2018 Expat Retiree Tax Analysis

[IndoTom]

Copy from a member from a Malaysian forum a few days ago......
"For those who didn't attend the BHCKL/MM2H presentation yesterday, the word is out (official), even backed by tiny fold-out MM2H pamphlets. From the "middle of the year" but excluding applications presently in the pipeline:

1. Proof of liquid assets rises to RM600,000 (presently RM350,000)
2. FD rises to RM500,000 (presently RM150,000)
3. Requirement to show off-shore income of RM10,000/month exempted for over-60s

The deputy/assistant director of MM2H who was one of the speakers unashamedly said (backed by a giant slide) that they were looking for "quality not quantity"."

There may still be time to apply under the existing requirements before the new ones are enforced. This could be a last call for the MM2H program. I suspect only very rich people needing an emergency "backup plan" will go the MM2H route in the future. I certainly wouldn't put a fixed deposit of MYR 500,000 (USD $127,632) in a Malaysian bank for the length of my participation. The interest rate a certainly better then in the USA but still the money is tied up while you are living in Malaysia with that program. The current fixed deposit of MYR 150,000 (USD 40,000) is a more reasonable amount, although almost above my tolerance.

 

[Davita]

Indonesia has many laws which they don't apply rigorously. One obviously is they don't process retirees on Kitas/Kitap for NPWP even tho' law says it should. This maybe simply because it isn't relevant, and dismissive in their big picture, or simply because they don't see it as important.
I suggest when expats bring up the subject the more it may happen in the future just creates anxiety and is not useful.
My recommendation to all retirees is to simply ignore, keep quiet and enjoy retirement.

 

[IndoTom]

Indonesia has many laws which they don't apply rigorously. One obviously is they don't process retirees on Kitas/Kitap for NPWP even tho' law says it should. This maybe simply because it isn't relevant, and dismissive in their big picture, or simply because they don't see it as important.
I suggest when expats bring up the subject the more it may happen in the future just creates anxiety and is not useful.
My recommendation to all retirees is to simply ignore, keep quiet and enjoy retirement.

What about an expat that already has an NPWP (Indonesian Tax ID) from working there previously? That could be a problem. Not paying taxes due to ignorance doesn't go over too well in the USA with prison time and heafty fines. As you mentioned in another post the Indonesian tax law mentions the same penalties. I definately would not want to end up in an Indonesian court over tax issues.

 

[Jamu]

Indonesia has many laws which they don't apply rigorously. One obviously is they don't process retirees on Kitas/Kitap for NPWP even tho' law says it should. This maybe simply because it isn't relevant, and dismissive in their big picture, or simply because they don't see it as important.
I suggest when expats bring up the subject the more it may happen in the future just creates anxiety and is not useful.
My recommendation to all retirees is to simply ignore, keep quiet and enjoy retirement.

That's certainly one perspective Davita, and in reality this approach will probably continue to work for most people in the short term. However, improvements in tax enforcement are on the horizon. For example, the OECD treaty on financial information sharing comes into effect this year, so member countries will be reporting to the Indonesian government the income and assets held by Indonesian residents (including expats) in other member countries. Once the authorities in Indonesia see this and understand just how much tax money is escaping their clutches due to a lack of rigorous enforcement of their tax laws, it is quite foreseeable that the current lax attitude towards enforcement will change. How past non-compliance will be dealt with at that point is anybody's guess but, as pointed out previously, it could entail risks that some people are not willing to take.

 

[waarmstrong]

We have a number and filed an Indonesian return through 2014, our last year in country for the required length of time. I am wondering what the status of that tax number will be when we return on a semi-permanent basis in a few years. Will our number have lapsed from lack of use, such that we need to get a new one or do we just take up where we left off?

 

[Davita]

What about an expat that already has an NPWP (Indonesian Tax ID) from working there previously? That could be a problem. Not paying taxes due to ignorance doesn't go over too well in the USA with prison time and heafty fines. As you mentioned in another post the Indonesian tax law mentions the same penalties. I definately would not want to end up in an Indonesian court over tax issues.

I agree if one has an NPWP, for whatever reason, it is correct to file Indonesian taxes.
There are many retirees who have applied for NPWP and been rejected. I asked my sponsor (agent) about this and he told me to ignore unless I earn money in Indonesia in addition to interest from bank FD's, for which I pay 20%.

 

[waarmstrong]

We have earnings in Indonesia, and even though most all of it engendered withholding, as in bank interest, we still filed a 1770 S when we were in residence. Not that difficult, especially when retirement leaves one with sufficient time, and marriage provides access to relatives willing to consult on the subject.

 

[Chiron]

Indonesia has many laws which they don't apply rigorously. One obviously is they don't process retirees on Kitas/Kitap for NPWP even tho' law says it should. This maybe simply because it isn't relevant, and dismissive in their big picture, or simply because they don't see it as important. I suggest when expats bring up the subject the more it may happen in the future just creates anxiety and is not useful.
My recommendation to all retirees is to simply ignore, keep quiet and enjoy retirement.

Davita has touched on a relevant point here, and a question that I keep asking myself: At what points in the various processes to be a resident in Indonesia or other situations, is one required to obtain an NPWP? Once you get the NPWP, it seems to follow you around for life, and possibly raises other questions (like those posed by @waarmstrong)

1. Work visa - It seems pretty clear you'll need to have an NPWP for this visa.
2. Setting up a business - I'm no expert, but it would seem that you'll be required to set something up to pay taxes. In reading the OECD Treaty it looks like this is going to be a requirement for businesses going forward. Just wondering how that will be implemented for those that don't have an NPWP...
3. Retirement Visa - According to Davita (and others I've spoken with), you end up with this visa and not getting an NPWP. Maybe the stipulation that you're not allowed to work on this visa, cancels the NPWP requirement. Who knows?? If that is the case, it would be nice to find some article buried in an obscure tax law that spells this out.
4. Spousal sponsored KITAS/KITAP - This one is not clear as to me. Since I'll probably be coming over on this type of visa, I'm just curious if there's something that triggers the NPWP requirement. Do they look at your age? Or, once again, since you're not allowed to work without a work visa, does the same sort of thing happen in the Retirement Visa? Or is it possible that Imigrasi is quite separated from the Kantor Pajak, and they are independent processes with minimal connection?
5. Establishing a bank account - I've heard mixed stories here, as it seems whatever has happened in the past may be in the process of change. From my last conversation with a bank in Indonesia, my only requirement was to have a KITAS and a passport.
6. Are there other events that might require the NPWP? Buying a residence? Buying a car? Applying for a MERP? Investing in the Indonesian stock market, or other investments?

Looking to the future, will there be some new law or policy that will change things? If you're one of the many people who were never required or asked to have an NPWP, how would a new law or policy be implemented in a way that catches your attention? One day you wake up and find that your bank has frozen your account until you come in with an NPWP? You go to renew your MERP, and they say "sorry we need to see your NPWP now"? I realize these are dramatized examples, but my point (and a bit to Davita's point) is, until something changes, an incoming retiree is not likely to be taxed on their foreign pensions and investments abroad at this time.

 

[Jamu]

Anyone spending 183 days or more in Indonesia in any 12 month period becomes tax resident (irrespective of type of stay permit), so therefore presumably requires NPWP in order to file their tax return.

 

[Davita]

Anyone spending 183 days or more in Indonesia in any 12 month period becomes tax resident (irrespective of type of stay permit), so therefore presumably requires NPWP in order to file their tax return.

You're quoting stuff every retiree expat in Indonesia knows....nothing new...it's the practical application of the rules that are being discussed.
There must be thousands, perhaps millions, of Indonesian citizens who are working, earning salaries, who have never applied for NPWP....nor pay taxes. Those are the people that this gov't wants to harness.
The amnesty already captured many who are now registered as taxpayers who never were before.
I would think that Sri Mulyani will concentrate on that area for income before even thinking of a limited number of retiree expats not declaring their pensions from other countries. In the big picture that would be chicken-shit revenue and probably not even pay for the surveillance costs.

https://en.tempo.co/read/news/2017/07/20/056893090/Tax-DG-Tax-Compliance-in-Indonesia-Remains-Low

 

[snpark]

Banks will ask for NPWP when you open account here (for KITAS)
but ironically, it seems it is meaningless because I accidentally gave them the wrong 15 digit number and not once did anyone ever question or check it. In fact it was me many months later that said oh sorry I gave the wrong number to you.

So makes you wonder what is the point? They didn't ask to see a copy of it, they were happy enough to just have it read out / emailed etc. So presumably you could IN THEORY just give them any 15 digit number and they will be happy. Since there seems to be no coherent connection between your NPWP number and say your age, passport, salary etc etc?

I always wondered if it worked like a "tax code" and from your NPWP the bank could see how much tax you paid and therefore how big your salary / how much of a vip client you could be for them.
Example, when you get your credit card, how do they decide your limit? Just pot luck? From your NPWP ? Or just credit history with them? No one ever asked me for my salary slip or anything.

I guess down to personal relationship with your bank etc ?
Unlike UK where your tax number is made up from DOB, etc etc and your tax bracket that year, seems here that it is just any random 15 digit number that has no influence with the bank on your credit rating or relevance to what tax you pay or don't pay.

I guess this is Indonesia hahaha

 

[snpark]

There must be thousands, perhaps millions, of Indonesian citizens who are working, earning salaries, who have never applied for NPWP....nor pay taxes.

Ah yes all those entrepreneurs, self employed people. No unemployment here mate, Just 200 million self employed workers, who don't declare or pay any tax. Lol

 

[Smallworld]

....So presumably you could IN THEORY just give them any 15 digit number and they will be happy. Since there seems to be no coherent connection between your NPWP number and say your age, passport, salary etc etc?

I always wondered if it worked like a "tax code" and from your NPWP the bank could see how much tax you paid and therefore how big your salary / how much of a vip client you could be for them.
Example, when you get your credit card, how do they decide your limit? Just pot luck? From your NPWP ? Or just credit history with them? No one ever asked me for my salary slip or anything.

I guess down to personal relationship with your bank etc ?
Unlike UK where your tax number is made up from DOB, etc etc and your tax bracket that year, seems here that it is just any random 15 digit number that has no influence with the bank on your credit rating or relevance to what tax you pay or don't pay.

I guess this is Indonesia hahaha

Unlinked NPWP number meaning not matching kantor pajak database would be marked as orphan tax number and would be pending action. What action that would be depends from agreement between Tax Officer and Bank's management/auditor/CFO.

NPWP is NOT the same as tax code.... tax code as in UK is simply tax brackets meaning different salary or persons circumstances falls into different categories given special tax code. NPWP is tax identification number regardless of any changes to your job, salary, life.
Credit card limits depends from the bank not tax office. NPWP has nothing to do with it. It is up to the bank how they decide what credit they should give you.

 

[brian@bekasi]

Example, when you get your credit card, how do they decide your limit? Just pot luck? From your NPWP ? Or just credit history with them? No one ever asked me for my salary slip or anything.

For credit card limits, my banks has a credit committee which decides your limit annually. This year they doubled my credit limit when the annual renewal was due without consulting me and have since offered me a cash facility at a very low interest rate..

My limit was a substantial amount in Indonesian terms and now very substantial.

When you get the card it appears they only make a decision based on how much you deposit and your income.

I have an NPWP but wish I could hand it back as I only earn bank interest in Indonesia and the bank takes out the tax. I got the NPWP when I had government bonds and needed it to only pay 15% instead of 20% tax. Sold the bonds so I now wish I could get rid of the card and be like a lot of other pensioners receiving pensions from overseas.

 

[Teabag]

To be fair, is it too much to ask that a retired person seeking permanent residence in another country have at least USD 150k in liquid assets? Absent family or other strong connections, no EU country would grant a long term residence visa to a retiree from a first world country with only this small amount of liquid assets, and I highly doubt that Australia, New Zealand, the U.S. or Canada would either, so what's the big deal if Malaysia has increased an already low bar?

Because it's an Asian country and they request funds like you would need it in a developed first world one.

And further, if I see the situation here in Europe, many people of northern and eastern countries will never have 150k as hard cash in an account. Most oth them will have less and only an average pension. With that, you barely can live here in EU, but you'll manage well in Asia.

 

[Teabag]

I stand corrected - and you're ... I personally don't like dealing with ambivalence, multiple interpretations, confusion, etc. On the other han.....

@Chiron: then I doubt that Indonesia will be the country for you..... Interpretation and confusions are widely spread at all areas of daily life....

 

[Teabag]

My wife (eks-wni) and I also consider to retire in Indonesia with about 50+ (yes, we know about the visas, even detailed...) and we also have made our budget, what will be, if we stop working in the mid 50ths and live then from savings and rent out properties back home. Also, our current home country has a double tax treaty with Indonesia which does not make things easier. Taxed here in Europe by a rate of approx. 10% of taxable income, it will be in Indonesia 35%. Plus the all day and everywhere 'pajak-bule' that I'll face too.

We have considered several countries for retirement and for sure, Indo is number one because of my wife's former nationality, but in fact, there are other countries which make retirement a lot easier. After checking Malay (too expensive), Philippines (to insecure), Laos or Vietnam (not developed enough) we could also life in Thailand and connect more to the expat community, as integration into the local society will be very difficult. We think, the overall development and standard compared to Indonesia is a bit higher, prices are approx. the same, but the tax is a blank zero on savings from last year.

Honestly, if I'll have to get a NPWP and if I'll have to pay the 35% taxes of my then already not so big income, then I'll head up for Thailand as a home base with a yearly visa and just travel forth and back to Indo.

And I'm pretty sure, that allot of other pensioners in Indonesia will then have a problem too.....

 

[Chiron]

@Chiron: then I doubt that Indonesia will be the country for you..... Interpretation and confusions are widely spread at all areas of daily life....

That could very well be, but the most perfect place in the world without any issues may not be an option in my case. Just because there may be some negative aspects of a life decision, doesn’t necessarily outweigh all the positives.

 

[Davita]

Ah yes all those entrepreneurs, self employed people. No unemployment here mate, Just 200 million self employed workers, who don't declare or pay any tax. Lol

Lets put it this way....we employ 2 permanent household staff and 2 temps. Their salaries come from my pensions abroad and they don't have an NPWP nor pat tax. If they were to tax me on the retirement pensions I earn abroad I would have to fire them.
I know of about 5 other expat retiree couples, who employ even more staff than us, and they would do the same thing.

 

[Jamu]

Lets put it this way....we employ 2 permanent household staff and 2 temps. Their salaries come from my pensions abroad and they don't have an NPWP nor pat tax. If they were to tax me on the retirement pensions I earn abroad I would have to fire them.
I know of about 5 other expat retiree couples, who employ even more staff than us, and they would do the same thing.

I don't agree with the logic or rationale behind this post - i.e., don't dare enforce your tax laws against me or I won't employ as many low wage locals...As you know if you are on a retirement visa you will always have to employ at least one household staff. In any case it's a crocked argument to make as just about any expat, or even locally-owned business, can use the same rationale to argue why they shouldn't pay taxes.