Expatriates working in Indonesia face a main challenge: navigating the complexities of tax obligations under international treaties. Understanding these processes is essential for ensuring legal compliance and a smooth expatriate experience. In this article, I will be specified further in the case of Double Taxation Agreement (DTA) between Indonesia and Singapore, as regulated under the Agreement Between The Government Of The Republic Of Indonesia And The Government Of The Republic Of Singapore For The Elimination Of Double Taxation With Respect To Taxes On Income And The Prevention Of Tax Evasion And Avoidance”, established in Presidential Regulation No. 35 of 2021. You can read the whole agreement on this link.

Understanding Your Tax Obligations in Indonesia as a Foreigner

Expatriates working in Indonesia, particularly those from countries with which Indonesia has a Double Taxation Agreement (DTA), need to comprehend how their income will be taxed to avoid the pitfalls of double taxation. For instance, Indonesia and Singapore have a DTA that provides clarity on how tax obligations should be handled to prevent income from being taxed in both countries.

Tax Implications of Allowances Received in Indonesia:

For a director receiving an allowance in Indonesia while still being paid a salary in Singapore, it’s crucial to understand how these earnings are treated under the DTA. In such cases, while the salary continues to be taxed in Singapore, the allowance received for duties performed in Indonesia is taxable in Indonesia. This is grounded in the principles of the DTA which stipulate that income derived from employment in one of the contracting states can be taxed in that state under Article 15, concerning Dependent Personal Services.

Foreign Director’s Fees:

Expatriates holding directorial positions should pay particular attention to how their remuneration is structured. According to Article 16 of the DTA, directors’ fees earned for duties performed in a contracting state are taxable in that state. Therefore, any director‘s fees or similar remuneration received by a director for services rendered in Indonesia are subject to Indonesian tax laws.

Avoidance of Double Taxation:

The DTA between Indonesia and Singapore includes provisions to prevent double taxation, which is crucial for expatriates to understand. Should any tax be levied in Indonesia on allowances or other remuneration, the expatriate may be eligible for tax relief in their home country, such as Singapore, in the form of tax credits or exemptions as articulated in Article 23 of the DTA.

By familiarizing yourselves with the relevant articles of the DTA, expatriates can ensure a more manageable and compliant stay in Indonesia. Consulting with tax professionals and legal advisors is highly recommended to navigate these complexities effectively.