Indonesian Tax System

[gemima]

I know a friend who got "caught" by the Indonesian tax authorities for income on rental properties they own outside of Indonesia. It happened last year - they had to pay a fine and this year they are paying Indonesian tax on their "worldwide" income (not just Indonesian income).

 

[IndoTom]

I know a friend who got "caught" by the Indonesian tax authorities for income on rental properties they own outside of Indonesia. It happened last year - they had to pay a fine and this year they are paying Indonesian tax on their "worldwide" income (not just Indonesian income).

WOW that's interesting to hear. A first for me. Anyone else?

 

[IndoTom]

I know a friend who got "caught" by the Indonesian tax authorities for income on rental properties they own outside of Indonesia. It happened last year - they had to pay a fine and this year they are paying Indonesian tax on their "worldwide" income (not just Indonesian income).

Is the property owned solely by the KITAS holder or jointly with an Indonesian citizen spouse?

 

[gemima]

Is the property owned solely by the KITAS holder or jointly with an Indonesian citizen spouse?

100% owned by an expat couple - they are both here on KITAS.

 

[snpark]

Perhaps you can persuade your friend to join this forum and share her unique experience and explain how and why this could happen?

 

[Helpful Herbert]

I'm wondering if they were working for a foreign company, informed their company about it, and then their company informed the tax authorities or some other govt body about it ? I can see how that might happen.

 

[snpark]

In all the years I have been here (quite a lot now) and of all the expats I have had the misfortune to meet, this is the first I ever heard of anyone having to declare and pay tax on worldwide income. I myself personally have properties in other countries, business, etc etc and not once been asked to pay / declare etc anything let alone pay tax on it (thank god)
Very strange.

 

[gemima]

He works for an Indonesian company. He didn't inform the company he works for here about his overseas earnings.
In discussions about it I thought it might be linked with the new Common Reporting Standard which Indonesia signed up to in 2018).

The info that is available (depending on the country) using the CRS is:

1. Name, address, Taxpayer Identification Number (TIN) and date and place of birth of each Reportable Person.
2. Account number
3. Name and identifying number of the reporting financial institution;
4. Account balance or value as of the end of the relevant calendar year (or other appropriate reporting period) or at its closure, if the account was closed.
5. Capital gains, depending on the type of the account (dividends, interest, gross proceeds/redemptions, other)

With a bit of investigation the authorities here could easily find out if someone has overseas earnings (via points 4/ 5) but i suppose they don't have enough staff to investigate this in most cases.

 

[snpark]

So he had his income sent here? And they just worked out a number from his account balance?

 

[gemima]

So he had his income sent here? And they just worked out a number from his account balance?

Never said that - I highly doubt he brought money into Indonesia (but we didn't speak about that so I can't confirm). The CRS allows the Indo tax authorities to see your end of year bank account balances in all countries who are signed up to CRS so it doesn't have anything to do with bringing money in here.

 

[Helpful Herbert]

I don't see how seeing a year end balance shows that you have rental income? I mean to prove that, they would have to do a full investigation including requesting the actual bank statements and analysing all the movements on them. It just doesn't seem to be something that makes sense for them to be doing for someone renting out a house, considering all the trillions that people are hiding here.

Anyway, it would be very interesting to know more about this case. And I'm wondering if it was a shake down and the "fine" went into someone's pocket?

 

[snpark]

Yes seems extremely peculiar case. The amount time effort and work to financially audit properly global accounts just to work out tax due on income received outside of Indonesia seems odd. Sounds like a shakedown and again we don't know the figures but as someone in finance myself it just sounds very strange.

 

[R Cameron]

in all countries who are signed up to CRS

Can you share this person's country of citizenship and/or country of foreign accounts?

 

[gemima]

He's a brit and I don't know exactly where the rentals are - there are a few (I think all within the EU).
When they told me about it last year I was extremely shocked (because I have a property of my own so it was relevant to me). I don't know them well enough to know beyond the top-line details that I have shared already. Next time I see them I'll pass on the forums interest in the matter.

 

[Dave70]

If he's a Brit who owns property in Spain (for example), he can pay his tax for rental income in Spain or declare it in the UK. This way, he need not pay for that tax here in Indonesia by attaching proof of payment (if he has to declare it in Indonesia) because a tax object cannot be double-taxed.

 

[R Cameron]

Thank you @gemima , the UK joined CRS in 2017 and Indonesia joined in 2018, so, while I'm not familiar with the exact nature of the information shared, it does seem quite plausible.

Notable for a number of members here is that the USA has not joined CRS. They are a member (with only B grade compliance) of a different agreement, but that one seems to be dedicated to countries complying with investigative requests, not broad scale and automated sharing like CRS.

 

[jstar]

The CRS information exchange comes from the financial institutions, not the tax offices.

The information shared is besides the (obvious) personal data, the account numbers and balances, capital insurances, the income out of interest - sales of securities stock etc.

So the ownership of property (registry/kadaster) is NOT communicated. But if someone has a life insurance with a mortgage, that would theoretically be possible to deduct.

Having said that, the tax authorities in my home country contacted me asking me why the property in another (EU) country was not reported?!

 

[gemima]

The CRS information exchange comes from the financial institutions, not the tax offices.

The information shared is besides the (obvious) personal data, the account numbers and balances, capital insurances, the income out of interest - sales of securities stock etc.

So the ownership of property (registry/kadaster) is NOT communicated. But if someone has a life insurance with a mortgage, that would theoretically be possible to deduct.

Having said that, the tax authorities in my home country contacted me asking me why the property in another (EU) country was not reported?!

I think the tax authorities do get to see this info:
"The Common Reporting Standard (CRS) is an information standard for the Automatic Exchange Of Information (AEOI) regarding bank accounts on a global level, between tax authorities, which the Organisation for Economic Co-operation and Development (OECD) developed in 2014. Its purpose is to combat tax evasion."
It's definition refers to "tax authorities".
However, I am not a tax expert and I really know nothing about this beyond some googling

 

[Helpful Herbert]

Yes I believe the tax authorities can request directly from the bank. However I guess they would need to know which bank to ask, considering in each country there are dozens of banks. It is possible that all banks send the information automatically to the tax authority of your resident country.

 

[dafluff]

With CRS in place, this is going to be much more common.

Essentially you become one identity for all CRS participating countries, and they link all your TINs.

Since they are working in Indonesia they probably at some point provided the Indonesian TIN to UK authorities. Probably to establish Indonesian tax residency. In turn UK banks reported account balances to Indonesian tax office.

Since they file taxes in Indonesia, and you are to report all assets (foreign and local) in your tax return every year, some mismatch due to missing account balances become trivial to discover.

It is then up to you to explain the discrepancy.