[ HTJ Podcast ] Taxes For Digital Nomads in Bali – 25th March 2021
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Good evening, Bali and good day. Good morning to anyone who may be joining us from another time zone. My name is Derren Joseph and with me is my colleague Dicky Darmawi. And we are going to talk about Taxes for Location Independent Entrepreneurs, otherwise known as Digital Nomads. So here's how we're going to do it. I'm going to go through a quick PowerPoint deck.
It's not going to take me more than like 15 minutes just to share certain key principles. And afterwards we'll jump into the Q and A, which I know is super important for you guys, because you came with questions and we are looking forward to engaging you on the topics that you have brought to the table. So without further ado, do, I'm going to share my screen. All right. So I call this one six things that you guys should know about taxes.
Okay. All right. Great. So just to kind of create a background, give you a context as to who we are. HTJ is a part of a regional practice called Moores Rowland in Asia Pacific. I sit in Singapore, Dickie sits in Indonesia, and I think Dickie from Moores Rowland in Indonesia is pretty, pretty important within the Indonesia landscape. They are the fifth largest are coming from in Indonesia. We have a satellite office in Bali. Because of my license I'm legally required to say that nothing that I say here this evening should be construed as advice, consider it an education piece. We're going to talk about certain topics in general, general principles that I hope would assist you guys in engaging with the right tax team to help you tax team that knows your situation inside out.
So I'm a tax professional. We are tax professionals, but we're not your tax professionals. So that's why we can only consider this education. Nothing we say here should be construed as advice. And I think we say, here should be construed as encouraging you to pay more than your pair share of taxes in any jurisdiction in which you are exposed, right? So takeaway, six takeaways, let's start with the first one FLAG theory. I know there are companies that call themselves like theory, but flag theory, as I understand it is a principle that speaks to, let's say lifestyle diversification, just it's about not having all your eggs in one basket. So where you are a citizen or, or where you, where your passport is from or where you're a citizen of may not necessarily be where you legally reside may not necessarily be where your company's incorporated. So it's about diversifying your lifestyle. And we can talk about that in a bit more detail if that's of interest later, later on, but I just think it's a great principle and it works well, especially for location independent or digital nomads. So I think it's pretty helpful.
The next thing I just want to let you guys know about is hashtag fake news. What do I mean by fake news, unfortunately, and it's, you know, I'm not pointing fingers. It's just the way it is. Information is hard to come by and that's partly our fault as tax professionals. If you are a fully qualified tax professional with a decent sized practice, basically, I mean, I'm just going to be completely honest. The rules kind of prevent you from going online and contributing and sharing information freely. Why? Because, you have a license in, at risk, and if someone gives you less than complete information on themselves and you make a recommendation and it is erroneous, then the recourse is you, you know, your license can be at risk. Actually just earlier this week, I got my professional liability insurance premium reminder. So, you know, we pay, I pay a healthy sum every year for professional liability. You know, we have an insurance policy in the, I think six or seven figures. So it is a real risk. So what, what that means is that in the normal forums, you have less, let's say less qualified, less busy or smaller practitioners who may not have behind them, the range of expertise. So they just speak to what they know, which would be what they know, nobody knows everything. So what you find, and sometimes my members of my marketing team, they come back and say, Hey, to have a look at this, this is what people are saying. And it is scary. It is scary that you know, that people are making life changing decisions for themselves, their and their businesses based on what's being peddled. And, and that's, that's no fault. It's just the way the system is. So what I'm basically telling you guys to do is be careful, be careful because no one can give advice unless they know your situation inside out, and they're qualified to do so. There's a license on the line. Otherwise you have someone just giving an opinion. Now there are certain points that I've raised here that we see pretty often in online forums, effective management is Tonia, immigration and stuff like that. Now, a few of them I will get into later. Otherwise I'll just leave them for the Q and A.
The point I want to leave with you guys is direct versus indirect taxes. So I think most people are pretty up to speed on the fact that, Hey, I run a business. I probably need to be considering direct taxes. I E my corporate income tax for my company and my personal income tax from me personally, that that's something somewhere in the back of your mind, you know, that it, it needs to be handled right, but indirect taxes flies completely under the radar, you know, and, and for many jurisdictions right now that is getting special attention.
So what is VAT or GST, In Singapore or sales and use taxes in the US that indirect taxes, where you as a business owner are responsible for collecting taxes, from whoever you're selling your service to whoever it is you're selling your products to. And you collect taxes from them and you remitted to the relevant authority. So it's different from direct taxes, which you paid directly to the authority. There's indirect, where someone acts on behalf of the government and collects taxes and then remits them. So it's something to pay attention to. And if it's of interest, we can have a conversation about any Q and A as well, Place of effective management. So there's this so commonly misunderstood. The idea to walk away with is that just by incorporating a company in a given jurisdiction, doesn't mean that the company's only taxable in that other jurisdiction. Why? Because most jurisdictions, most common jurisdictions that you would be familiar with.
So you're in Indonesia now, Indonesia, Singapore, Hong Kong, Australia, New Zealand, Malaysia, Philippines, you know, most jurisdictions in your neighborhood operate on that principle. The principle is we don't care where you incorporate your business. I repeat, they don't care where you incorporate your business. What matters to them is read to you, operate your business, whereas management and controlled, whereas mind and management exercise. And if you incorporate your company in BVI or Dubai or whatever, but you run that company from Bali, you have an Indonesian company. I repeat if you incorporate your company in another jurisdiction, but you run that company from Indonesia, you have an Indonesian company, the Indonesia tax authority reserves the right to tax it. Similarly in Australia, the ATU and Australia do not care where you incorporate your company. All that matters to them is where do you run it? If you operate that company from Australia, it is an Australian company. That's the way it works. It's where your place of effective management is. And that is, you know, that, that stems from a concept known as nexus or where you have a physical, where you have a connection where you have a business presence, right? And we can talk about that in more detail later on, especially when it comes to indirect taxes.
It's a really hot topic right now for those who are online sellers. Next, I just want to talk about the USA. And the idea that when I look at entrepreneurs, I put you in one of three buckets and people have different ways of categorizing. I'm talking about personal income tax now, right? There are the U S exposed persons, which will be the U S passport holders, as well as the U S green card holders. Then secondly, I have other OACD countries, other advanced economies. So Europeans, Anzac, so Canadians or Kansas, or where they call them, right? Canadians, Brits, Australians, New Zealanders, Japanese as well as Europeans, and then the rest of the world has. And the reason why is because generally speaking, I know you shouldn't paint with a broad brush, but generally speaking, that tax rules operate differently. So that's solved with the U S which is the exception to most rules, the U S practices, citizenship based taxation. Now others do as well. But the principle here is that you cannot escape the us tax net by staying outside of the US no matter how long you remain outside of the U S you're still subject to us tax and reporting requirements, no matter how long you stay out of the U S you're still subject to us reporting requirements and the threshold, to be honest with you, the threshold for filing a tax return is really, really low. If you file separately, the threshold is $5. So there's a misunderstanding, or it depends on whether you had to file an income exclusion, exclusion or not. No, it does not. If you earn one in $5, you need to think, Hey, maybe I should be filing a tax return, right? We can speak about the control of foreign companies. Now, the international tax from Americans is counter-intuitive. And that you would think that the emphasis is on collecting taxes. Actually, it isn't. When you look at the tax code and specifically the penalties for non-compliance the penalties for not reporting the I E the penalties for not providing the relevant information, tend to be more aggressive than penalties for not paying taxes. It's kind of intuitive, but I know it's, it's in the wake of the pitch back nine 11. There seems to be an implicit assumption that if you're not reporting your foreign bank accounts, if you're not reporting your foreign companies, you're up to something nefarious and the IRS will come at you pretty aggressively. So there's this thing that I can use a nominee, like, you know, like how some people do in Bali, the U S tax code stays right through that. And you can, and you do get in trouble for trying to hide behind a nominee. It does not work. The points are, you need to pay attention to your banking report. Those foreign bank accounts, remember estimated taxes. Some people, again, depending on what state you were connected with before you left the U S even though you've been living outside of the U S for many years, you may also have a state reporting requirement. And we can talk about that in detail later on, if you have any questions, but Americans remember no matter how long you stay outside of the US, you still need to file and pay. And the penalties for not reporting what you're doing, tend to be higher than the penalties. So not actually paying taxes. So these jurisdictions have developed some pretty interesting what we call fallback rules, which in a way are increasingly resembling the Americans. So what do I mean by it means that if you're an Ozzie and you, you have not lived in Australia for years, and you've been traveling under certain circumstances, even though you have not been living in Australia for many years, you may still be deemed to be Australian tax resident, and same with Canada and same in New Zealand, same of the UK.
So there are really interesting fallback rules, many of which are based on case law. So they may not be obvious when you look at the actual written tax rules. But when you look at the cases that have been litigated and take cases that have gone before the tax court, you see what the tax authority has been thinking. So the EU under again, under certain circumstances, don't think it's a clear cut. You need to deliberately register us tax non-resident. And even, so there are fallback rules. And again, there are different European jurisdictions. So yeah, its rules would vary. But the takeaway is, even though you have moved from your European country of origin, please understand the rules because you may still be, you may still have a taxable presence. You may still be a tax resident of your European country of origin.
Moving on to the rest of, well, the rest of the world, I think can ride. I'm good, I'm free. I don't have a Kansas passport. I'm not American. I'm not European. I have nothing to worry about. I can be perpetual, no matter and pay zero taxes. Well, you know, we know that there are many websites pedaling that, and they will sell you all sorts of stuff. But what I notice is that many of them, many of these influencers, they, many of them have no license and the pedal of that information. So again, if, if in the unlikely event that they are wrong, nothing, they have no consequences. There are no consequences to their actions. And they give advice from unregulated jurisdictions. They won't go to Singapore and say that they won't go. They won't be based in Singapore. And talk about paying taxes. Nowhere. They may go to Malaysia. They won't go to Western Europe and say that they go to Eastern Europe. They won't go to North American, say that they're staying in Mexico, Panama, you know, central America, South America. So basically less regulated jurisdictions. Maybe that's just a coincidence, or maybe it's a reflection of the fact that it is technically, that could be a dangerous position to take. And you can have varying degrees of problems if you were to try and basically be perpetual, no matter I'm paying taxes. Now what I like to call out is the fact that he asked people to speak about tax rules, but they do not speak about the bank rules and banks right now, as anybody who's doing business internationally, I shouldn't have to tell you this. You know, even with your Stripe PayPal, it's so easy to get suspended. And you know, the freezer account, basically international banking is becoming pretty procurious. And the reason why it's not, that they're being mean, but the, the banks are under increasing pressure and not just the traditional banks, but the challenger banks as well. And, the responsibility that they have is preventing money laundering.
How do you prevent money laundering? You need to know where funds come from and how funds are being earned. And, you know, they don't trust invoices, give anybody two minutes on Microsoft Excel or produce an invoice, right? They don't trust financials because those can be faked as well. What they do feel a measure of comfort with would be tax returns. And they like to see that funds have been taxed somewhere else. So, yes, you may, you may have a passport from somewhere else in the world, and you're not legally required to pay taxes. But if you earning money at some point in time, even if you remit that money back home to your country of origin, at some point in time, that bank will reserve the right to ask, hey prove to me that you're paying taxes on the show me a tax return, prove to me that this money is clean. And if you cannot do it to their satisfaction, you're going to have a problem.
So, well, that's, I think it's pretty clever with the complexity of cross border taxes. Anybody who claims to be a one person show, and they know everything is probably misleading because nobody knows everything. You need to be a part of a team. And with that, I am going to stop sharing, and we're going to go to some Q and a. So please, if you have any questions, don't be shy. There's a chat box below. Just type your questions in the box below, please.
And we will answer it to the best of our abilities. Again, not giving advice, but we can have a Prince general discussion around the principles. Now I want to reserve the right to ask the first question. So Dickey, what is crypto? Because I've been talking to quite a number of entrepreneurs and investors in Bali recently, including this morning who are big into crypto. I mean, who a lot of people are crypto and NFTs and stuff like that. What is Indonesia's position on crypto transactions?
They essentially are allowing the crypto transactions. Yeah. But, but the tax office was unable to track it down.Registering companies in Asia. Sorry.
Sorry.Can you guys please stay muted unless you have to ask a question. So please mute yourself. Sorry to keep, please continue.
Yeah. So that's obviously in Asia is going to say that, okay, you do the self assessment. If you have the capital gain from selling crypto, then report it and pay the tax. But the tax office until now cannot assess how much, how much, how much the cryptocurrency transaction in Indonesia. So what they can assess is only based on the fund comes to the taxpayer bank account. That's how they are going to assess them.
Okay. So it's basically self-reporting and Indonesia treats it as an asset rather than a currency. Okay. All right. We have a question, Chris, over to you. You have a question.
Yes. Can you hear me okay? Yeah. So say if someone, this is, this is kind of a, this must be a really difficult question, but anyway, say if someone has both a Canadian and UK passport, but has spent most of the last, most of the most of his adult life in New York city, he currently lives in Bali, but also travels throughout Southeast Asia. He gets paid currently on a contract by a US company, into a US bank account. Where would he declare tax residency? Where would he pay tax on that, on that income?
Hmm. Wow. You know, that's, that's an interesting question. But rest assured that that case is not unique. I think many of us, you know, I have more than one situation as well, and many other people do. So it does become tricky at times. Now with Canada, the, if it is, you were at any point in time, resident in Canada, upon leaving, you need to register with the CRA Canada Revenue Agency that you are no longer tax resident in Canada with the UK.
You need this. If you go to HMRC website, Her Majesty's revenue and customs, there's a statutory residence test. So you want to make sure that you are not tax resident in the UK by going through that test. And it's basically, they ask you a series of questions, because I know you, you know that in this scenario, that one is traveling around a bit. So to make sure that you are not resident in the UK and that your center of life is not in the UK and your center of life is not in Canada. So then you can strike those off the list. And you'll only be taxing Canada on Canadian source income. You only tax in the UK and UK source income. Now, if you were resident in the U S then maybe you have a green card, or maybe you're on a special visa,
It was just a temporary, a work visa. So there's no green card. No citizenship is not a resident in the US because of the rules around days.
So then by virtue of, so let's assume that you can, first of all, you can be tax resident in more than one jurisdiction. I filed three or four tax, for myself every year in different places. So that is possible. So people who see it as not there, they're misunderstood. So, you know, you need to send sense, check. You need to check HMRC. And my UK taskers, and you need to check the CRA, am I a Canada tax resident? When you look at recent cases that have gone before the courts in Canada, Canada's position has become increasingly more aggressive than this thing. That if you cannot prove that you are a resident, you are a tax resident somewhere else, then we will tax you. So Canada is one to be, and it sounds from what you've said briefly, that maybe you, you have more connections to Canada than elsewhere. So Canada is one up, pay attention to if you have no visa, no, you know, if you're not physically in the US then the US it would not be one to worry about, but last but not least, and the most obvious one, given that whole thing about effective management is Indonesia. Dicky, you want comment in Indonesia?
Yeah. They had the important statement from their end: you have to prove that you are paying tax somewhere. Otherwise the tax office where you reside will catch you, right. Same in Indonesia, how you enter Indonesia, tourist visa, or working visa or investment visa, you are entering Indonesia on a working visa automatically. You will get a tax ID, right. And pay with pay. Then you have to report your income tax return. Okay. And yeah, the rest is almost the same now because it is worldwide, Indonesia will tax her worldwide income.
Yeah. And if it is that in your case that you've been in Indonesia for more than 183 days, and, you know, visa runs don't reset the clock. So chances are, you should be consulting with an Indonesian task professional because you may actually be tax resident in among other jurisdictions. We're saying probably not be US, not too sure about the UK. So I would kind of like shine a light on Canada and definitely, definitely Indonesia regarding Canada. If I haven't lived in Canada for more than 20 years, is it still like, I don't know if I've ever filed any kind of non-resident thing, but haven't lived there for 20 years. It's still possible that I could be exposed there. It's unlikely. It's unlikely if you've never, if you've never worked in Canada and 20 years is indeed a long time, but you know, you, you know, I, who knows your personal situation, you know, where's your family where your best friends will use social ties, even though you have not been in touch in, you know, inside of Canada, it's unlikely, but it's worth, you know, just, just checking it out. But to Dicky’s point, you must be residents somewhere. And I think the most obvious candidate so far is Indonesia assuming that you spend more than 183 days or, and, or entered on an investor visa, et cetera. So that's, that's helpful. Thanks. And any other questions?
Yeah. Go on. So basically it's a little more general probably for people that, you know, based on people, the digital nomads living in Bali. So is there any kind of more favorable kinds of structures than just being a tax resident here whereby we would be paying tax in Indonesia, but it is just structured in a way that's more favorable, so only income outside of Indonesia, but yeah, I'm no longer wanting to be taxed in Australia. So I'm just trying to figure out our best structure in Indonesia, essentially
The key, this may be one for you. And I believe that in the run-up to the passing of the recent omnibus tax law, there was some belief that when the law passes that expats in Indonesia will be taxed on the local income only, is that a misunderstanding? What, what are your thoughts? And in relation to the question posed.
Yeah. So, actually it's not totally 100% like that. Yeah. The message that all the batteries only pay income received source income from Indonesia. So it's not actually 100% correct. So there's a limitation, several limitations and several limitations include on the, I may say on occupation. So there are only 25 professions that can be used for the benefits of the omnibus law, only 25. And the time test is only four years since you are entering Indonesia for years, since you are entering, if you enter an issue for the first time in 2006, then this is not applicable because 2006, then the four years will only do two until 2009, right. Six, seven, eight, nine. So it's not applicable. So if you have stayed long in Indonesia, or you have entered Indonesia before 2020. Yeah. So of the 25 professions, the majority is engineering, chemical, chemical. Yeah. So it's a very specific profession that the government thinks we'll make, we'll make a transfer of knowledge to locals. Yeah. Other than that, then, like I say, Indonesia. So anything you get from overseas and you stay more than 183 days in Indonesia, then you have to pay tax in Indonesia on your worldwide income.
So, and so in terms of your situation with the ATL, it's either one or the other, generally speaking, both Australia and Indonesia, obviously tax on your worldwide income. Right? So in terms of something being more tax efficient, given the way the tax laws work, honestly, I don't see it the, the way out of it really is to be not tax resident in Australia and not tax resident in Indonesia, but Indonesia, you know, tax efficiency, typically don't go hand in hand, not in the same. You don't get that in the same sentence. Like you do Singapore and taxes, Malaysian taxes, Hong Kong taxes. Indonesia is just one of those jurisdictions that the tax office is pretty aggressive like Australia. Sorry about that. Does that answer your question, Josh?
Yeah. More or less. Sounds like I'm just screwed. So I guess one other thing, where can I find this list of professions? Is it public?
Yeah, it's public, but currently only in Bahasa, I can show you the screen and the screen. I made a translation. That's a quick one. Okay.
Okay. Can you let me just screenshot this.
Yeah. The recording will be available on Facebook, you know, YouTube so don't worry. You can always find it. And on HTJ.tax I think Hannah typed down in the box below where I'll be available as well. So everything we say has been recorded so you can access it afterwards. That's not a problem.
Okay. Thank you. No problem. Yeah. Okay. So back to the questions, let's see, Aaron?
Hi. I have a question. And my friend here has a question as well. You had mentioned earlier with no exceptions with the US. And from what I remember from quite a few years ago, I had some friends when they were outside of the U S for over 11 months, and they were filing that completely legally and then being exempt from the federal tax within the us. And so if I have a company here in Indonesia and I'm filing taxes, here are both of those going to Selfoss for being outside of that within the U S could you speak into that more?
That's a good question. So on my slide, the first bullet point was FEIE. That stands for the foreign earned income exclusion. So for you, you're correct. If you are a lower income earner, then it is possible that all of your earned income can be sheltered from U S income taxes. Now it still needs to be reported, but it may not be taxable to the U S so at the moment, so for 2020, the foreign earned income exclusion threshold is $107,600. It moves every year with inflation, but that's where it is right now. So basically it means that if you qualify for the foreign earned income exclusion, and you earn 107 or less, then it will be reported, but no taxes will be due to the U S so, yes, you're correct. Now, as to the second part of view of your question, if you run a company or you have interest in a company outside, that's a whole different situation. To the extent that I remember, I mentioned that the US, the IRS, I mean, the US government in general, they're big on information. Like them, they pay more attention to information than they do to money. It seems weird. And I say that because of the penalties involved, if you have an interest in companies outside of the U S and you're not reporting that the penalties are pretty aggressive. So, there are certain rules, which we categorize as anti-deferral rules. So if the, if the company in Indonesia, for example, is controlled by us shareholders, then the certain rules around deemed distributions, actually Indonesia has those same rules as well. So if you have, so I know it's a common thing. People think, Hey, everybody sets up a company in Singapore and Indonesia went wrong, absolutely wrong, absolutely wrong. If you control a company in Singapore, from Indonesia, even though you don't take a distribution from it, you're deemed to have done so by Indonesia. And they want to tax it the same from the US, the US created that game. If you have a company, you control a company outside of the U S even though you don't take a distribution from it, and you're just letting money accumulate inside of it, the, the anti-deferral rules and a quite a few there's a bit of P-Funk rules. We have to sign a file 8621, the Subpart F rules. And most recently the GILTY rules that President Trump's tax cut and jobs act. All of those rules look for every imaginable loophole, where it says, I don't care whether you took a distribution or not, you're deemed to have done so, and you will pay taxes on it. So, just answer your question in two parts yesterday, there's a foreign earned income exclusion for those who will earn at the lowest side of the scale. So 107 and less, that'll be sheltered. Everything above is fair game, as far as U S taxes go. So there's that, that does protect you. It's probably the best benefit available to us exposed persons working outside of the U S but secondly, and perhaps more importantly is when you run a company that's incorporated outside of the U S that are really special rules that apply, and they are ruthlessly enforced by the IRS. So pay attention. Does that answer your question, sir?
Hey, Derren, era's friend sitting next to him. So I have two questions. I am an EU citizen, and I have a key company here in Bali, a wonder, but I'm not really paying taxes here in Bali. I wonder if I can receive my money in a foreign account in Europe. So not in Indonesia and taxes here.
Can you repeat the question please?
Yes. So for example, I am receiving money into my European account but I am simply sending invoices to my clients and declaring my income and tax here in Indonesia. Is it possible?
Yeah. So I don't need to have an Indonesian bank account:
No, no. When you are filing the income tax return, you have to declare your asset, your worldwide asset. So you will be cleared of that bank account in Europe. Right. Okay.
I guess so. Yeah. Yeah. Okay. Okay.
Yeah, that, that's, that's an important point to raise as well. That, you know, when Dickie said that we know that for the U S for example, those who are U S exposed, the emphasis is on reporting what you do overseas. You need to report those foreign bank accounts. You need to report those foreign companies that you've invested in. You need to report those foreign gifts you have given or received. Indonesia is similar in that there's an asset declaration that forms part of the Indonesia tax return, where you are required to declare all the assets you have overseas as an Indonesian tax resident. So both in the US and Indonesia side people, or even in Europe, you know, people, Australia, people are gonna ask me, well, you know, how are they going to find out who is going to know the answer to that question is the exchange of information rules. So quietly in the background, again, like people very myopia me think about taxes. There are other international agreements that have been coming into force coming into play. If it is your US exposes something called FATCA, which is a foreign account tax compliance act. It started being phased in, in around 2011. So as a result of that, Indonesia is legally obligated to report activities of us exposed persons back to the U S so if you open an account with an Indonesian bank, and even if you do like, like me, I have more than one passport. So you go in and you show the other, the non US passport. If that bank officer has indicia, in their internal rules and in the law, that Indonesia is signed with the US even though that person's self identifies non-American if the bank officers suspect, if the bank officer suspects that person is US exposed, they need to report them.
And there'll be fine as a recalcitrant shareholder, or we're consultants, accountable, or sorry. So even if you self identify, otherwise you may still be reported. So that's on the side with the US, if it is that you are maybe exposed to another jurisdiction, you in Singaporean or European or whatever, the rules that apply come under the automatic exchange of information, otherwise known as CRS or the common reporting standard. So they are legally, Oh, okay. British Australian Kiwi. Okay. Right. They may not tell you, but they are legally required to report your account activity back to, to those jurisdictions. So with those exchanges of information, they create checks and balances in the system. So where's you think, you know, how is Indonesia going to know about my account in Singapore? That's easy, simple. Tell them, you know, pretty easy. I, they probably get the reports now as in, in the Indonesia tax office as to whether they act on it or not. That's another question, because sometimes they're on the fastest, but chances are they got it. Right. So again, with tax authorities, I believe that it's always best to approach them before they approach you.
So my assets would be the amount of money I hauled in my European accounts, because I have multiple accounts.
Okay. And up until now, I have been paying taxes in my home country, but I'm going to leave my tax residents in my home country today. So Indonesia texts me also for the last few months where I've been paying taxes back home, but also have a key this year.
What is the question? Sorry. Yeah.
So up until now, I have been paying taxes in my home country, in Europe, and today I'm going to quit the tax residents in my home country. And I wonder if Indonesia would tax me for the last few months, because I already had the ketosis here in Texas somewhere else.
You entered Indonesia?
Speaker 7I entered Indonesia last year in March. Over a year ago.
Okay. Then, an Indonesian tax office can tax you. They found out any income is not reported.
Huh? Okay. So let me have to pay double taxes then Indonesia and my home country.
Yeah. Unless you can prove that you have paid taxes in your home country.
Okay. Okay. No problem. I will have that. Okay. And I just had one short question about trust for advice. What's Indonesian Indonesia's relationship to transferwise? I heard that people are not allowed to transfer the money out from the Indonesian bank accounts to transfer vice-versa. Is this true?
Yeah. Sorry. I didn't get it. You want to transfer to who?
Transferwise? It's like one of those, depending on how you look at it, it's a challenger bank or a FinTech online bank or some people see it as a money transfer agency, but some people see it as a bank, but it doesn't have a physical presence as an online bank. So I believe she's asking, is there like any regulation around Indonesian tax residents using Indonesian bank accounts or using TransferWise from Indonesia? Are you familiar with
And there's no tax regulations. There's no tax regulation that regulates that idea. Yeah.
Right. But they are relatively speaking in terms of banking. Indonesia is a strict banking jurisdiction. So typically, and correct me if I'm wrong Dicky. Typically if you're Indonesian tax resident and you're doing whatever you're doing here to win, to remit money from Indonesia outside, you need permission. Oh, am I correct in saying this Dicky?
Not actually a permission, but you still, you have to fill in a form. What is the purpose of the time for the invoice? You're just filling the form. And then if their careers are about this is money laundering, or anything else, then the worst thing is they will block your account. That's as long as you can provide the supporting documents and there's no way they cannot, they restrict you to send money. It's your money. Right?
Right. So again, I guess the question may become, maybe we don't know the answer here, but the thing is that we know that Indonesia's ruse around foreign exchange and money leaving the country a pretty strict Ashley when he comes into the country is strict as well. But we know the rules are strict in terms of there's a lot of disclosure. And we say that vis-a-vis, let's say Singapore, where it's pretty much a, you can come and go. They don't seem to be bothered too much, but, and when you have these FinTech companies that may circumvent the reporting requirements, the, the authorities may have a problem with that. Sowe can't. So we don't know the answer here, but what we do know is that Indonesia is big into disclosure around movements in and out of the country. And the extent to which TransferWise or anyone else circumvents these rules around full disclosure, then the extent to which the authorities may become uncomfortable. So,
Speaker 7: Okay. So it's best not to receive money directly in Indonesia basically. And just pay the taxes here. Okay. Thank you so much.
All right. And we have a question in the chat box, sorry. From someone who's asking, I'm new to Indonesia, I'm not an expert. I'm reading it for those who are not looking at this on zoom so they can't see the question. I'm living in Bali, and I'm a non-resident in my home country, wherever that may be still submit a tax return, I guess, your home country, also submit a tax return each year to Indonesia.
So a really good person, right. Fall in trying to follow the rules. Okay. That's good. How does my Indonesian employer pay tax without me getting an additional personal tax bill each year from Indonesia, not show why I'm paying the additional each year. Could the estimate be adjusted? I'm not sure what, what that, what you're saying. So you're not a resident in your home country, a tax resident in Indonesia, you're, you're submitting a return to both jurisdictions. You should get, you're not going to be taxed twice on the same income. Why? Because as the key mentioned earlier, Indonesia recognizes tax credits. So you get a tax credit. To the extent you can prove that you've paid taxes elsewhere on that money. So you get an offset. So you're not going to be taxed twice. So I'm not clear as to why you're why the Indonesian employer pays tax an additional personal tax bill each year from Indonesia. I'm not sure where that maybe you can clarify, if you would want to impute, you can speak and clarify.
Otherwise you can just type it below whichever you feel comfortable with. Okay. In the meantime, let me check on the other platforms to see whether there are any questions.
Speaker 8: I've got one more follow up if that's okay. So just on those 25 professions, I'm wondering if Vicki or yourself have any information on how you would actually need to provide proof of these professions. Like how, what kind of information will they ask for? And, and then as a secondary question, would they then say any with the territorial tax law? Would that then mean that even if the income earned outside of Indonesia was unrelated to that profession, would you then still not have to pay tax on that? So say if you've got investments elsewhere, but you are a chemical engineer, would you then have to pay tax on your investments outside of Indonesia?
DICKY DARMAWI:Yeah. So that you are, so if you are entitled and you get approval from the tax office, then you only pay income tax in Indonesia source, you get from Indonesia. For four years, only for four years, only since you entered Indonesia for the first time.
Speaker 8 :
And to Indonesia for the first time or from your first tax return,
When you enter Indonesia for the first time
Speaker : As a child, that would, that would count.
Yeah. Yeah. Obviously. So the first question, how they are going to assess this is the answer to your question And they're in nature for the first time. I'm getting the feedback sound here, Derren.
Yeah. I'm checking. Some people were un-muted. So I just muted them just in case. So try again to speak. It should be okay now.
Yeah. Hello? Yeah. Yeah. So how to assess the occupations. So there is a requirement that the expat has to provide. The certifications that they are the professional, certification of the profession and the manpower department we'll run through the certification, they will review it. And I think that's how they're going.
So, yeah, I would imagine, I mean, Indonesia is known for being very, let's say bureaucratic in a sense that I don't expect it to be a quick process. You know, they're, you need to get the certificates validated and probably they need to be legalized back in the country of origin. And maybe with the, I, you know, just be an extreme, would they Indonesian embassy maybe, but back in the country of origin where they were issued. So if it's Australia, maybe because we've seen it for other documents that need to be recognized in Indonesia, they need, because everyone has a printer at home. Right. So they can print anything. They like it so they want it to be legalized by the issuing jurisdiction, Australia, whatever. And then I'm just throwing in that. It could also include the ministry of foreign affairs or the Indonesian embassy in the, in the country of origin as well. So it basically be prepared for a long process and it's brand new. So, you know, everyone in Australia is out for the first time, so don't expect it to be smooth. But, you know, if, if you want to reach out to, if, if it is that you have a specific case, then feel free to reach out to Dickey. And maybe you guys could take that journey together and, and go through the bureaucracy. He can help you pilot yourself through the bureaucracy and figure it out, but it's brand new. So it's, unfortunately it probably won't be smooth until they figure it out.
Speaker 8 :
Gotcha. Okay. Good to know. But that would then, yeah, you wouldn't have to pay tax on any investment income earned outside the country, from what I understand. Okay. And then, and then, yeah, just to clarify. So if you've ever been in Indonesia before 2020, you are not eligible,
You eligible, but only for four years, since you first arrived in Indonesia. So you arrive on January 29,then four years, 2019 and then 2021 and 22.
Okay.Cool. Thank you.
Okay. So we have some more questions in the box below. So as an expat in Indonesia with an investor but without a PWP, the Indonesian tax number one has to declare the worldwide income in Indonesia. As soon as the state goes over 183 days, even if there's no business inside Indonesia, that will be correct. Once you become as DQ saying, you crossed the one in at one 83 day, there's a one 83 day rule in most countries in that area anyway, in Southeast Asia.
So regardless of the visa that brought you into that country, one 83 days, you become tax rate. Now the question is the key. If you cross one 83 days, you become a tax resident, you want to do the right thing. Do you need to get a tax number?
Okay. Easy. Yeah. You want to get a tax number? And I know from talking to your co-workers, Dicky and in the office in Bali, it becomes confusing, right? Because it's not a smooth process to get the tax number, because then they're thinking, well, you're not working here. You know, is it, is it easy or is it tricky?
It's going to be easy if you want to pay tax. They were very welcome. One day process.
Good. Right. Scrolling down. Now, next question. If I qualify for the foreign exemption, but I have untaxed money from taking out investments in the US, do I not have to pay anything if I'm still okay? So this is a US tax question. So you qualify for the exemption, but the foreign income exclusion, but I have untaxed money, investment income. Do I still have to pay something? Okay. So the foreign earned income exclusion means just that it's for earned income. It's money. That's earned while you're outside of the us. So generally speaking, I know there are many ways of slicing and dicing income, but for the purposes of this discussion, let's assume that too, there's earned income. So you provided a good service for which you're being compensated. So there's that earned. You earn that income. And then let's say the rest is unearned income or passive income or investment income. They foreign earned income. Exclusion applies to earn income, not investment income. So if it is, you have invested in stocks, bonds, whatever it may be crypto, and you get a return on that investment. That is not that returned typically is not protected by the umbrella defined in income exclusion. It will be taxed as an earned income. So, that's that next question. If I qualify? Okay. It's the same question. Next question. Under that, following on from the prior question, my employer didn't pay enough. Oh, this is the one that we were confused about. Okay. So somebody who is filing a tax return outside of Indonesia and inside Indonesia. So my employer didn't pay enough PPH 21. I didn't Dick. Yeah. I guess you know where that is? I think they should have adjusted last year. So there was no tax bill leftover the Kea comment on that.
Yeah. Just a wonder how, okay. The employer will withhold the income tax article 21 on your salary, on your salary in Indonesia. So they only make calculations that will hold the income tax based on your salary. So at the end of the year, if you have other income other than your salary and maybe your income in Indonesia or coming from overseas, then you should then pay an additional tax for sure. Unless if you're only receiving income from the salary of Indonesian companies, then it's, it should be, there is no additional payment of tax at the end of the year. If there is then something wrong with the employer.
Okay. Hopefully that answered the question. We're now at the top of the hour, he says, yes, it does. Thank you key. So thank you for joining us. You've been a great audience. If you want to reach out to us, Hannah taped our contact details in the chat box below. For those who are watching it on Facebook, you can reach out to us via our Facebook page. Just just message the page and someone on the backend will pick it up and get back to you.
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