On 2nd of November, 2020 the President of Indonesia signed the Law on Job Creation, popularly known as the Omnibus law. This law is the most significant reform in the legislation of Indonesia since the creation of the Civil Code of the country in 1847.
Omnibus law is a consolidated law that covers changes in various sectors of the country’s economy, and is generally aimed at improving the competitiveness of the state, creating jobs and attracting foreign and domestic investment by reducing regulatory requirements for business permits and land acquisition procedures.
As part of the changes to the tax legislation, in addition to tax exemption of dividends received from local companies, the Law introduces a territorial income tax regime for resident foreigners who stay in Indonesia for more than 183 days a year. Previously, such tax residents were taxed on their worldwide income.
The ability to be taxed only for income from sources in Indonesia, however, will not apply by default to all resident foreigners, but only to highly skilled professionals who do not enjoy the benefits of double taxation agreements. The Ministry of Finance of Indonesia is responsible for determining annually which foreign specialists will fall under the category of highly skilled. The Law sets a timeframe of 4 years, during which resident foreigners will be able to use the territorial principle of taxation of their income.
Also, to support the economy after the negative consequences of the coronavirus, the Migration Department of Indonesia, together with the Department of Tourism, plan to launch a 5-year visa for foreigners by mid-2021, which will allow not only long-term residence in such popular resorts as Bali and Bintan, but also will grant the right to work in Indonesia, as well as invest in business. The target applicants for such visa are businessmen, tourists who have real estate in the resort areas, as well as IT nomads.
Having the combined ability to reside in Indonesia under a 5-year visa, as well as being taxed only on income from a source in Indonesia, makes the country very attractive for people who want to spend most of the year in Asia, in particular in Bali.
However, Indonesia is not the only country in Asia that offers preferential tax treatment to certain categories of taxpayers. The territorial principle of taxation is also followed by Thailand, Singapore, Hong Kong and Malaysia – more information in our article.
