Indonesia is becoming increasingly popular as a relocation destination each year. There are many reasons for this, including a rich culture, a tranquil and healthy lifestyle, a large community of expats from different countries (which means opportunities for socialising and exchanging experiences), and a safe environment. However, due to a lack of knowledge about local legislation, many foreign citizens face difficulties when it comes to paying taxes. If you plan to move to Bali, it is essential to delve deeper into this subject. This article aims to shed light on various types of mandatory payments and help you navigate Indonesia’s tax system.
- Taxation in Indonesia
- Tax rates
- Taxable income
- Taxation for non-residents
- Taxpayer registration procedure
- Tax obligations
- National Identity Number (NIK)
- Property purchase taxes
- Property ownership tax
- Rental income tax
- Planning to leave Indonesia? Do not forget to notify the tax office
A person is considered a tax resident of Indonesia if they meet one of the criteria listed below:
- They have resided in the country for 183 days within one calendar year.
- They have spent less than 183 days in the country but intend to stay. Intent can be expressed through obtaining a work visa or a work permit with a duration exceeding 183 days.
In Indonesia, residents are required to file their tax returns independently. Of course, there are many legally registered tax consultants in the country that expatriates can turn to for assistance. However, having a good understanding of at least the basic aspects will help you structure your budget.
All tax residents are subject to progressive income tax, meaning the higher your earnings, the higher the percentage deducted from your income. The rate varies from 5 to 35% depending on income.
Currently, your income falls into one of the following brackets:
- Up to IDR 60 million (USD 3,864) per year – 5%;
- IDR 60 to 250 million (USD 3,864 to 16,100) per year – 15%;
- IDR 250 to 500 million (USD 16,100 to 32,200) per year – 25%;
- IDR 500 million to 5 billion (USD 32,200 to 322,000) per year – 30%;
- Above IDR 5 billion (USD 322,000) per year – 35%.
Practically all forms of income received by tax residents are considered taxable. According to Article 4 of Chapter 3 of the Personal Income Tax Law, these include:
- Employment income;
- Income from the exercise of an independent profession or business;
- Passive income (dividends, interest);
- Capital gains (from the sale or transfer of property);
- Rental and any other income related to the use of property.
Non-residents are subject to a flat rate of 20%. They pay only for income derived from Indonesian sources, while residents must report money earned outside the country. Double taxation can be avoided if there is an applicable agreement between Indonesia and your home country. There are currently 71 of such agreements.
Before filing a tax return, you must register with the tax office in your city of residence to obtain a NIK (National Identity Number). Migrants permanently residing in Jakarta must register with the Tax Office for Foreign Bodies and Expatriates (KPP BADORA).
You can hire a representative (such as an accountant) to help with registration, but the responsibility still rests with you. If you decide to appoint an agent, keep in mind that you will be legally liable for any unpaid taxes, so entrust this function to a reliable and trustworthy professional.
To register, you need to have the following documents:
- Completed tax registration form;
- Copy of all pages of your passport;
- Copy of your work permit;
- Proof of address—yours and your employer’s;
- Copy of your employer’s Tax Identification Number (NPWP);
- Power of attorney (if you send a representative for registration).
Indonesian residents must report their income by filing 2 types of returns:
- Monthly individual income tax;
- Annual individual income tax.
For individual taxpayers, the deadline for monthly payment is usually the 15th of the following month. Monthly returns must be submitted no later than the 20th of the following month. For annual filing, the deadline is the end of the 3rd month after the end of the tax year.
It is essential to keep track of these dates as late payment can result in interest penalties, starting at 2% and reaching up to 48% per month.
One of the most important things to do before filing a tax return is obtaining a NIK. All individuals residing in Indonesia must have this document. The same rule applies to residents living outside the country.
Once you get your NIK from the tax office, you can pay monthly income taxes, file annual returns, and more. Here are some of the activities for which you will need a NIK:
- Obtaining a driving licence;
- Opening a bank account;
- Applying for a loan or credit card;
- Purchasing a car;
- Constructing a house;
- Extending vehicle registration;
- Transferring money from an Indonesian bank account to an overseas account.
Penalties for not having a NIK can be severe, so be sure to obtain one as soon as possible. Delinquent taxpayers risk imprisonment for up to 6 years, and the maximum fine under this section is up to 4 times the total amount of tax due.
If you plan to purchase property in Bali, you should be aware that the purchase will be made through a leasehold arrangement, which does not exempt you from tax obligations. This form of ownership is available to all foreign citizens investing in Indonesian real estate. The leasehold period is 30 years and is extendable.
In addition to the cost of the house or apartment, property buyers will need to pay:
- Transfer tax – 5%;
- Sales tax – 1%;
- Lawyer’s fees – 0.5–1%;
- Notary services – 1%.
As you can see, there are no fixed amounts, and how much you will pay depends on the property’s value.
Real estate owners, regardless of whether they are residents or not, make annual payments for the land and the apartment itself. The property tax rate is 0.5% of the assessed value, while the land tax rate depends on the region and ranges from 0.1% to 0.2%.
Owning a leasehold property allows you to rent it out, for example, on a yearly or monthly basis. However, in this case, you must pay a 10% income tax. It is common practice in the island that it is paid by tenants or is already included in the rental price.
Foreigners planning to permanently leave the country must cancel their tax registration.
All you need to do is apply to the local tax office for the organisation to start checking your returns and supporting documents. Once the procedure is completed, your application to cancel your registration should be approved.
Please note that this process is lengthy and can take up to 3 years. During this time, you may leave the country, but the government has the right to retain your personal documents until the verification is complete.