her tax registration. The tax office will perform a tax audit on the taxpayer’s returns and supporting documents prior to granting approval to deregister. Therefore, the individual should ensure all tax related documents, including bank statements, foreign tax paid documents, salary slip, employment contract, and so on are readily available in anticipation of a tax audit The following documents are required for deregistration. z

z

z

Deregistration form. A letter from individual requesting deregistration tax registration number for he/she is no longer working at the company and leaving Indonesia. A statement letter from the company that the individual is no longer working at the company starting from the effective date.

z

Original tax registration card.

z

Copy of Exit Permit Only (EPO).

z

Letter of authority to enable the tax professional/representative to handle the tax deregistration.

What if the assignee comes back for a trip after residency has terminated? The assignee may come back to Indonesia on a social or business visa, however, without a valid working visa, he/she is not allowed to work for the Indonesian entity. The business visa only allows the individual to attend meetings or research, but not to exercise employment. Communication between Immigration and Taxation Authorities Do the immigration authorities in Indonesia provide information to the local taxation authorities regarding when a person enters or leaves Indonesia? There were some cases in which the tax authorities received a notification from the immigration authorities regarding the arrival of expatriate assignees. However based on KPMG in Indonesia’s experience, currently, this exchange of information is not a regular occurrence. Filing Requirements Will an assignee have a filing requirement in the host country after they leave the country and repatriate? The assignee will still have an obligation to file his/her final individual income tax return for the period of their residency in Indonesia (from 1 January to the date of their permanent departure from Indonesia).

Taxation of International Executives 6 © 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia Economic Employer Approach2 Do the taxation authorities in Indonesia adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Indonesia considering the adoption of this interpretation of economic employer in the future? Currently the taxation authorities in Indonesia assume that the assignee’s employer is the entity that: z

sponsors the work permit and stay permit for the individual;

z

bears the total remuneration cost of the assignee; and

z

has the control or authority over the assignee’s employment.

It is expected that the employer should be a resident entity. Indonesia is not a member of the OECD; it is not certain if the Indonesian authorities would adopt the economic employer approach. De minimus Number of Days3 Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days? Not applicable. Types of Taxable Compensation What categories are subject to income tax in general situations? Income is defined as any economic benefit received or accrued by a taxpayer that is used for consumption or that increases the wealth of the taxpayer, in whatever name or form. The following types of income are subject to tax. z

Compensation or payments received or earned in connection with work or services. An expatriate is taxed on his/her actual salary, although salary guideline levels are sometimes used by the tax office where there is evidence of undeclared or under declared income. (Expatriates working in the offshore oil drilling sector are subject to tax at statutory-deemed salary levels, not actual salary.)

z

Lottery, prizes, and awards.

z

Gross profits from individual business activities.

z

Gains from the sale or transfer of assets.

z

Refunds of tax payments already deducted as expenses.

z

Interest.

z

Dividends, in whatever name or form, paid by a corporation, payments of dividends by an insurance company to policy holders.

z

Royalties.

z

Rents from property.

z

Annuities received or accrued.

2

Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country. 3 For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

Taxation of International Executives 7

© 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia z

Gains from cancellation or forgiveness of indebtedness.

Tax-Exempt Income Are there any areas of income that are exempt from taxation in Indonesia? If so, please provide a general definition of these areas. The followings are the types of income which are exempt from tax. z

z

z

z

z

z

Benefits-in-kind: o

unless these amounts are taken as a deduction in determining the taxable income of the employer; and/or

o

unless the employer is tax exempt or is subject to tax on a final tax or deemed profit basis.

Income tax borne by the employer (unless grossed-up). Gifts or assistance received from a close family member, and religious, educational, or social institutions or small scale entrepreneurs including co-operatives, unrelated to the business or profession of the parties involved. Inheritances. Payments from an insurance company because of accident, illness, or death of the insured, and payments of scholarship insurance. Scholarships with approval from the Ministry of Finance.

Expatriate Concessions Are there any concessions made for expatriates in Indonesia? None. Salary Earned from Working Abroad Is salary earned from working abroad taxed in Indonesia? If so, how? The Regulation of the Director General of Taxation No PER-2/PJ/2009 confirms that Indonesian citizens who works overseas for more than 183 days within a 12-month period are considered as non-resident taxpayers, and their offshore income will not be subject to income tax in Indonesia, provided that they have already paid income tax on their earnings in their host country. Taxation of Investment Income and Capital Gains Are investment income and capital gains taxed in Indonesia? If so, how? Capital gains are treated as normal income subject to income tax. However, sale of locally listed shares are subject to a final tax at 0.1 percent of gross sales proceeds, and sale of domestic real estate is subject to 5 percent final income tax of the sale price. Purchase of domestic real estate is subject to a 5 percent tax on transfer of title. Gains from Stock Option Exercises Timing of withholding tax imposition is heavily influenced by when the cost is recognized in the local employing entity’s records. Information in the below table assumes that the option is not cross-charged to the Indonesian entity Residency Status Resident Non-resident

Grant N N

Vest N N

Taxable at: Exercise N N

Sale Y N Taxation of International Executives 8

Š 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia Additional Capital Gains Tax (CGT) Issues and Exceptions Are there additional capital gains tax (CGT) issues in Indonesia? If so, please discuss? None. Are there capital gains tax exceptions in Indonesia? If so, please discuss? None. General Deductions from Income What are the general deductions from income allowed in Indonesia? An individual tax subject who is a resident of Indonesia is allowed the following deductions against employment income. z

z

Occupational expenses: 5 percent of gross employment income up to IDR 6 million per year (approximately USD 600 at the current exchange rate). Contributions to government-approved pension funds: 5 percent of gross income up to IDR 2,400,000 per year (approximately USD 240 at the current exchange rate).

These deductions are prorated according to the period of residence in the tax year. Additional deductions include the following. z

z

Personal allowance of between IDR 15,840,000 (for a single individual) and IDR 21,120,000 (for a married individual with three children/dependents) per year (approximately between USD 1,584 and USD 2,112 at the current exchange rate). Aids and donations, including the ones made to government-authorized religious organizations can be claimed as a deduction by enclosing a copy of the official receipt.

Tax Reimbursement Methods What are the tax reimbursement methods generally used by employers in Indonesia? None. Calculation of Estimates/Prepayments/Withholding How are estimates/prepayments/withholding of tax handled in Indonesia? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on. Pay-As-You-Go (PAYG) Withholding monthly employee income tax is automatically withheld, paid, and reported by the company as withholding tax obligation rests at the payer. PAYG Installments For personal income, the first year assignee should calculate a conservative amount of tax to be self paid and reported to the tax authorities. For second and following years’ assignees, the amount of monthly installment should be paid according to the amount of tax calculated in the previous year’s tax return. When are estimates/prepayments/withholding of tax due in Indonesia? For example, monthly, annually, both, and so on. The monthly employee withholding tax should be paid and reported by the 10th and 20th of the following month, respectively. The monthly individual income tax should be paid and reported by the 15th and 20th of the following month, respectively. Taxation of International Executives 9 © 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia Relief for Foreign Taxes Is there any Relief for Foreign Taxes in Indonesia? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on? Indonesian tax can be reduced by tax paid or due abroad on income received or accrued abroad by an individual in the same fiscal year. The permitted foreign tax credit for such year shall be limited to the total Indonesian income tax due on foreign income. Note that the Indonesia tax authority uses the ordinary-credit-per-country approach where tax credits can only be claimed against tax due on income from the relevant country. For example, foreign taxes paid in the United States can be claimed only against tax due on U.S.-source income. General Tax Credits What are the general tax credits that may be claimed in Indonesia? Please list below. In the case of a registered resident taxpayer, tax due for a tax-year may be reduced by the following. z

Withholding of tax on income from employment.

z

Collection of tax on income from business.

z

Withholding of tax on income in the form of interest, dividends, royalties, rents, and other remuneration.

z

Prepayments made by the taxpayer himself for such tax year.

z

Fiscal exit tax.

z

Tax paid or due abroad on income received or accrued abroad by the taxpayer in the same year.

Sample Tax Calculation4 This calculation assumes a married taxpayer resident in Indonesia with two children whose three-year assignment begins 1 January 2010 and ends 31 December 2012. The taxpayer’s base salary is USD 100,000 and the calculation covers three years.

Salary Bonus Cost-of-living allowance Housing allowance Company car Moving expense reimbursement Home leave Education allowance Interest income from non-local sources

2010 USD 100,000 20,000 10,000 12,000 6,000 20,000 0 3,000 6,000

2011 USD 100,000 20,000 10,000 12,000 6,000 0 5,000 3,000 6,000

2012 USD 100,000 20,000 10,000 12,000 6,000 20,000 0 3,000 6,000

Exchange rate used for calculation: USD 1.00 = IDR 10,000.00. Other Assumptions z

All earned income is attributable to local sources.

z

Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.

z

Interest income is not remitted to Indonesia.

z

The company car is used for business and private purposes and originally cost USD 50,000.

4

Sample calculation generated by PT KPMG Hadibroto, the Indonesian member firm of KPMG International, based on the Indonesian Income Tax Law No 17 Year 2000, Income Tax Law No 36 Year 2008, Decision of the Directorate General of Taxation No KEP-545/PJ./2000, Regulation of the Minister of Finance No 250/PMK.03/2008 and Regulation of the Minister of Finance No 252/PMK.03/2008.

Taxation of International Executives 10

Š 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia z

The employee is deemed resident throughout the assignment.

z

Tax treaties and totalization agreements are ignored for the purpose of this calculation.

z

The employee has obtained a tax identification number and thus there is no 20 percent tax surcharge.

Calculation of Taxable Income Year Ended Days in Indonesia during year

2010 365 IDR

2011 365 IDR

2012 366 IDR

1,000,000,000

1,000,000,000

1,000,000,000

200,000,000 100,000,000 120,000,000 0 200,000,000

200,000,000 100,000,000 120,000,000 0 0

0 30,000,000 1,650,000,000 60,000,000 1,710,000,000 18,096,000 1,691,904,000

50,000,000 30,000,000 1,500,000,000 60,000,000 1,560,000,000 25,800,000 1,534,200,000

0 30,000,000 1,450,000,000 60,000,000 1,510,000,000 25,800,000 1,484,200,000

2010 IDR 1,691,904,000 558,416,400

2011 IDR 1,534,200,000 405,260,000

2012 IDR 1,484,200,000 390,260,000

0

0

0

0 558,416,400

0 405,260,000

0 390,260,000

Earned income subject to income tax Salary Bonus Cost-of-living allowance Net housing allowance Company car Moving expense reimbursement Home leave Education allowance Total earned income Other income (interest) Total income Deductions: Total taxable income

200,000,000 100,000,000 120,000,000 0 0*

*Assume received after leaving Indonesia Calculation of Tax Liability

Taxable income as above Indonesian tax thereon Less: Domestic tax rebates (dependent spouse rebate) Foreign tax credits Total Indonesian tax

Taxation of International Executives 11 Š 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia Special Considerations for Short-Term Assignments5 Residency Rules Are there special residency considerations for short-term assignments? When an assignee obtains a working permit for his/her employment and a multiple entries temporary stay permit in Indonesia, this may be interpreted as an intention to reside in Indonesia, as both the working permit and stay permit are valid for one year. Thus the tax authorities may insist that this assignee should be considered as a tax resident, even if it is merely for short term assignment. Accordingly, it is suggested that for short-term assignment, the work permit and stay permit should also correspond to the period of the assignment, such as four months or six months. This specific stay permit only allows for a single entry. Payroll Considerations Are there special payroll considerations for short-term assignments? Non-residents or short-term assignees who stay in Indonesia for less than 183 days are taxed on Indonesiasourced income only. Taxable Income What income will be taxed during short-term assignments? Non-residents will be taxed on income derived from Indonesia only, at a flat 20 percent tax rate. Additional Considerations Are there any additional considerations that should be considered before initiating a short-term assignment in Indonesia? None.

5

For the purposes of this publication, a short-term assignment is defined as an assignment that lasts for less than one year.

Taxation of International Executives 12

Š 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia Other Taxes and Levies Social Security Tax Are there social security/social insurance taxes in Indonesia? If so, what are the rates for employers and employees? The national social security scheme applies to expatriates, unless they are already covered by a similar or better scheme offshore. If applicable, the minimum which should be paid by the company is 6.24 percent of the employee’s base salary (depending on the industry) and the employee’s contribution is 2 percent. If the salary is not borne or paid by a local employer, no contributions are possible. Employer and Employee Type of Insurance Work accident* Old age Death Health (optional) Total Percent

Paid by Employer Percent Employee Percent 0.24 - 1.74 0.00 3.70 2.00 0.30 0.00 3.00 or 6.00 0.00 4.24 -11.74 2.00

Total Percent 0.24 - 1.74 5.70 0.30 3.00 or 6.00 6.24 -13.74

*depending on the industry Gift, Wealth, Estate, and/or Inheritance Tax Are there any gift, wealth, estate, and/or inheritance taxes in Indonesia? None. Real Estate Tax Are there real estate taxes in Indonesia? None. Sales/VAT Tax Are there sales and/or value-added taxes in Indonesia? The rate of VAT is 10 percent but under the law the government may amend this rate to a minimum of 5 percent and a maximum of 15 percent. VAT is levied on exports at 0 percent. A sales tax is imposed on the delivery of luxury goods by manufacturers in Indonesia and on the importation of luxury goods. The rates vary depending on the category of goods. The current rates range from 10 percent to 75 percent. Unemployment Tax Are there unemployment taxes in Indonesia? None.

Taxation of International Executives 13 © 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia Other Taxes Are there additional taxes in Indonesia that may be relevant to the general assignee? For example, customs tax, excise tax, stamp tax, and so on. Local Taxes6 Companies employing expatriate employees are required to pay USD 100 per month for the Skill Development Fund (certain exemptions apply). This levy must be paid 12 months in advance and is required for the issuance of the expatriate’s work permit. This levy is intended to fund the education and training of Indonesian employees. Annual Property Tax7 A property tax of 0.5 percent is levied on a specified percentage of the taxable sales value of land and buildings. For the following types of property, the percentage is 40 percent of the sales value. z

Property with a value in excess of IDR 1 billion (approximately USD 100,000).

z

Plantations, forestry, or mining business.

For other types of property, the percentage is 20 percent. Thus, the effective tax rate is 0.2 percent or 0.1 percent, respectively. Fiscal Exit Tax Starting from 1 January 2009, fiscal exit tax is only payable by resident individuals who have reached the age of 21 and have not registered for a tax identification number (NPWP). The amount of fiscal exit tax to be paid by residents without NPWP is IDR 2.5 million (approximately USD 250) for departure by air and IDR 1 million (approximately USD 100) for departure by sea. The amount paid can be claimed as prepayment of personal tax in the individual’s annual tax return once the individual has obtained NPWP. The fiscal exit tax will be abolished fully as of 1 January 2011.

6 7

Decision of the Minister of Manpower and Transmigration of the Republic of Indonesia No. KEP-20/MEN/III/2004 Law Number 12 Year 1985

Taxation of International Executives 14

© 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Indonesia KPMG in Indonesia Jakarta Esther Kwok PT KPMG Hadibroto 33rd Floor Wisma GKBI 28, Jl. Jend. Sudirman Jakarta 10210 Indonesia Tel. +62 (21) 570 4888 Fax +62 (21) 570 5888 e-Mail: esther.kwok@kpmg.co.id

Taxation of International Executives 15 Š 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


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Š 2010 PT KPMG Hadibroto, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.


Taxation od international executives_2010_KPMG