Recently, the Ministry of Finance has issued Regulation Number 202/PMK.010/2017 of 2017 on Implementation of Income Tax Treatment Based on International Tax Treaties (Regulation 202/2017). Regulation 202/2017 supersedes the Ministry of Finance Regulation Number 157/PMK.010/2015 and its amendment number 5/PMK.010/2017. In this column we discuss the income tax treatment for foreigners and Indonesians under the new Regulation 202/2017.
Preferential Treatment under the New Regulation
Foreigners and Indonesian nationals are under Regulation 202/2017 entitled to certain preferential income tax treatments, under the following conditions:
- They are employees of international organizations; and/or
- They are subject to international law
These treatments are stipulated under each individual tax treaty between Indonesia and foreign countries. The Regulation 202/2017 acknowledges that these preferential income tax treatments will remain in place until the expiry of the related tax treaties.
The preferential income tax treatment can only be implemented if the following conditions are met:
- The tax treaties must comply with Law number 20 of 2000 concerning International Treaties;
- There is no reservation or declaration on provisions of Income Tax treatment in such tax treaty; and
- The tax treaty has been ratified / approved. Please note that in certain cases this latter condition is not required.
Foreigners or Indonesian nationals who received salary from any international organization can be exempted from the income tax provisions as regulated under the Indonesian Tax Law, if such organization has an international agreement with the Indonesian government which explicitly regulates the exemption of income taxes on salary and other remunerations.
Tax Treaties between Countries and Organizations
Indonesia has already entered into tax treaties with the following countries:
- United Kingdom
- New Zealand
- The Netherlands
- United States of America (USAID)
- South Korea
- People’s Republic of China
- Saudi Arabia
Besides the agreements listed above, Indonesia has also entered into several partnerships with a number of international organizations, such as international development and investment banks.
This column is provided by PNB Law Firm Jakarta