How to Apply for the Territorial Tax Scheme for Foreign Citizens

PURSUANT to Article 4 paragraph (1) of the Income Tax (PPh) Law, taxpayers’ income sourced from, both Indonesia and outside Indonesia, is subject to Income Tax. However, taxpayers may only be taxed on income received in Indonesia.

Taxpayers that may be taxed only on income sourced from their jurisdiction or commonly referred to as the territorial tax system are foreign citizens (WNA) with certain expertise.

Referring to the Minister of Finance Regulation No. 18/2021, foreigners constituting resident tax subjects (SPDN) are only subject to income tax on income received or accrued from Indonesia under two provisions, namely having certain expertise and only valid for 4 years since they constitute resident tax subjects.

If a foreigner leaves Indonesia within a period of 4 years, the end of the period continues to be calculated from the time the foreigner constitutes a resident tax subject. Certain expertise includes foreign workers with certain positions and foreign researchers.

Based on Appendix II of MoF Reg. 18/2021, the list of positions with certain expertise is as follows.

Certain criteria for expertise must also be fulfiled, namely being a foreign citizen, having the obligation to transfer knowledge and having expertise in the fields of science, technology and/or mathematics.

Foreign citizens with certain skills employed by the employer must fulfil at least one of two requirements. First, the employment of foreign workers who can occupy certain positions as stipulated by the minister of manpower. Second, foreign researchers appointed by the minister in the field of research.

The expertise must also be proven by documents, namely a certificate of expertise issued by an institution appointed by the Government of Indonesia or the government of the foreign worker’s country of origin; education diploma; and/or 5 years of work experience at the minimum in the field of science or field of work as per the field of expertise.

Submission of the Application

A Foreign Citizen with certain expertise may choose to be subject to Income Tax pursuant to the provisions under this territorial tax system or take advantage of the Tax Treaty (P3B).

If a Foreign Citizen chooses to be subject to Income Tax only on income received or accrued in Indonesia, the Foreign Citizen must apply to the Directorate General of Taxes (DGT). The sample format of the application to the DGT can be seen in Appendix III of MoF Reg. 8/2021.

The application is submitted electronically through certain channels stipulated by the DGT. If certain channels are not yet available, the application may be submitted in person or by post with proof of postage to the Tax Office (KPP) where the taxpayer is registered.

Within a maximum period of 10 days after the application is received in full, the Head of the Tax Office issues: a letter of approval or a letter of rejection of the application. Whether the application is approved or rejected depends on whether the requirements have been fulfiled. This concludes our review. We hope this is useful. (vallen/rig)