The Determination of Expatriates as Residents

Question:
I am a tax manager in a company engaged in IT consulting. My company is recorded to employ approximately 15 expatriates from various countries.

My question is, how is the tax residence of the expatriates determined, are they included as residents (SPDN) or non-residents (SPLN)? Are there certain criteria for determining tax residence?

Wilson, Jakarta.

Answer:
Thank you, Mr. Wilson, for your question. Pursuant to Article 2 paragraph (2) of the Income Tax Law, tax subjects are divided into residents and non-residents. Further, residents refer to Article 2 paragraph (3) of the Income Tax Law as follows:

“Resident taxpayers are:

1. an individual residing in Indonesia who has been present in Indonesia for more than 183 (one hundred and eighty-three) days within any 12 (twelve) months period or an individual who within a particular tax year has been residing in Indonesia and intends to reside in Indonesia;
2. an entity established or domiciled in Indonesia, except certain units of government bodies which fulfills the following criteria:

1. its establishment is pursuant to the laws;
2. financed by the State Budget or Local Government Budget;
3. its revenues are included in the State Budget or Local Government Budget; and
4. its bookkeeping is audited by the government auditor; and

3. undivided inheritance as a unit in lieu of the beneficiaries.”

Next, non-residents refer to Article 2 paragraph (4) of the Income Tax Law as follows:

“Non-resident taxpayers are:

1. an individual who does not reside in Indonesia, an individual who resides in Indonesia for not more than 183 (one hundred and eighty-three) days within any 12 (twelve) months period and an entity that is not established and domiciled in Indonesia, conducting a business or activities through a permanent establishment in Indonesia; and
2. an individual who does not reside in Indonesia, an individual who resides in Indonesia for not more than 183 (one hundred and eighty-three) days within any 12 (twelve) months period and an entity that is not established and domiciled in Indonesia, that may receive or accrue income from Indonesia not from conducting a business or activities through a permanent establishment in Indonesia.”

Thus, in general, an individual is declared as a resident if residing in Indonesia, is in Indonesia for more than 183 days within any 12-month period or a particular tax year in Indonesia and intends to reside in Indonesia.

To further clarify the determination of residents and non-residents, the Director General of Taxes has issued the Director General of Taxes Regulation No. PER-43/PJ/2011 concerning the Determination of Residents and Non-Residents (PER-43/2011). Article 3 paragraph (1) of PER-43/2011 stipulates that:

“Resident taxpayers are:

1. an individual who:

1. resides in Indonesia, or
2. has been present in Indonesia for more than 183 (one hundred and eighty-three) days within any 12 (twelve) months period, or
3. within a particular Tax Year has been residing in Indonesia and intends to reside in Indonesia.

2. an entity established or domiciled in Indonesia, and
3. undivided inheritance as a unit in lieu of the beneficiaries.”

Next, Article 7 paragraph (1) of PER-43/2011 stipulates that:

“An individual residing in Indonesia referred to in Article 3 paragraph (1) subparagraph a number 1) is an individual who:

1. has a place of residence in Indonesia used by the individual as a place for:

1. a permanent dwelling place, that is not temporary and not a place of transit,
2. conducting the ordinary course of life,
3. a place of habitual abode, or

2. has a place of domicile in Indonesia, namely an individual born in Indonesia and remains in Indonesia.”

Further, Article 10 of PER-43/2011 stipulates that:

"The period of 183 (one hundred and eighty-three) days referred to in Article 3 paragraph (1) subparagraph a number 2) is determined by calculating the length of time an individual Tax Subject is in Indonesia, whose presence in Indonesia may be continuous or intermittent, and a fraction of the day is calculated as 1 (one) full day.

Next, Article 11 of PER-43/2011 stipulates that:

“An individual Tax Subject is deemed to intend to reside in Indonesia as referred to in Article 3 paragraph (1) subparagraph a number 3) if:

1. the individual Tax Subject clearly demonstrates the intention to reside in Indonesia, which can be proven by documents in the form of:

1. work Visa, or
2. Temporary Stay Permit (KITAS) for more than 183 (one hundred and eighty-three) days or a contract/agreement to conduct work, business or activities in Indonesia for more than 183 (one hundred and eighty-three) days.

2. the individual Tax Subject undertakes actions indicating that he/she will reside in Indonesia or is preparing to reside in Indonesia, such as renting or contracting a place, including renting a place of residence in Indonesia, moving family members or acquiring a place provided by another party.”

Based on the above provisions, it can be concluded that individuals or in this case, expatriates will be determined to constitute residents if they fulfill one of the provisions under Article 7 paragraph (1), Article 10, or Article 11 of PER-43/2011 (non-cumulative). On the other hand, if an individual does not fully comply with the provisions under Article 7 paragraph (1), Article 10 or Article 11 of PER-43/2011, the individual is a non-resident.

We hope our answer satisfies your inquiries.