PPh 21 Calculation When Losing Subjective Tax Obligation: The Annualized Method

In the PPh Article 21 tax cycle, there is a specific condition where a permanent employee stops working not merely due to changing jobs or retiring within Indonesia, but because they lose their subjective tax obligation. This condition generally occurs in two events: Foreign Nationals (WNA) leaving Indonesia permanently, or employees passing away.

Unlike employees who simply resign but remain in Indonesia, the tax calculation for those losing subjective obligation mid-year uses a specific mechanism called "annualized" (disetahunkan).

Why Annualized?

The basic principle of PPh Article 21 is a tax on annual income. If an employee loses their subjective obligation (e.g., returns to their home country in September), the income received from January to August is considered their full-year income in Indonesia.

Therefore, to ensure fair tax calculation according to the progressive tax brackets (Article 17 of the Income Tax Law), the net income received during that portion of the tax year must be projected (annualized) first, the tax calculated, and then prorated back according to the actual working period.

Calculation Mechanism: TER and Article 17

Since the implementation of the new 2024 regulations, the calculation process is divided into two phases:

• Monthly Phase (January to Month Before Stopping): During these months, tax withholding is performed using the Monthly Average Effective Rate (TER) multiplied by the monthly Gross Income.
• Last Tax Period (Month of Stopping): In the month the employee stops and leaves Indonesia or passes away, a recalculation is performed using the Article 17 rate with an annualized net income basis.

Calculation Steps in the Last Tax Period:

Case Example: Expatriate Leaving Indonesia

Let's take the example of Mr. E (status TK/0) who has worked at PT V since 2020. On September 1, 2024, he stops working and leaves Indonesia permanently (loses subjective obligation). His monthly salary is Rp17,500,000.

Significant Difference:

If Mr. E simply resigned and stayed in Indonesia, his net income would not be annualized. In a standard resignation case with the same figures, Mr. E would actually experience an Overpayment of Rp3,620,000. However, because he is leaving Indonesia (annualized), he has an Underpayment in the final month.

Conclusion

The "annualized" method ensures the state receives tax rights appropriate to the annual income capacity of employees leaving the Indonesian tax jurisdiction. For employers, identifying the status of employees who stop working (whether staying in Indonesia or leaving forever) is crucial as it determines opposing calculation methods: potential overpayment (for standard resignation) or potential underpayment (for those losing subjective obligation).

Regulatory References:

• Minister of Finance Regulation Number 168 of 2023 concerning Implementing Guidelines for Withholding Tax on Income in Connection with Work, Services, or Activities of Individual Taxpayers.
• Book "Cermat Pemotongan PPh Pasal 21/26", Directorate General of Taxes (2024), Appendix Calculation Examples.