Tigor Siahaan, Head of Banking and Financial Services at the Indonesian Employers Association (Apindo), highlighted that many expatriates are reluctant to reside in Indonesia due to the country’s taxation policies on expatriates. This situation impacts foreign investors’ decisions to invest or establish company headquarters in Indonesia.
Tigor explained that expatriates working in Indonesia face double taxation on their income earned in Indonesia and other countries.
“When they move here, their income let’s say from London, New York, or Japan is immediately taxed at 35%. They view this as a disadvantage, leading them to prefer setting up in Malaysia,” he said during the Bisnis Indonesia Economic Outlook 2025: Heading Towards an Inclusive and Sustainable Future event on Tuesday (10/12/2024), as reported by bisnis.com.
In contrast, other countries—unspecified by Tigor—only tax expatriates on income earned within their jurisdiction. He urged the Indonesian government to reconsider this policy amid the implementation of global taxation frameworks.
Expatriates’ Contribution to Job Creation
Tigor emphasized that expatriates play a significant role in creating employment opportunities in Indonesia. While expatriates are often accused of taking jobs from locals, he noted that the number of foreign workers in Indonesia is currently only about 100,000—an insignificant figure compared to the country’s total population.
“Imagine if we had 1 million expatriates here, they could create 20 million jobs. They would need drivers, teachers, housemaid, recreational services,” he explained.
Taxation Regulations for Expatriates in Indonesia
According to the Directorate General of Taxes under the Ministry of Finance, expatriates who earn income in Indonesia and abroad must report all earnings in their Annual Tax Return (SPT). Expatriates must also provide a Certificate of Income to prove their foreign earnings alongside their Indonesian income.
Article 2, Paragraph 3(a) of the Income Tax Law defines a Domestic Taxpayer as:
- Individuals residing in Indonesia.
- Individuals staying in Indonesia for more than 183 days within a 12-month period.
- Individuals intending to reside in Indonesia during a tax year.
Expatriates working in Indonesia fall under this category and are thus treated as Domestic Taxpayers, subject to the same obligations as Indonesian citizens, quoting pajak.go.id.
Income Components and Tax Deductions
Expatriate employment contracts in Indonesia typically detail their earnings, which may include:
- Basic salary.
- Spousal and child allowances.
- Special work-related allowances in Indonesia.
- Overseas-related allowances, such as foreign post allowances, workload allowances, or family benefits provided by their home office.
These earnings, whether regular or irregular, are subject to Income Tax Article 21. Regular income includes salaries, wages, allowances, and overtime pay, while bonuses or annual performance incentives are classified as regular income under Income Tax Article 25.
As stated in Directorate General of Taxes Regulation KEP-537/PJ/2000, regular income is any income received periodically at least once within a tax year, excluding income taxed at a final rate.
Thus, expatriates earning bonuses or allowances from their overseas employers for their work in Indonesia must include these components as taxable regular income under Indonesian regulations.
Source: bisnis.com, pajak.go.id
Image credit: Nataliya Vaitkevich (pexels.com)
