Tax is one of the obligations of citizens and the government as their part of financing national development. One of the efforts towards this goal is to collect Income Tax in order to increase economic growth and social welfare of the Indonesian citizens.
Income tax is a tax imposed on a tax object against a tax subject (individuals or entities) with respect to income received or accrued during a tax year.
Items that are subjects of income tax are any additional economic capabilities received or obtained by taxpayers, both originating from Indonesia and outside Indonesia, which can be used for consumption or to increase the wealth of the concerned taxpayer, in any name and form, including:
The subject of income tax according to Undang Undang no 36 of 2008 regarding the Fourth Amendment to UU no. 7 of 1983 concerning Income Tax, is divided into several categories namely:
Tax subjects based on location are divided into domestic tax subjects and foreign tax subjects. Where domestic tax subjects follow the provisions of PPh 21, and foreign tax subjects are bound by PPh 26 policies.
This article will focus on regulations regarding PPh 26 which focus on foreign tax subjects, here we go.
According to the Regulation of the Minister of Finance Number 252/Pmk.03/2008 concerning Guidelines for Implementation of Tax on Income in Relation to Employment, Services and Activities of Individuals, PPh Article 26 is a tax on income in the form of salaries, wages, honoraria, allowances and other payments in any form in connection with work or position, services, and activities carried out by individuals who are foreign tax subjects, as referred to in Article 26 of the Income Tax Law.
Then, who are the foreign tax subjects?
Subjects of Article 26 Income Tax are individuals with status as foreign tax subjects who receive or earn income in any form, as compensation for work, services or activities carried out either related to employees or non-employees, including pension recipients.
According to the Regulation of the Minister of Finance Number 252/Pmk.03/2008, PPh 26 rate is 20%, final, and is applied to gross income received or earned as compensation for work, services, and activities carried out by individuals with the status of foreign tax subjects. This takes into account the provisions of the Double Tax Treaty Agreement that applies between Indonesia and the country of domicile of the foreign tax subject. PPh 26 is not final if the individual as a foreign taxpayer changes their status to become a domestic taxpayer.
The subjects of the PPh 26 withholding tax, which is 20% of the gross income of foreign taxpayers are:
Just like PPh 21, PPh 26 Income Tax is payable for each tax period, which means that it is to be paid at the end of each month when the payment is made, or at the end of the month when the payable is made.
An example for 20% rate of Gross Income calculation:
The gross income of a foreigner who works for a garment company in Cikarang reaches IDR 10,000,000, so the calculation of PPh26 is:
PPh 26 x Gross Income = 20% x IDR 10,000,000= IDR 2.000.000,-
So PPh 26 Income Tax for the foreigner is IDR 2,000,000
PPh 26 procedures can be carried out through e-billing unification which is available in electronic and paper documents. E-billing unification provides an electronic signature feature. It is also easier to use and access, so it can save your time while making tax reports.
There are 3 attachments that you will get from PPh 26 tax payment. The first attachment belongs to the foreign taxpayers, the second attachment belongs to the Tax Service Office, and the third attachment is for the withholding party’s documentation.
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