Taxes & Business Regulations to Know for Foreign Talents in Indonesia

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.

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Foreign Worker Regulations

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:

1. Every employer who hires foreign workers must have a plan for the hiring of foreign workers approved by the central government;
2. Foreign workers can be employed in Indonesia only in a professional agreement for a certain position and a certain time, also having competences related to the position; and
3. Foreign workers are prohibited from occupying positions in the human resources department.

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:

1. Construction;
2. Real Estate;
3. Education;
4. Processing industry;
5. Management of Water, Wastewater, Waste Recycling and Remediation Activities;
6. Transportation and Warehousing;
7. Arts, Entertainment and Recreation;
8. Provision of Accommodation and Food and Drink;
9. Agriculture, Forestry and Fisheries;
10. Leasing, Human Resources, Travel Agents and Other Business Support;
11. Financial and Insurance Activities;
12. Human Health and Social Activities;
13. Information and Telecommunications;
14. Mining and excavation;
15. Procurement of Electricity, Gas, Steam/Hot Water and Cold Air;
16. Wholesale and Retail Trade, Repair and Maintenance of Cars and Motorcycles;
17. Other Service Activities; and
18. Professional, Scientific and Technical Activities.

Meanwhile, positions that are prohibited to employ foreign workers include human resources and administrative work, namely:

1. Personnel Director;
2. Industrial Relations Manager;
3. Human Resource Manager;
4. Personnel Development Supervisor;
5. Personnel Recruitment Supervisor;
6. Personnel Placement Supervisor;
7. Employee Career Development Supervisor;
8. Personnel Declare Administrator;
9. Personnel and Careers Specialist;
10. Personnel Specialist;
11. Career Advisor;
12. Job Advisor;
13. Job Advisor and Counseling;
14. Employee Mediators;
15. Job Training Administrator;
16. Job Interviewer;
17. Job Analyst; and
18. Occupational Safety Specialist.

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‍Can a Foreign Worker Served as a Director in a Company?

It is certainly permissible, as long as you meet the criteria and certain conditions, which are:

1. Not holding a position in the human resources department as mentioned before;
2. If the company is in the form of a Limited Liability Company (PT), then this foreign worker cannot own shares in the company, so that his position is only as a director and not a shareholder in the legality of the company; and
3. The paid-up capital from the company or PT where the foreign worker is working is required to be equal or more than IDR 1 billion. 

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.

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Tax Policy for Foreign Workers

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:

1. Taxpayers with an annual income of IDR 0 – IDR 60,000,000/year are subject to a 5% rate;
2. Taxpayers with an annual income of IDR 60,000,000 – IDR 250,000,000/year are subject to a 15% rate;
3. Taxpayers with an annual income of IDR 250,000,000 – IDR 500,000,000/year are subject to a 25% rate;
4. Taxpayers with an annual income of IDR 500,000,000 – IDR 5,000,000,000/year are subject to a 30% rate; and
5. Taxpayers with an annual income of more than IDR 5,000,000,000/year are subject to a 35% rate.

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.

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