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Visa Sponsorship and Tax in Indonesia: A Guide for Overseas Employers

There are two requirements you will always need to meet when sending employees on foreign assignment: 1) valid work visa sponsorship and 2) payment of taxes both at home and abroad.  The issues that come up for overseas employers is how to meet visa sponsorship criteria, and in which country the employee is liable for tax.  If you are assigning employees to Indonesia, you will face both of these compliance hurdles.

If you are just entering Indonesia for the first time, how will you know the visa sponsorship rules?  Will the employee pay local taxes in Indonesia or in the home country, or both?

To answer these questions, we have put together this brief guide along with an example of how we helped one of our American clients handle the Indonesian immigration and tax laws.

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Work Permits and KITAS/KITAP in Indonesia

There are two long-stay visas available in Indonesia, KITAS (Temporary Residency Permit) and KITAP (Permanent Residency Permit).  The KITAS is most common for foreign workers on temporary assignment, and is valid for one year (renewable up to five years).  The KITAP is valid for a five year period renewable up to 25 years total.

Both visas require an Indonesian sponsor, which can be either an individual or a locally incorporated company.  So, if you are sending employees from your home country, you will need a local entity to sponsor their visas.

Minimum Salary for Visa Sponsorship in Indonesia

When a company is the visa sponsor for the purpose of employment, the employee must have a salary on the local payroll of at least $3000 per month.  That may seem like a reasonable threshold, but it could become an issue if you want to allocate some of the employee’s salary to the home country payroll.

Where will the Employee be Liable for Tax and What is NPWP in Indonesia?

NPWP is an abbreviation in Indonesian for the tax identification number required of both the employee and employer.  The question of where the employee pays tax depends on whether the criteria for tax residency have been met.

If your employee stays in Indonesia more than 183 days in a 12 month period, then they are a tax resident and liable for Indonesian taxes at the normal rates.  Payment of taxes at home will depend on the tax laws of the home country and any tax treaties in place.  Indonesia currently has tax treaties with 66 countries.

Case Study: A US Employee in Indonesia

Our client assigned an employee to Indonesia, and encountered the related visa and tax issues.  The problem was how to pay the employee’s salary so that the $3000 sponsorship criteria was met, and how that would affect his tax liability.  The employee needed to receive part of his salary in the US, but also needed to meet the sponsorship threshold in Indonesia at the same time.

  • The employee is a US citizen, so the first question is where he is liable for tax. 

We informed our client that US citizens are liable for tax on worldwide income, so the employee would have to file a US tax return and pay tax on the full salary.  This is in addition to filing an Indonesian tax return for any amount of salary on the local payroll.  The Double Taxation Treaty (DTT) between the US and Indonesia would prevent paying double tax.

The question of rates and payment would depend on the tax treaty.  If the employee were to pay tax in Indonesia, he would be entitled to tax relief in the US under the treaty.  Because of the complexity of international taxation, we recommended our client use a tax lawyer or accountant to work out the US tax liability and credit for any Indonesian tax paid.

  • Next, they needed to know how to meet the visa sponsorship rules.

We advised them that regardless of the tax situation, at least $3000 would need to be paid in Indonesia in order to have a valid, sponsored visa.  This would of course be taxable, and the employee would have the option of having the remainder of his salary paid to his US bank account.  Our local employer of record could then handle calculation of the Indonesian tax rate, and withhold those amounts in payroll.

Need More Information About Indonesia?

This example illustrates how often tax, immigration and payroll laws can intersect when employing abroad.  You may need more information on this very topic such as:

How to learn and meet all immigration and visa rules for assigned staff.

Learning about DTTs and how they affect taxation at home and abroad.

Using split payrolls for both tax and immigration compliance.

These are types of problems that we help our clients face in the areas of immigration, payroll and taxation in all major business markets.  We make international employment simple.

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Looking to hire an employee in Indonesia? Get in touch.

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