Tax Obligations of Resident or Non-Resident Indonesian Citizens 

JAKARTA, DDTCNews – The status of Indonesian citizens (WNI) as residents or non-residents will determine the consequences of their tax obligations.

DDTC’s Managing Partner stated that there are at least 4 consequences of this status. First, if an individual is a resident, the tax base is based on net income. This provision is different if the Indonesian citizen is a non-resident.

“If the individual is a non-resident, the tax base is gross income,” Darussalam said in a webinar entitled Diaspora of Tax Rights and Obligations, Friday (19/3/2021).

Second, if an Indonesian citizen is still a resident, the income that must be filed is all domestically- and foreign-sourced income. This is a consequence of the worldwide income system stipulated under Article 4 paragraph (1) of the Income Tax Law.

“Article 4 paragraph (1) of the Income Tax Law defines that income in a broad sense, in whatever form, from whatever source which may be utilised for consumption or saving, is subject to taxes in Indonesia,” he added.

Third, residents are taxed based on the rates under Article 17 of the Income Tax Law on a net income basis. Non-residents, on the other hand, are taxed based on proportional rates or based on tax treaties (P3B) on a gross income basis.

Fourth, for residents, the mechanism for filing their tax obligations is through tax returns (SPT). However, if a person fulfils the requirements as a non-resident, tax filing is based on final collection or withholding, thereby, no tax return needs to be filed.

In principle, each country, in fact, is authorised to determine its respective tax residency criteria. However, the criteria for determining tax residency are contained in 2 tax treaty models, namely the OECD Model and the UN Model.

With these two guidelines, the criteria for determining tax residency of each jurisdiction tend to be similar to one another. The criteria for determining tax residency in the OECD Model and UN Model are known as the tie breaker rules which are fulfiled in stages.

On another note, this event was organised by the Association of Indonesian Students in the UK (PPI UK) in collaboration with the Indonesian Tax Centre in the United Kingdom (Intact-UK) and the Indonesian Embassy (KBRI) in London. (kaw)