How can an Umbrella Company Help with Contracting in Indonesia?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in Indonesia. Even better, most are experts in Indonesia and expat tax law, meaning they’ll also help you optimise your earnings in Indonesia.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for Indonesia.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in Indonesia, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in Indonesia and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in Indonesia
One of the most consistently challenging aspects of contracting in Indonesia is complying with the country’s tax system. As well as paying tax in Indonesia, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in Indonesia
If you’re working in Indonesia under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in Indonesia for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in Indonesia, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in Indonesia through PAYE is left with the prospect of doing everything themselves.
Do you know much about Indonesian Tax Law? Does Indonesia have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Indonesia can range from 5 to 30 percent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in Indonesia
|When Do You Need to Lodge Your Tax Return?||The tax year in Indonesia is the calendar year. Tax returns may be filed from 1 January.|
|Tax Filing Deadline||31 March|
|Can you file it online?||Yes, https://djponline.pajak.go.id|
How to File Taxes in Indonesia as a Contractor
Income taxes in Indonesia can be filed directly at a Tax Service Office, posted by mail to a Tax Service office or electronically. The electronic method is the easiest and most efficient. The process for filing taxes electronically involves:
Step 1: Register as a taxpayer with the Indonesian Tax Office (Direktorat Jenderal Pajak) and obtain a Tax ID number (‘NPWP’). This can be done at the Tax Service Office in your city of residence. Documents to bring include:
a completed registration form
photocopies of all the pages in your passport
photocopy of your work permit
certificate of domicile for you and your employer
photocopy of your employer’s NPWP
Step 2: Obtain an e-Filing number (e-FIN) from the Tax Service Office (KPP) in order to access the e-filing system. This must be done by the taxpayer and cannot be delegated to another party. Documents to bring include:
Original and photocopy of your passport
Original and photocopy of your Tax ID number (NPWP)
Step 3: Register for a tax service account for DJP Online(link is external). Enter your Tax ID, EFIN number and security code and then click ‘veri kasi’ (verify). Fill in the required data and create a password. An email will be sent to you requesting you to activate your account.
Step 4: Log into DJP Online here(link is external) using your NPWP and password.
Step 5: Download the e-SPT application.
Step 6: Fill out the required electronic form and upload any attachments as a PDF. Alternatively, you can print out the forms here(link is external)and deliver it to the tax office.
Form 1770: annual individual income tax return form for independent contractors and individuals with business activity.
Form 1770S: annual individual income tax return form for ordinary employees and taxpayers who have income from more than one employer.
Step 7: Pay your tax due using e-billing(link is external). First, you must generate an e-billing code either through DJP online, SMS, internet banking or a teller (this code lasts for 7 days). You then use this code to pay your taxes through a teller, an ATM, internet banking or mobile banking.
Guides for e-filing
E-filing registration: https://www.pajak.go.id/content/article/e-filing-cara-mudah-cepat-dan-aman-lapor-pajak(link is external)
Bilingual versions of the tax return form and instructions: https://www.pajak.go.id/formulir-perpajakan(link is external)
Indonesian Tax Office: https://www.pajak.go.id/(link is external)
Tax Figures in Indonesia
|Currency||Indonesian Rupiah (IDR)|
|Tax-free Threshold in Indonesia||None|
Personal income is taxed at progressive rates in accordance with the above table.
Termination pay is taxed differently. The following progressive tax rates apply to severance payments:
Tax Residency in Indonesia
When do you become a tax resident in Indonesia
You become a tax resident in Indonesia when:
You become a tax resident in Indonesia if:
You are present in Indonesia for more than 183 days within a 12 month period, or
Within the calendar tax year, you reside in Indonesia with the intent to stay.
Note: An Indonesia national who works overseas for more than 183 days within a 12 month period is considered a non-resident.
Does the 183 day rule apply in Indonesia
Am I taxed on my global income in Indonesia
Yes, if you are a tax resident. Non-residents are subject to tax on Indonesian-source income only.
Can you set up your own Limited Company in Indonesia?
|How long does it take to set up||22 days|
|How much does it cost||IDR 1,000,000 + notary fee dependent on the start-up capital|
|Is it easy?||Starting a Business Rank: 144 (Source: World Bank)|
Tax Calculator in Indonesia
If you are a contractor and want a calculation on your tax and net retention in Indonesia, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Indonesia
Contractors in Indonesia are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. An Indonesian umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in Indonesian taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Indonesian tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Indonesia
We work with numerous umbrella companies in Indonesia, many of whom are experts in tax and immigration laws. If you have any questions about tax in Indonesia, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their Indonesian work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in Indonesia but without the overhead of directly dealing with the Indonesian tax authorities. Get in touch with us today for some reliable advice on tax in Indonesia!
A Contractor’s Guide to Work Permits in Indonesia
Immigration is one of the primary concerns for any contractor hoping to start working in Indonesia. Permanent employees will find it easy to get their Indonesian work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
The Indonesian work permit, known more commonly as the KITAS, is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in Indonesia is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in Indonesia (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in Indonesia. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout Indonesia and match contractors with the right company for them. If you’ve already secured a contract in Indonesia, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).