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Nick Graham - Managing Partner

Hani Awaliyati - Manager

RSM INDONESIA WEBINAR SERIES TUESDAY, 16 MAR 2021

INDIVIDUAL TAX RETURN PREPARATION AND UPDATES

❑ Indonesian concept of tax resident individual

❑ Income exemption facility for certain foreign individuals that work in Indonesia

❑ Designation of payroll schemes and related income tax consequences

❑ Managing tax risk for individuals with multiple source of income

❑ Preparation of Personal Tax Return (1770S)

Topic Coverage:

TAX RESIDENCE

Income Tax Law Changes: Determination of Individual Tax Subject

Minimizing differences in

the interpretation of the

tax status of Indonesian

citizens and foreigners

Reducing the tax

administration burden

Attract foreigners with

special skills

Improve the competence

of the workforce in

Indonesia

BACKGROUND

Why is tax residence important?

TAX RESIDENT

• Must register as a taxpayer

(obtain NPWP)

• Comply with tax laws &

regulations

• Report & pay tax on worldwide

income

NON-RESIDENT

• Only subject to Indonesian tax

on income sourced from

Indonesia

• Able to utilise applicable tax

treaty to reduce Indonesian

tax

Indonesian Citizens

Foreigners

Become a Domestic Tax Subject if:

c. Is present in Indonesia during a tax year and

intends to reside in Indonesia

a. Lives/place of residence in Indonesia, or

b. Stay in Indonesia > 183 days within 12 months, or

Determination of Individual Tax Subject (tax resident)

The individual:

• Lives in a place (in Indonesia) that:

– Is controlled or can be used at any time;

– Is owned, rented or available for use, and

– Is not a temporary stop-over;

• Has centre of main activity in Indonesia (re: personal, social, economic, and/or

financial affairs), OR

• Carries out daily habits or activities in Indonesia, including a favorite activity or

hobby

(PMK 18/PMK.03/2021, Article 2 Paragraph 2)

Resides/has a place of residence, if:

✓ KITAP;

✓ VITAS that is valid > 183 days;

✓ ITAS that is valid > 183 days;

✓ Contract/agreement for employment, business or activities to occur in Indonesia >

183 days, or

✓ Other docs (e.g. residential rental agreement > 183 days or documents relating to

the relocation of family members to Indonesia)

(PMK 18/PMK.03/2021, Article 2 Paragraph 4)

Intention to reside can be shown by:

Foreign Tax Subject (SPLN)

Individuals that do not reside/intend to reside in

Indonesia

Indonesian citizens who are outside Indonesia > 183 days for 12 months and meet the requirements, among others

ResidenceThe main activity

center

Place for undertaking

habits

Tax subject statusOther specified requirements

FOREIGNERS in Indonesia <183 days for

12 months

Determination of Individual Tax Subject (non-resident)

WNI can become a non-resident if present overseas for > 183 days within a 12-month period

and:

1. Has a residence at a place overseas that is permanent in nature (not temporary/stop-over);

2. Has a central place of main activities overseas as shown by personal, economic and/or

social ties that can be evidenced by:

a. Spouse, children and/or close relatives live outside Indonesia

b. Source of income is from overseas;

c. Has become a member of a religious, educational, social and/or community

organization that is recognized by the government in that country;

3. Has a place for undertaking daily habits or activities outside Indonesia;

4. Has become a tax resident of another country, and/or

5. Satisfies other specified requirements

Non-resident (for WNI)

WNI can become a non-resident if present overseas for > 183 days

within a 12-month period and …..”5. must satisfy other requirements”:

1. Must have finalized all Indonesian tax obligations regarding all

income earned while a tax resident, and

2. Has obtained a Certificate from DJP that has met the conditions

to become a Foreign Tax Subject

Non-resident (for WNI)

• Register and obtain NPWP

• Lodge a Personal Tax Return (1770, or variant)

• Pay tax on worldwide income, after adjustment for

applicable tax credits or exemptions

• Make applicable tax instalment payments (Art25)

General Tax Obligations – for a Tax Resident Individual

TAX FACILITY FOR EXPATRIATES

Income tax is imposed only on income originating from Indonesia provided that:

a. Have certain skills and

b. Valid for 4 tax years from the time you first became SPDN

Including income related to work, services, or activities in Indonesia that are paid outside Indonesia

Cannot use Indonesia’s tax treaty network to reduce tax on income from overseas

Must lodge an application

Foreigner –

during the first 4 years

in Indonesia

Temporary facility to exempt worldwide income from Indonesian tax

Criteria to Qualify as an Expert

● Must hold a position that is in accordance with Manpower regulations (if an employee), OR

● Is appointed by the minister in charge of government affairs re research (if a researcher), AND

● Must be a citizen of another country, AND

● Has expertise in the fields of science, technology and/or mathematics, as evidenced by:

o A certificate of expertise from an institution in Indonesia or the country of origin,

o Education certificate, and/or

o At least 5 years work experience

in the area of expertise, AND

● Has an obligation to provide knowledge transfer

Type of Job Position with Certain Expertise for Expatriates

Type of Job Position with Certain Expertise for Expatriates (cont’d)

Type of Job Position with Certain Expertise for Expatriates (cont’d)

TAXATION OF REMUNERATION

▪ All income from an employer is subject to Article 21 WHT

▪ Tax is generally calculated on an annualized basis for

expatriates and a period-of-employment basis for

Indonesians

▪ Benefits received in kind are not subject to Article 21 WHT,

but are not deductible to the employer

General

There are 4 schemes that

might operate

Gross system = tax is

deducted from salary and

the after-tax salary is paid

to the employee. The

employee bears the tax.

Net system = tax is not

deducted from the salary.

The quoted salary is paid

to the employee and the

employer bears the tax.

The tax is a BIK.

Gross-up = tax is not

deducted from the salary.

The quoted salary is paid

to the employee and the

employer grosses up and

bears the tax.

Hybrid = some

combination of the above

(e.g. salary might be gross

but a car allowance might

be net).

How remuneration might be taxed by your employer

How remuneration might be taxed by your employer (cont’d)

Example: A1 – Gross Method

How remuneration might be taxed by your employer (cont’d)

Example: A1 – Gross Up Method (Tax Allowance)

• Arguably a gross-up is only permitted if the employment agreement specifies

this since it could result in higher employer-based income that could push other

income into a higher tax tier.

• An exception occurs re BIK if the employer’s business income is subject to

Final Tax, or not taxed (e.g. Construction, Real Estate or KP3A Representative

Offices).

– Any BIK must be taxed under Article 21 and therefore (usually) a gross-up is

required so the employee does not bear the tax

• BPJS - have both employer and employee contributions for most components

(except JKK & JKM).

– Typically, the employer does not bear the employee contributions because

the employee receives the benefit of these

How remuneration might be taxed by your employer (cont’d)

TAXATION OF MULTIPLE SOURCES OF INCOME

• Must report and pay tax on worldwide income

(unless able to access the facility for experts).

• Do not forget that other countries are sharing

information with Indonesia re financial assets

(AEOI).

• Indonesia taxes the husband & wife as a single unit,

except in limited circumstances.

• Income from more than one employer (in parallel)

and other income will result in additional tax

• Article 25 instalments will be due if there

is a year-end tax liability

Taxation of multiple sources of income

INDIVIDUAL TAX RETURN PREPARATION

1770SS• Employee with a total gross income not more than

IDR 60 million a year

• used if the taxpayer earns income who only works

for one company or has income derived from one

source

1770S• Employee with a total gross income more than IDR

60 million a year

• receive income from more than one source

1770• Income from business/independent work who

maintain bookkeeping or net income based on

norm calculation

• taxpayers who work for more than one employer

have income that is subject to Final Income Tax,

have other domestic income (interest, royalties,

etc.), or offshore income

• E.g. Entrepreneur, business owner, professional

who use norm such as doctor, lawyer, etc.

Types of Personal Income Tax Return

P.S.

Should be lodged by 31 March of the following year,

after payment of any tax.

1. Come directly to the Tax Office

2. E-filing / e-form

3. Post Office

4. Via expedition services (registered)

5. Tax Application Service Providers

Submission of Annual Individual Tax Return

E-Filing Submission Type of Services

Fill in the

Tax Return

by Online

Upload the

e-Tax

Return

Annual Personal Tax Return 1770SS

Annual Personal Tax Return 1770S

Annual Personal Tax Return 1770

Annual Corporate Income Tax Return 1771

E-Form

Annual Personal Tax Return 1770S

Annual Personal Tax Return 1770

Annual Corporate Income Tax Return 1771

E-Filing Submission Type of Services

• TAX ID (NPWP)

• EFIN (electronic filing

identification number)

• Register and activate DJP ONLINE

ACCOUNT

3 Important Things for e-filling

Tax Office

KPP sends EFIN to taxpayer

or Taxpayer come directly to the Tax Office to request

EFIN activation

TaxpayerThe EFIN activation process is 1 working day

If you already have an

active EFIN

1. Use EFIN to register

for a DJP Online

account on the website

www.pajak.go.id

2. Single Login

www.pajak.go.id

3. The activation link is sent via

the taxpayer's email. Click on the

link to activate your DJP Online

Account

4. Your DJP Online

account has been

created. You can do

e-Filing

DJP Online Account Activation

1. Login at

www.pajak.go.id with

DJP Online Account

2. Select the e-Filing

service on the

"Report" menu

4.Obtain and fill

in the verification

code3. Create the

Tax Return

5. Send Tax

Return

6. Electronic

Receipt Sent to

your email

E-Filing Procedure

1. Lists of Withholding Tax Slip (Tax withheld by other parties)

2. Income List

3. List of Member of Family’s Dependent (based on Family Card)

4. List of Assets

5. List of Liabilities

6. Other Related Docs

Other Information to be Provided

TAX RETURN 1770S

LOG IN :

Visit the web/site

www.djponline.pajak.go.id

fill in your Tax ID (NPWP) and password,

Fill in the image code / CAPTCHA,

then click "Login“.

E-Filing Simulation – 1770s

Select a service: e-Filing

E-Filing Simulation – 1770s (cont’d)

SERVICE :

Select: Create SPT

Follow the e-Filing Guide

If you already have sufficient

knowledge to complete 1770S

Form, please choose to fill out

the form "With Form/Without

guidance“

If you want to be guided and the

display form is simplified, please

choose to fill in the form "With

guidance"

E-Filing Simulation – 1770s (cont’d)

GUIDANCE :

Fill in the Year of the Return, and choose whether it is the First one (= Normal) or a Revision

1. INPUT :

E-Filing Simulation – 1770s (cont’d)

If you have a Withholding Tax slip, fill in “step two”

2. INPUT :

E-Filing Simulation – 1770s (cont’d)

For example: tax deduction from government employee's salary

in the form 1721-A2, then input into this dialog box

E-Filing Simulation – 1770s (cont’d)

Once saved, it will appear in the list of withholding tax slip summary in Step 2 :

E-Filing Simulation – 1770s (cont’d)

Input Net Domestic Income related to the Employment

3. INPUT :

E-Filing Simulation – 1770s (cont’d)

Input Other Domestic Income, if any

4. INPUT :

E-Filing Simulation – 1770s (cont’d)

Input Foreign Income, if any

5. INPUT :

E-Filing Simulation – 1770s (cont’d)

Input income as non tax object, if any…. For example: an inheritance of IDR10,000,000

6. INPUT :

E-Filing Simulation – 1770s (cont’d)

Input the Income subject to Final Income Tax, if any ….

For example: Lucky Draw Prize worth IDR 20,000,000,

withheld by 25% Final Income Tax (IDR 5,000,000)

7. INPUT :

E-Filing Simulation – 1770s (cont’d)

Input the Assets you have.

If in the previous year you have reported the list of assets in e-filing, you can display it again by selecting

"Assets in Last year's tax return"

8. INPUT :

E-Filing Simulation – 1770s (cont’d)

List of Asset Code

Cash and Cash Equivalent

011: cash

012: saving

013: current account

014: deposits

019: cash equivalent

Receivable

021: accounts receivable

022: affiliated receivables (receivable from

related parties as intended in Article 18

paragraph (4) Income Tax Law)

029: other accounts receivable

Investment

031: shares bought for sale back

032: shares

033: corporate bonds

034: Indonesian government bonds(Indonesian Retail

Bonds or ORI, sharia securities country, etc.)

035: other debt securities

036: mutual funds

037: derivative instruments (right, warrant, futures,

options, etc)

038: equity participation in other companies that weren't

top shares include investment capital at CV, Firm,

and the like

039: other investments

Transportation

041: bicycle

042: motorcycle

043: car

049: other means of transportation

Movable Properties

051: precious metals (gold bullion, gold jewellery, platinum bars,

platinum jewellery, other precious metals)

052: precious stones (diamonds, diamonds, precious stone sother)

053: artistic and antique items (art, antiques)

054: cruise ship, airplane, helicopters, jetski, sports equipment special

055: electronic equipment, furniture

059: other movable property

Immovable Properties

061: land and / or buildings for

residence

062: land and / or building for

business(shops, factories,

warehouses, and the like)

063: land or land for business

(land agriculture, plantation,

fishery land, and the like)

069: other immovable

possessions

List of Asset Code

Input Liabilities that you have.

If in the previous year you have reported a list of liabilities in e-filing, you can display it again by selecting

"Liabilities in Last year's tax return"

9. INPUT :

E-Filing Simulation – 1770s (cont’d)

List of Liability Code

101: bank / financial institution Non Bank (Mortgage house, Motor Vehicle Leasing, and its kind)

102: credit card

103: affiliated payable (Loans from parties who have a special relationship as such referred to in Article 18

paragraph (4) of Invite Income Tax)

109: other Debt

Input any dependents you have.

If in the previous year you have reported a list of dependents in e-filing, you can display it again by selecting

"Dependents in Last Year's tax return"

10. INPUT :

E-Filing Simulation – 1770s (cont’d)

Fill in the Compulsory Zakat / Religious Donations that you pay to an Institution management authorized by

the Government

11. INPUT :

E-Filing Simulation – 1770s (cont’d)

Fill in according to husband-and-wife status. In this case, please pay attention if you carry out tax

obligations separately with your husband / wife, live separately, or enter into an asset separation

agreement. (MT / HB / PH) - For example: the taxpayer is the head of the family and the wife does not work

12. INPUT :

E-Filing Simulation – 1770s (cont’d)

Fill in the prepaid Income Tax Article 24 from foreign income, if any.

13. INPUT :

E-Filing Simulation – 1770s (cont’d)

Fill in the total of Income Tax Article 25 installments and Tax Base of Income Tax Article 25 Collection

Letter, if any

14. INPUT :

E-Filing Simulation – 1770s (cont’d)

Income Tax Calculation

15. INPUT :

E-Filing Simulation – 1770s (cont’d)

Article 25 Income Tax Calculation, if any

16. INPUT :

E-Filing Simulation – 1770s (cont’d)

Confirmation/Agreement that the information is correct and prepared/provided in accordance with the tax

regulations

17. INPUT :

E-Filing Simulation – 1770s (cont’d)

Summary of your tax return and obtain the verification code

SUMMARY :

Click Send Tax Return when

you have inputted the

verification code

E-Filing Simulation – 1770s (cont’d)

Your tax return has been

completed and sent.

Please open your email to

receive the Electronic

Receipt (BPE) for the Tax

Return

E-RECEIPT :

E-Filing Simulation – 1770s (cont’d)

RSM INDONESIAPlaza ASIA Level 10

Jl. Jend. Sudirman Kav.59Jakarta 12190 Indonesia

www.rsm.id