Determining Income Tax has become a major concern for Indonesian citizens living abroad. Their failure to understand cross- border taxes will have a detrimental effect on their family’s global financial plan. The 2008 Income Tax Law does not adequately explain the determination, whether they are domestic tax subjects, foreign tax subjects or both.
The new Omnibus Law Tax Law No. 11/2020 was launched in November 2020 to replace the 2008 Income Tax Law. One of the important key changes is the Territorial System Approach to replace the Worldwide System.
For its derivative regulations, the Minister of Finance Regulation No.18/PMK.03/ 2021, which was launched in early March 2021, includes, among other things, requirements for individual Indonesian citizens who live outside of Indonesia for more than 183 days within a period of 12 months to obtain foreign tax subject status.
For this purpose, they are required to get a “Certificate of Indonesian Citizens Who Meet the Requirements to Become Foreign Tax Subjects” issued by the Head of the Indonesian Tax Office.
The main requirement for processing the certificate is that the Indonesian citizen has been domiciled outside of Indonesia for more than 183 days within a period of 12 months and fulfills the following requirements:
Requirements 1 to 3 are examined in stages. In the event that the Indonesian citizen meets the requirement for residence outside of Indonesia and no longer resides in Indonesia, it is not necessary to continue the fulfillment of the requirements in point 2 and 3. If the Indonesian citizen meets the requirements of residence outside of Indonesia and at the same time also resides in Indonesia, then proceed to the requirement in point 2.
If the Indonesian citizen meets the main activity center requirements outside of Indonesia and there is no main activity center in Indonesia, then there is no need to proceed to the requirement in point 3.
Other 2 requirements that must be met:
Indonesian citizens holding a “Certificate of Indonesian Citizens Who Meets the Requirements to Become Foreign Tax Subjects” do not receive or accrue income originating from Indonesia, are not subject to Indonesian income tax anymore. If they receive or accrue any income originating from Indonesia, that income is subject to income tax in accordance with the provisions of Indonesian regulations applicable to foreign tax subjects.
For more detail information, please contact your Tax Advisor.