According to the Indonesian labour law, every person who receives income in Indonesia will be subject to income tax. As long as they carry out activities that have economic value, both Indonesian citizens and foreigners will be subject to Indonesian taxes. So at what point does work conducted by a foreign employee during a business trip become taxable?
Tax subjects are divided into domestic tax subjects and foreign taxpayers. The following criteria is applied for foreign citizens, or warga negara asing (WNA),who are subject to tax:
Domiciled in Indonesia,
Staying in Indonesia for more than 183 days during 12 months, or
Within one tax year, residing in Indonesia and planning to live in Indonesia.
So, when a foreign employee’s business trip total duration exceeds more than 183 days within 12 months, the are required to directly apply for a Tax ID Number. Once the application is approved, they receive a Tax ID number and automatically become domestic tax subjects. The Tax ID number is valid for repeated business trips as long as it is carried out within 12 months. For business trips with a total duration of less than 183 days, they will also be charged, but as foreign tax subjects.
Will income from Indonesia and abroad be taxed?
After the foreign employee receives their Tax ID, the income received from work conducted in Indonesia and other countries will be taxed according to Indonesian regulations. The calculation will be adjusted according to the Worldwide Income. Worldwide income is income earned anywhere in the world and is used to determine taxable income.
In Indonesia, worldwide income reporting is based on Income Tax (PPh) Art 24. PPh 24 regulates taxpayers' right to use their tax credits outside Indonesia to reduce taxes owed here.
When foreign employee return to their home country for good, what do they need to do with their Tax Id?
When the business trip is concluded and the foreign employee returns to their home country, there are two choices that they can make regarding their Tax ID:
Submit a proposal for closing Tax ID. It takes approximately six months after the letter was submitted until the Tax ID is finally closed. The tax officer will conduct an audit first to ensure all obligations have been fulfilled.
Or, if the foreign employee plans to return to Indonesia for further business trips, they can keep their Tax ID active and do monthly tax reports.
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