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Correct tax questions to ask?

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  • Correct tax questions to ask?

    Someone I know has been asked to get a tax number by immigration to be able to apply to extend his teaching working visa. After he read through some of the information on this forum he was a bit confused by all the info, but could see a worst case scenario where he would be dangerously close to a yearly income of 250 million, including some side jobs his wife does, and therefore be taxable at 35% which would result in a whopping tax bill come March of around 90 million! As his monthly income varies between 15 and 20 million, he might be just as well to throw in the towel on Indonesia rather than paying such a relatively huge tax bill which would be practically everything he could save after paying rent on the house. It could be even worse if there were back taxes, and someone suggested the asset list is also taxable. On the other hand, he found a few other teachers who do have a tax card and they didn't seem too worried about it but he didn't have time to ask for a lot of details. So, he arranged a meeting with the school director to try to get some clarity on the situation. But, he is sort of in the situation of not knowing the right questions to ask to understand what the situation actually is.

    A few questions might be:

    Has the school been deducting tax in the background? Is his monthly salary a gross or net number? This could actually make the situation worse if the his salary is net as it could put his income from 15% to the 35% bracket.

    Maybe his wife should get her own tax card? Her income is in the zone of 50 million, in cash mostly, meaning she isn't obliged apparently, but if his wife's income is added to his income it could put him into the 35% bracket.

    Is tax actually payable monthly as some information suggests, or is it yearly in March?

    If Indonesia collects taxes on global income, and getting out of the tax system is quite difficult, would that mean that if he is Canadian, and goes to teach in Japan in the future, he would have to pay 35% of his earnings in Japan to the Indonesian government? That sounds odd.

    Does the school have an accountant who is doing the taxes of the teachers who do have a tax card number and is the accountant willing to do his?

    What then is an estimate of the taxes that will be due at year end?

    Does anyone have insight on the answer to these questions and about what might be the right questions to ask to the school's director at the meeting next week?

  • #2
    Originally posted by tomasturtle View Post
    (0) ... including some side jobs his wife does ...

    (1) Has the school been deducting tax in the background?

    (1a) Is his monthly salary a gross or net number? ...

    (2) Maybe his wife should get her own tax card? ... she isn't obliged apparently, ...

    (3) Is tax actually payable monthly as some information suggests,

    (3a) or is it yearly in March?

    (4) ... if he is Canadian, and goes to teach in Japan in the future, he would have to pay 35% of his earnings in Japan to the Indonesian government? ...

    (5) Does the school have an accountant who is doing the taxes of the teachers who do have a tax card number and is the accountant willing to do his?

    (6) What then is an estimate of the taxes that will be due at year end? ...


    (0) By the way , In Indonesia it is illegal to do any work which is not specified in the Work Permit/IMTA . It is illegal to work for more than 1 company simultaneously (except as Director) . Penalties are : jail up to 5 years + fine up to Rp500 million .

    (1) By Law the employer has to deduct the income tax of the employee and pay it to the government in the employee's behalf .

    (1a) I done correctly , what he receives is net (gross - income tax) .

    (2) Every worker earning more than the allowed deduction value(s) must get a Tax number/card , according to the Law . Before doing that , the employer must withhold a fixed percentage (20%?) of the salary .

    (3) Yes , monthly .

    (3a) Usually in March (but not necessarily in March) , the taxpayer must present the annual tax return report .

    (4) First , nobody will need to pay 35% , second , one is only taxable on worldwide income if he/she lives in Indonesia for more than 183 days in any 12 months period .

    (5) I don't know , but as I said , the school must withhold the employees' income tax . The school has no obligation to do the employees' annual tax return report .

    (6) It is relatively easy to figure it out . The tax rates stated in Article 17 of the Law are not applied as a single rate over your entire income , but : (in terms of annual income) the first Rp50 J (million) part of your net income , 5% ; the Rp50 J. to Rp250 J. part , 15% ; the Rp250 J. to Rp500 J. part , 25% ; the net income part above Rp500 J. , 30% . Net income is the total income - the official deductions (around Rp20J for the taxpayer + around 2J per dependant - values change frequently) .

    Note1 : When husband and wife work , better do separated tax return reports .
    Note2 : Income from interest of saving accounts and fixed rate bank deposits (for example) are not added to salary's income for the calculations .
    Note3 : The Law does not apply double taxation . Tax paid in a foreign country is taken as credit for the calculation of the Indonesian tax (if the taxation is bigger in the foreign country , there will be no additional Indonesian tax to pay) .

    http://www.expat.or.id/info/2008-IncomeTaxSDSN.pdf (Income Tax Law & Law Explanation)

    http://www.pwc.com/id/en/indonesian-...-Book_2012.pdf (PWC tax guide)

    http://www.deloitte.com/assets/Dcom-...sia%202013.pdf (tax guide)

    http://www.pkf.com/publications/tax-...tax-guide-2012 (PKF tax guide)

    http://ketentuan.pajak.go.id/index.php?r=treaty (Tax Treaty between Indonesia and other countries)

    Comment


    • #3
      Originally posted by marcus View Post
      (0) By the way , In Indonesia it is illegal to do any work which is not specified in the Work Permit/IMTA . It is illegal to work for more than 1 company simultaneously (except as Director) . Penalties are : jail up to 5 years + fine up to Rp500 million .
      Oops, his wife is Indonesian, forgot to mention that.

      Originally posted by marcus
      (3) Yes , monthly .
      So he would have to go to the tax office every month to pay income tax? That sounds like a huge burden.

      Originally posted by marcus
      (4) First , nobody will need to pay 35% , second , one is only taxable on worldwide income if he/she live more than 183 days in any 12 months period .
      He thought the third tax bracket was 35%: under 50 million is 0%, 50 to 250 million is 15%, and above 250 million is 35%.

      That 183 days clears up the odd thing that he misunderstood, thanks.

      Originally posted by marcus
      The school has no obligation to do the employees' annual tax return report .
      Of course. He said some other teachers were having the school's accountant do their taxes so that might be easy if he could get in on that too.

      Originally posted by marcus
      ((6) It is relatively easy to figure it out . See an example in the link below .
      I think this link didn't show up...

      Comment


      • #4
        Hi tomasturtle, You have too many queries to be answered, I will give some input to your said situation, if the teacher is legally working in Indonesia ;

        First, when the said teacher joined the Job in Indonesia, from year one is required to pay tax. Normally, the tax is deducted by the school and submitted to tax office. What teacher needs to do is just do the filing based on the "Bukti Pemotong Pajak Penghasilan Pasal 21 Bagi Pegawai Tetap" or proof of tax deduction for permanent exployees as per clause 21; this document will be provided by the school to the teacher every start of new year and shows his/her earning from Jan-Dec for the previous year. Based on this document the teacher has to fill some forms and submit to the Tax office. That means the tax is already deducted from the his/her income and will be submitted by school to tax office, he/she just need to fill the form and submit to tax office, since he/she may have some additional income, etc. Also, the teacher should be getting monthly Salary/Pay Slip, where all the income and deductions will be mentioned including tax deductions. Hence, If school is deducting tax, it will be mentioned in the salary slip.

        For his wife also working, Is she Indonesian or foreigner? If foreigner, Is she working legally on work permit? or it is some informal earnings from selling some homemade cookies, etc to friends and others. If she is Indonesian, It is good to have the Tax Card, If foreigner with work permit, should be having the Tax Card, If without work permit, I think she should keep low as by law cannot work in Indonesia.

        For tax bracket, there is always a base amount on which there is not tax and then there are additional exemption for self, wife and each kid. On top of that there is salary and tax % bracket; for first 54 mio there is not tax & additonal 4.5 Mio per family member. So if the salary is IDR. 20,000,000 per month. i.e. 240,000,000 / year it will be something like below ;

        As of 2017 will get exemption on first 54 mio & 4.5 mio for wife and kid so;
        Annual Income : 240,000,000
        Non-Taxable Income : 54,000,000 + 13,500,000 ( Wife & 2 Kids) = 67,500,000

        Taxable Income : 172,500,000 (240,000,000 - 67,500,000)
        Income Tax : 20,875,000 (Which is approx 12%, that needs to be paid) for Income of 240 mio per year and with a family of wife & 2 kids.

        You can ask the school, whether they have someone in the school who can help with tax matters of the teachers, they will definitely do or refer to accountant.

        Hope this helps.

        Comment


        • #5
          Originally posted by tomasturtle View Post
          (I) So he would have to go to the tax office every month to pay income tax? That sounds like a huge burden.

          (II) Of course. He said some other teachers were having the school's accountant do their taxes so that might be easy if he could get in on that too.

          (III) I think this link didn't show up...

          (I) As I said in (1) , the employer is required (by Law) do it in his behalf .

          (II) I recommend , as much as possible , that each one to do his/her documents/tax report/.. without paying somebody else to do them in his/her behalf . It would still be ok if you know how to do it , don't have time/don't want to bother , so hire somebody to do it but check if it is correct later .

          (III) Sorry , I didn't find the link , so I wrote a short answer instead .

          Comment


          • #6
            Thank-you very much for all this info. My friend is very grateful and ready for his meeting tomorrow and understands better what to ask about.

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