For companies employing foreign workers (expatriates) as Permanent Employees, the calculation of Article 21 Income Tax (PPh 21) carries distinct complexities compared to local employees. The main difference lies in the Subjective Tax Obligation period. While local employees generally have a full-year tax obligation (unless born or deceased), expatriates often begin or end their tax obligations in the middle of the calendar year upon arriving in or permanently leaving Indonesia.
The key to expat tax calculation in these conditions is the "Annualized" (Disetahunkan) method.
1. Arrival Scenario: Mid-Year Entry
When an expatriate starts working in Indonesia (e.g., in September) and intends to stay for more than 183 days, they become a Domestic Tax Subject (SPDN).
- Monthly Phase (TER): Similar to local employees, for the initial months of work (other than the last tax period/December), tax withholding uses the Average Effective Rate (TER) multiplied by the Gross Income for that month.
- Last Tax Period (December): This is where the difference lies. The Net Income received during the working period (e.g., 4 months) must be annualized first to determine a fair tax base according to progressive rates.
Case Example (Mr. C - Arrives September):
Mr. C (Status K/0) starts working on September 1, 2024. Salary Rp15,500,000/month.
- Jan-Aug: No withholding.
- Sept-Nov: Withheld using TER Category A (e.g., 7%).
- December (Recalculation):
- Calculate actual Net Income for the year (from 4 months of income).
- Annualize: (Net Income x 12/4).
- Calculate Tax Payable on this annualized value using Article 17 Rates.
- Prorate: The tax result above is multiplied back by the working proportion (4/12) to get the actual tax payable for 2024.
- Subtract the tax already withheld (Sept-Nov) to determine the PPh 21 Underpayment/Overpayment in December.
2. Departure Scenario: Leaving Indonesia Permanently
This scenario occurs when an expatriate resigns and returns to their home country (EPO/Exit Permit Only) mid-year, for example in August. This causes their subjective tax obligation in Indonesia to end.
- Mechanism: The calculation in the final working month (Last Tax Period) also uses the annualized net income method.
Case Example (Mr. E - Leaves August):
Mr. E (Status TK/0) has worked for a long time but resigns and returns to his country on September 1, 2024. Salary Rp17,500,000/month.
- January-July: Withheld using monthly TER.
- August (Last Period):
- Calculate actual Net Income (Jan-Aug).
- Annualize: (Net Income Jan-Aug x 12/8).
- Deduct full annual Non-Taxable Income (PTKP).
- Calculate Tax Payable (Article 17 Rate) on the annualized figure.
- Prorate: Multiply the tax result by (8/12).
- Result: Typically, this calculation results in an Overpayment status because the TER withholding in previous months assumed full-year income, while in reality, the employee only worked part of the year. The company is obliged to refund this overpayment to the employee.
3. Income in Foreign Currency
Many expatriates receive salaries in foreign currencies (e.g., USD). For PPh 21 calculation, this value must be converted to Rupiah using the Ministry of Finance Exchange Rate prevailing at the time of payment or when the income becomes due (whichever occurs first).
Conclusion
Expat tax calculation requires extra precision during the "Last Tax Period" (whether December or the month they return to their country). The "Annualized" principle ensures that progressive rates are applied fairly to their estimated annual income capability, before being prorated back according to their actual working period in Indonesia.
Regulatory References:
- Government Regulation Number 58 of 2023.
- Minister of Finance Regulation Number 168 of 2023 (Attachment Part Two points I.2.1.2 and I.2.2.3).
- Book "Cermat Pemotongan PPh Pasal 21/26" (DJP, 2024).
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