Indonesia has become an increasingly important destination for foreign entrepreneurs as the government expands efforts to attract international business into the country. In recent years, officials have introduced a series of tax measures aimed at making Indonesia more competitive for overseas companies and foreign talent seeking long-term opportunities in Southeast Asia.
Foreign investment into Indonesia has climbed as the government expands efforts to position the country as a larger destination for international business. Data from the Ministry of Investment and Downstream Industry showed foreign direct investment reached Rp 900.9 trillion, reflecting the growing role overseas investors continue to play in the country’s economy.
For many foreign professionals and business owners considering a move to Indonesia, one issue has become increasingly central: how overseas income is treated under the country’s tax system.
Indonesia’s four-year foreign income tax exemption, often described as the country’s “0% tax” policy on qualifying overseas income, has drawn growing attention among foreigners moving to Indonesia. But despite the interest surrounding the policy, many foreigners still struggle to understand which foreign income qualifies and when Indonesia tax residency begins.
This article explains how Indonesia’s tax system works for foreigners and what businesses should consider before relying on the policy.
What is Indonesia’s Tax System?
Indonesia applies a worldwide income tax system for tax residents. Under rules issued by the Directorate General of Taxes (DGT), foreign investors who earn income from Indonesia can still face taxation, even when they live outside the country.
The country separates foreign taxpayers into two groups: resident taxpayers (Wajib Pajak Dalam Negeri) and non-resident taxpayers (Wajib Pajak Luar Negeri). A foreign investor is generally treated as a resident taxpayer if they remain in Indonesia for more than 183 days within a 12-month period or intend to reside there permanently. Those taxpayers are required to report their worldwide income.
Non-resident taxpayers, meanwhile, are taxed only on income earned from local sources. In most cases, the tax is collected through withholding mechanisms tied to that income.
Given these rules, foreigners in Indonesia need to have a clear understanding of their tax responsibilities. Many rely on registered local tax advisers to identify which tax regime applies to them and whether they qualify for any available exemptions.
What is Indonesia’s 0% Tax on Foreign Income or 4-Year Tax Exemption?
Indonesia has expanded a series of tax measures in recent years as the country works to attract foreign professionals and international companies. One of the most closely followed policies is the foreign income tax exemption, widely known among foreigners as Indonesia’s “0% tax” rule.
The policy states that certain foreign individuals who become Indonesia tax residents are exempt from qualifying income earned outside the country. As a result, some overseas income may not be subject to Indonesia tax for a period of up to four years. The important features of the policy include:
- The exemption applies only to qualifying foreign-sourced income.
- Indonesia-sourced income remains taxable in Indonesia.
- The tax benefit is available for up to four years.
- The policy applies only to eligible foreign tax residents.
- Not all foreign income is automatically exempt from tax.
Which Types of Foreign Income Qualify for 0% Tax in Indonesia?
The policy of 0% tax in Indonesia does not apply to every type of foreign income; certain types of foreign income qualify for tax exemption in Indonesia, which are stated below:
1. Foreign Dividend
Foreign dividends may qualify for Indonesia’s tax exemption when the income comes from companies outside the country. This includes dividends distributed from overseas subsidiaries, foreign stock investments, and international holding structures. For example, a professional who moves to Indonesia but still receives dividend payments from investments in Singapore may be able to keep that income outside Indonesia taxation, provided the income remains foreign-sourced under local tax rules.
2. Overseas Business Profits
Business profits from companies based outside Indonesia may also fall under the exemption. In many cases, this applies to foreign entrepreneurs who relocate to Indonesia while continuing to earn income from businesses that still operate overseas. A foreign entrepreneur living in Indonesia, for instance, may continue to earn profits from a company incorporated in Singapore. If the business operations and clients remain outside Indonesia, that income may fall within the exemption period. However, income connected to business activities carried out inside Indonesia can still be subject to Indonesia tax rules.
3. Foreign Investments
Income from investments held outside Indonesia may also qualify for the exemption. This includes returns from overseas stocks, foreign mutual funds, international investment accounts, and assets located abroad. For example, a foreigner living in Indonesia who continues to earn investment income from accounts in another country may be able to keep those earnings outside Indonesia taxation during the exemption period.
Why is Indonesia’s 0% Foreign Income Tax Important for Entrepreneurs?
For businesses, tax policies can influence where profits are reinvested and where founders decide
to live. For founders who operate globally, this policy therefore becomes a part of a broader strategy that balances tax planning and market access. The following benefits discuss why this policy is important for entrepreneurs:
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Repatriate Foreign Profits
The policy encourages entrepreneurs to repatriate overseas profits rather than leave them abroad. By reducing the likelihood of additional taxation on foreign income, the policy may allow business owners to reinvest more of that capital within the country.
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Supports Indonesia Investment Ecosystem
The policy is also intended to channel more foreign-earned income into Indonesia’s domestic economy. Reinvested funds may support capital market activity, infrastructure development, and business expansion across the country.
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Business Expansion
The exemption may also improve long-term financial planning when establishing operations in Indonesia, which is beneficial for international companies. Lower tax on qualifying overseas income can provide greater scope for future commercial development in Indonesia.
How to Apply for the 4-Year Tax Exemption of Indonesia?
The exact process depends on the individual’s circumstances, employment status, and documentation. In general, foreign applicants should follow the following steps.
Step 1: Check Employer Eligibility
Before applying for Indonesia’s four-year tax exemption, foreign workers are generally expected to check whether their employer’s business classification matches the position being offered. A company can usually sponsor only those roles that fall within its registered business activities. For example, a company registered as a restaurant business may face difficulties sponsoring a work permit for a software engineer position.
Step 2: Obtain Work Permit
Applicants are generally required to secure the necessary employment approvals before applying for Indonesia’s four-year tax exemption. This usually includes the RPTKA, which outlines the company’s plan to employ a foreign worker, along with the IMTA or Notifikasi.
Step 3: Submit Application
Applicants are required to file an application with Indonesia’s Directorate General of Taxes requesting income tax treatment only on income earned or received from Indonesia. The submission is accompanied by supporting documents required by the tax authorities.
What Challenges and Compliance Requirements Should Businesses Consider?
| Area | Compliance Risk | Action |
|---|---|---|
| Foreign Income Classification | Income connected to activities carried out in Indonesia may not qualify for the exemption, even when payments are received from overseas. | Review how income is generated, where services are performed, and whether the activity creates Indonesia tax exposure. |
| Tax Residency Status | Foreign employees may unintentionally become Indonesia tax residents after exceeding residency thresholds. | Monitor employee stay periods and maintain clear residency documentation before claiming the exemption. |
| Employer Business Activity | A mismatch between the company’s registered business classification and the employee’s role can affect permit approvals. | Confirm that the sponsored position aligns with the company’s approved business activities before filing applications. |
| Work Permit Compliance | Missing or incomplete employment approvals may delay tax exemption eligibility. | Ensure the RPTKA and IMTA or Notifikasi are secured and remain valid throughout the employment period. |
| Overseas Business Operations | Businesses operating across multiple countries may face difficulties determining where income is sourced. | Maintain records showing where management decisions, clients, and operational activities are located. |
| Ongoing Tax Reporting | Qualifying for the exemption does not remove all Indonesia tax filing obligations. | Continue meeting local reporting, disclosure, and documentation requirements during the exemption period. |
| Documentation Standards | Incomplete supporting documents may create issues during tax reviews or audits. | Keep employment contracts, investment records, overseas income evidence, and tax filings properly documented. |
Conclusion
Indonesia’s four-year foreign income tax exemption has changed how many international businesses view the country. For foreign professionals relocating to Indonesia, the policy can offer meaningful tax advantages on qualifying overseas income, but the benefit depends on careful compliance with Indonesia tax and employment rules.
In practice, the most important issue is whether income is genuinely treated as foreign-sourced under Indonesia regulations. Residency status, work permits, business activities, and income structure can all influence how the rules apply.
At 3E Accounting Indonesia, we assist foreigners with Indonesia tax advisory, company incorporation, work permit applications, and compliance support, helping clients understand the country’s changing regulatory system with greater clarity.
Navigate Indonesia’s Tax Rules With Greater Clarity
3E Accounting Indonesia supports foreign businesses with Indonesia tax advisory, company incorporation, and ongoing compliance services.
Frequently Asked Questions
Remote workers may qualify if they become Indonesia tax residents and their overseas income satisfies the requirements for foreign-sourced income under Indonesia tax regulations. The tax treatment can depend on where the work is performed and how the income is structured.
Holding a foreign bank account does not automatically create Indonesia tax liability. However, income generated from overseas accounts, including interest or investment returns, may still need to be reviewed under Indonesia tax residency and reporting rules.
After the exemption period expires, foreign tax residents may become subject to Indonesia’s normal worldwide income tax system. Overseas income may then fall within Indonesia taxation unless another exemption or tax treaty applies.
Indonesia has tax treaties with multiple countries to help reduce double taxation on certain types of cross-border income. The availability of treaty benefits depends on the taxpayer’s residency status, income source, and treaty conditions.
Abigail Yu
Author
Abigail Yu oversees executive leadership at 3E Accounting Group, leading operations, IT solutions, public relations, and digital marketing to drive business success. She holds an honors degree in Communication and New Media from the National University of Singapore and is highly skilled in crisis management, financial communication, and corporate communications.
