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:
- Residing permanently in a place outside of Indonesia that is not a transit domicile.
- Has a main activity center that shows personal, economic, and/ or social ties outside of Indonesia, which can be proven by husband/ wife/ child domiciled outside the jurisdiction of Indonesia, source of income from outside of Indonesia and is a member of religious, educational, social and/ or social organizations recognized by its government.
- Having a place to carry out daily habits or activities outside of Indonesia.
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:
- The Indonesian citizens are tax subjects from other countries or jurisdictions proven by permanent resident documents such as Certificate of Domicile.
- The Indonesia citizens have completed taxation obligations on all income received or earned while the Indonesian Citizen is a domestic tax subject.
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.