Indonesian Tax Residency

mugwump

Why chase away a good thing? Indonesia has people living here that contribute vastly to the country by virtue of goods purchased, people employed, properties purchased without entitlement to ownership as well as the construction costs and employment that involves without contributing anything to those contributors. Don't overlook the transfer taking place by creating a model of entrepreneurship lost to many Indonesians without that example. We are a hell of a good deal to Indonesia and no little entitlement. Doubling the taxation on this vital minority isn't going to encourage it. Let's not overlook why Indonesia would not want to kill the golden goose.

ronb

The tax agreement between Indonesia and Australia seems to say if your Aussie income is taxed in Australia then you don't pay in Indo. Since retirement visas say "no work" it is common that we have no income in Indo so if they chase you for not submitting a return they would end up finding that there was no tax owing. So why would they do that?

Mark

Mugwump, you make good points and maybe that is why the govt has not pursued expat tax obligations in the past. However, there is no way to quantify what you say and for the central government, the only thing that matters is tax collection in cash, not indirect financial benefits for a province which do not add to the government coffers. Ronb, the law in Indonesia is that if you are tax resident you must declare and pay tax on worldwide income. If you do declare, then you are entitled to take advantage of tax treaties that may reduce or eliminate the Indonesian tax obligation. However, if you do not file for tax, declare and prove that income is exempt under a tax treaty, then you have a problem... sorry, just saying..

Jonathan

Hi all So I have stayed in Indonesia for about 4 months now. I enjoy it a lot and can see myself set up base here for a longer time. One of the things to consider when staying longer is avoiding becoming a resident for tax purposes. It seems to be pretty clear that if you stay longer than 183 days in Indonesia you are technically liable for tax on your worldwide income (possibly affected by double-tax-treaties which may or may not lower taxes being owed in Indonesia). In my relatively short stay here I have easily met 10+ people having set up base here long term staying a majority of the year in Bali (definitely 6+ months, many all year or close to all year). I would assume all of them are considered tax residents by Indonesian law. Yet every single one of them never even considered that that might be the case, to the point were many thought such an idea to be on the level of outrageous. Now, who am I to judge, so I am mostly interested in why the situation is like it seems to be. I feel like this would be a gold mine for Indonesian government to dig into and from all I learned about this country I am surprised they would leave such an opportunity alone. The way I see this: [LIST] [*]These people are not living on some small retirement income but making substantial amount of money, so taxes owed would be substantial as well. [*]It is relatively easy to monitor as immigration at airport can see if someone is staying for 6 months a year on every entry [*]The stakes for the "visitors" are high as they often have long-term rental agreements, some of them even with kids in schools here [*]Although many foreigners are probably happy flying-under-the-radar, I don't see many of them filing outright false documents if required to do so [/LIST] I understand how it can be difficult to nail down some digital entrepreneurs that are here only for a few months, the possible reward is probably small. But long-term residents not paying any tax does seem to be much more interesting?! Why is the government not catching up on these? Lacking interest? Lacking methods to enforce? Is the impact on the scale of all Indonesia much lower than I would expect having my experiences from Bali? Would be interested to hear opinions from others with more insight/experience to how Indonesian government thinks... Jonathan

Mark

Hi Jonathan, the reactions you point out are typical. Until they see it with their own eyes, few believe that the Indonesian authorities can/will go after resident expats for taxes owed on their international income. However... this year the Common Reporting Standard has come into effect. 47 countries have signed so far, including all OECD countries. Indonesia is a signatory. Under the CRS, countries will share individual financial information with each other to allow all to better enforce their tax laws. So, if an Indonesia resident expat from Australia, for example, earns income in Australia from a bank account, business or investment, it will be reported to Indonesia (along with the balances), so that Indonesia will then have the information necessary to assess income tax and, if relevant, penalties. This will likely occur first with Kitas and Kitap holders i.e., those with long term residence permits, and it is not inconceivable that Kitas and Kitap holders will eventually have to register for a tax number and certify tax compliance as part of the application and renewal process. As to the others who 'live' in Bali on the visa run method, it will be more difficult to enforce. One option for the authorities would be to limit the use of these visas so that an expat could not legally stay in Indonesia under them for more than 183 days in any twelve month period. Given how much these types of visas are currently abused, I would not be surprised if this happened. At the moment the CRS is the only realistic way for Indonesia to enforce its tax laws against residents having overseas income. Other alternatives would probably require more manpower and technology than the tax office currently has. Having said that, the tax authorities recently warned Indonesians that it is obtaining AI software to monitor social media accounts to see whether an individual's lifestyle and network of relationships is inconsistent with his / her level of reported income and assets. http://www.thejakartapost.com/news/2018/08/30/tax-office-to-spy-on-taxpayers-social-media-activity.html Bottom line is that the government is highly motivated to improve tax collection, and so the net is closing, slowly but surely.