This post is also available in: Indonesia (Indonesian)
Brief Guide on Understanding Double Tax Treaties in Indonesia.
You might have heard the term ‘double tax treaties’ thrown around a lot – if you’re working with an international company. Understanding how double tax agreements work is essential when working in or for a foreign company.
This article will serve as a brief guide in explaining double tax treaties, how they work, and how they can impact your income. Let’s take a look!
What Are Double Tax Treaties?
When a person or a company has worked and received a salary from outside their resident country, they can be subjected to paying taxes twice. The first one is to their home country. The second one, on the other hand, would be to the country where the company they work for is based. A double tax treaty or a double tax agreement (DTA) is put into place to help these individuals so that they can avoid paying taxes twice. It works by eliminating double taxation.
Many countries around the world have this DTA with other countries. As we all know, taxes constitute a significant part of any country’s revenue. Having that said, an agreement allows both countries to come to an understanding when it comes to taxes on cross-border trading.
With a clearly outlined and predetermined set of mutual assent, countries can carry on with their respective international business transactions more freely. Plus, any disputes can be referred back to the DTA and solved quickly. Typically, taxpayers will have to pay tax depending on the number of working days of an employee in each country.
How Does It Help?
Imagine working for a company abroad and then paying tax twice on the same income. It is both heavy and burdening to employees everywhere. That’s why the DTA was created. It helps to lighten the taxpayer’s burden by preventing them from getting taxed two separate times on the same income.
Additionally, DTAs have several other important goals as well. They play a huge role in fostering a business-friendly economy for foreign investment. Countries otherwise would be less likely to invest in Indonesia if they are to pay tax locally and to their fiscal residence country. On top of that, DTAs also help to combat tax fraud and tax evasion. It also ensures workers abroad are treated fairly.
Double Tax Treaties in Indonesia
Indonesia is one of the world’s largest markets and has the biggest economy in South East Asia. Many foreign workers enter this country to live and work. Therefore, it’s no surprise that Indonesia has over 70 DTAs with other countries around the world. Once these workers are classified as tax residents, then they will be able to reap the benefits of the DTA between their home country and Indonesia.
If you’re wondering what it takes to be a tax resident here, the answer lies in the number of days one has been in Indonesia. An individual must be present in the country for over 183 days in a year or 12 months. Some of Indonesia’s DTA benefits include more investments, which enhances the economy as a whole and strengthens economic ties with other countries. With these DTAs, the country was able to appeal to and attract more investors everywhere.
Looking for Taxation Services in Indonesia?
3E Accounting is a leading group of Indonesian taxation experts who can help you save on taxes while working or operating a company in Indonesia. You can go through the list of our taxation services to know more about how we can help you.