Expats must pay tax for income earned abroad

JAKARTA (JP): Foreigners working or living in Indonesia for more than 183 days in a 12-month period must report all their income including that gained overseas to the local tax authority and pay income tax, a senior tax official told a seminar on Tuesday.

Chief of the tax office responsible for foreign institutions and individuals John Hutagaol said that this was not a double taxation.

"This is not a double taxation... In case an expatriate is treated as a resident taxpayer his or her worldwide income shall be reported in the tax return, and tax paid offshore on the worldwide income can be credited against the Indonesian income tax," Hutagaol said in a seminar on tax for expatriates.

"We have a method for avoiding double taxation. What we adopt here is ordinary tax credit per country limitation," he added.

According to the country's tax law, resident (local) taxpayers are subject to tax payment on their worldwide income, regardless of geographic origin.

The law also stipulates that an individual who resides in Indonesia or resides in Indonesia for more than 183 days within a 12-month period shall be treated as a resident tax payer.

So if an individual living in Indonesia categorized as a resident taxpayer sold or rented his house in London for example, he will only have to pay the Indonesian authority the remaining amount of tax in the case where the tax level in the UK is lower than in Indonesia.

But Hutagaol said that the Indonesian tax law also limited the maximum tax credit available for expatriates.

Hutagaol said that the tax provision for foreigners has actually been in existence since 1984 but had not been seriously enforced by the government.

He said that as more expatriates would be working in Indonesia amid the globalization era, the government wanted to tap into this particular source of tax.

"With around 1.3 million expatriate taxpayers last year, they paid some Rp 45 billion in tax. If the figure can be increased to Rp 60 billion it will be a significant contribution.

Under the Indonesian tax ruling, annual income of up to Rp 25 million (US$2688) is subject to 5 percent income tax, annual income of between Rp 25 million to Rp 50 million is subject to 10 percent tax, between Rp 50 million to Rp 100 million 15 percent tax, Rp 100 million to Rp 200 million 25 percent tax, and above Rp 200 million 35 percent tax.

The House of Representatives has passed amendments earlier this year to five of the country's rulings, which will be effective starting next year.

With one of the changes, taxpayers will have to apply for their own tax identification number (locally called NPWP), report their income to the local tax authority and pay the tax.

Under the current system, the income tax of an individual who only has one source of income is being processed by his or her employer.

Foreigners categorized as a resident taxpayer must also do the same.

Failure to comply with the ruling could risk administrative or even legal sanctions.

Hutagaol said that the tax identification number is obtained from the local tax office where the tax payer resided.

But he said that if a particular tax payer resided in one place, for example Jakarta, and earned his living in another place, for example in Sumatra, he or she may be forced by the authority in the latter place to change his or her domicile so that Sumatra could collect the tax.

Hutagaol said that this was in line with the regional autonomy policy to be implemented next year.

"It would be unfair if you work in Sumatra but obtained your NPWP and pay your tax in Jakarta," he said.

He also said that a taxpayer who worked in two places, as many expatriates do, would only have to apply for a single NPWP from the authority near place of residence.(rei)