The increasing value of foreign investment in Indonesia has also increased the number of foreign workers in the country. Be it local-owned companies or multi-national foreign companies in Indonesia.
The Ministry of Investment has reported through the Investment Coordinating Board that the total foreign investment (PMA) in Indonesia was IDR 168.9 trillion in the third quarter of 2022. Compared to the same quarter in 2021 of IDR 103.2 trillion, this figure shows an increase of 63.6%. The increase also occurred in Domestic Investment by 22.5% for the same period year-on-year.
Foreign workers are foreign nationals who come to Indonesia to occupy certain job positions or certain expertise positions in a domestic company or agency.
There are several terms and conditions for hiring foreign employees in Indonesia. What are the conditions? Let’s delve into it further.
Companies that are hiring for foreign workers are required to submit Plans for Employment of Foreign Workers to the officials to get the approval from the Ministry of Manpower.
This is stated in Article 89 of the Job Creation Law which states the rules for hiring foreign nationals as workers in Indonesia as follows:
Some of the specific positions referred to in rule number 2 include managers, educators, experts, and brand ambassadors whose companies are engaged in these fields:
Meanwhile, positions that are prohibited to employ foreign workers include human resources and administrative work, namely:
It is certainly permissible, as long as you meet the criteria and certain conditions, which are:
The case will certainly be different if this foreign national wants to set up a new company in Indonesia (startup), then the form of the business entity is FCC or foreign investment, whether relying entirely on foreign capital or a combination of domestic investors.
Foreign nationals who work in Indonesia must obey and comply with the country’s tax regulations, which is the Law of Income Tax article 26. According to the Regulation of the Minister of Finance Number 252/Pmk.03/2008 about Instructions for Implementation of Withholding Tax on Income in Relation to Work, Services, And Activities of Individuals, which states that:
Income Tax Article 26 is a tax on income in the form of salaries, wages, honorarium, allowances and other payments in any name and in any form in terms of work or position, services and activities carried out by individuals who are foreign tax subjects, as referred to in Article 26 Income Tax Act.
The tax rate charged to foreign workers is 20% and is fixedly applied to the gross income received or earned as a reward for work, services, and activities carried out by individuals with the status of foreign Tax Subjects. With due observance of the provisions of the Double Taxation Avoidance Agreement in between the Republic of Indonesia and the country of domicile of the foreign Tax Subject.
Article 26 of PPh for foreign workers is valid for those who stay in Indonesia for 183 days in a period of 12 months. After this period, a foreign worker will be classified as Domestic Tax Subjects following Article 21 PPh regulations. The application of the latest Article 21 PPh rates is with the following conditions:
So those are the points to be considered before recruiting foreign talents in Indonesia. Competent and talented human resources are an inevitable factor that a company must have in order to continue to grow. While there are a lot of conditions that need to be met, sometimes hiring a foreign talent is necessary, especially if the position requires special specialization or experience.
To manage expenses related to foreign talents such as payroll, compensation or reimbursement easier, Aspire provides an all-in-one platform that facilitates your finance team to send out funds and expenditures made by foreign talent in different currencies.
Moreover, Aspire's features, such as approval systems, claim management, payable, receivables and budget management, are also tailored for teams who work remotely, or dynamic teams that require an allocation of 'purchasing power' to work more efficiently and productively.
To find out more about this feature, check on the Aspire payable management solutions page, or contact our team to schedule a demo and find out more about Aspire's features that will make your business finance operations easier.