Keeping some of your money in your home currency?

[make_batik_great_again]

Hi,

do you keep some of your money in your home currency (for example in USD, AUD or EUR) or even in a bank account from your home country? At least, in my opinion, it makes sense from a risk diversification perspective - and it is also practical if you go back to your home country on a vacation or so.

I just wonder now if there are also negative aspects regarding this. One thing that came into my mind is that the money is probably not available as fast as money on your Indonesian bank account in case you have a very serious emergency or so.

Another thing is that you have to declare your assets in the tax declaration in Indonesia - therefore, also the amount of money that you possess in foreign currencies which you have to recalculate into IDR then, of course. Wouldn´t be a big hassle if you could just take the exchange rate at the end of the year or so, but - if I understand correctly - you have to declare your assets using the acquisition/purchase price (which makes also sense in some way for checking whether or not your income and asset development match). So, in regards to foreign currencies you would need to know/document every time you receive the USD/EUR/or whatever and recalculate into IDR then on the basis of the exchange rate of that day (and also considering if you have a currency gains at the time you use/spend/exchange that money). Seems to me like a big effort to recalculate that every year if you spend or receive some of your home currency´s money every now and then...and even in the first tax declaration after moving to Indonesia it is probably not possible to calculate the foreign currency assets in IDR on the basis of acquisiton/purchase price because you probably cannot retrace exactly when you received every penny if you earned and saved that money over a long period of time.

Perhaps I'm being a bit slow on the uptake today or I make this bigger than it is How do you guys handle this? Is there an easy/practical solution?

 

[Hawk256]

Without getting into the tax issues. I always keep some of my money in my US account. I can wire transfer it to Indonesia in a day or I have a debit card that I can use instantly. Never put all your eggs in one basket.

 

[centurion]

Liquid assets, I keep 80% in USD, 5% in physical god and rest in IDR. Started with USD/IDR around 12.000. So far so good.
All income streams, assets, and account balances reported to the Indonesian tax office.

 

[Helpful Herbert]

I like the idea of a physical god. That would solve a lot of arguments.

 

[make_batik_great_again]

Liquid assets, I keep 80% in USD, 5% in physical god and rest in IDR. Started with USD/IDR around 12.000. So far so good.
All income streams, assets, and account balances reported to the Indonesian tax office.

Around 12.000 USD/IDR. So, probably started around 2014 or 2015. In order to calculate your bank balance from USD into IDR, which exchange rate did you take into account for your first declaration then? Just took the exchange rate from the 1st January of that year?

 

[centurion]

Around 12.000 USD/IDR. So, probably started around 2014 or 2015. In order to calculate your bank balance from USD into IDR, which exchange rate did you take into account for your first declaration then? Just took the exchange rate from the 1st January of that year?

31. December for the first time. For avoidance of doubt, you have to calculate the fx gains/losses per year. Majority of assets held trough a company, so profit/loss goes there.

 

[make_batik_great_again]

31. December for the first time. For avoidance of doubt, you have to calculate the fx gains/losses per year. Majority of assets held trough a company, so profit/loss goes there.

Ok, 31st December, I see. But, from my understanding, a fx gain/loss does not occur if you just leave those USD in your bank account.

So no matter what the USD/IDR exchange rate in the following years is (even if it doubles or so), you would not have fx gain/loss if those USD just stay in your bank account. Am I right? If you exchange those USD into IDR, then a fx gain/loss occurs depending on the exchange rate on the date of the exchange transaction.

 

[centurion]

Ok, 31st December, I see. But, from my understanding, a fx gain/loss does not occur if you just leave those USD in your bank account.

So no matter what the USD/IDR exchange rate in the following years is (even if it doubles or so), you would not have fx gain/loss if those USD just stay in your bank account. Am I right? If you exchange those USD into IDR, then a fx gain/loss occurs depending on the exchange rate on the date of the exchange transaction.

Unrealized foreign exchange gain / loss goes in profit/loss in Indonesia, art 4.1.L/6.1.E of the Tax law.
Commodities no (gold would be selling price minus purchase price).

So basicallly you should calculate realized and unrealized fx gain/loss every year-if you have time to do so.

 

[make_batik_great_again]

Unrealized foreign exchange gain / loss goes in profit/loss in Indonesia, art 4.1.L/6.1.E of the Tax law.
Commodities no (gold would be selling price minus purchase price).

So basicallly you should calculate realized and unrealized fx gain/loss every year-if you have time to do so.

Thanks, I did not know that. That is probably an interesting negative argument for keeping money in foreign currencies then.

Let‘s assume someone has 100.000 USD (starting 1 USD = 12.000 IDR => 1.200.000.000 IDR) on his bank account.

Then the exchange rate goes up 20% in one year. So, exchange rate is 1:14.400 IDR. By that, this person would have a fx gain of 240.000.000 IDR which is taxable then.

During the next year, the exchange rate declines back to its former level (1:12.000 IDR). This person has a fx loss of 240.000.000 IDR then.

Even though this person’s USD balance is worth exactly the same like two years before, this person had to pay taxes on this only temporary, not realized fx gain, probably without the possibility of getting a refund in the year the USD weakened.

If we look at currency fluctuations, such a scenario is not that uncommon.

 

[centurion]

@make_batik_great_again

From 2011 USD fluctuation was just upward or flat against IDR, from 8.800 in 2011 to 15.100 today. I know people that had everything in IDR and lost significantly.

If the word economy is in better (normal) condition, you can diverse in USD/EUR/IDR or add additonal currencies. This would lower the volatility. I would consider adding more physical gold as well.

 

[make_batik_great_again]

That is true. But still, it does not sound wise to me to keep much money in a foreign currency then. If there is, as described, a short but huge swing up- and then downwards again, you have to pay a lot of taxes without gotten richer any Rupiah.

See the fictive example of me: After two years you have the same amount in USD and also in IDR. But in the meantime, you had to pay taxes worth a motorbike on that temporary fx gain that, in the end (after two years), did not make you richer in both currencies.

Yes, from 2011 USD/IDR had not so many huge fluctuations. But still we are talking about an Emerging Markets country, so huge fluctuations are not uncommon. And from 2011 there were not many different presidents or so, so quite stable time. With every election and other (also global) events the risk of short-term fluctuations increases. Look for example at the USD/IDR spike during Corona crisis.

If only fx gain that is realized was taxable, it would be a different story. But if every temporary up- and downswing is relevant, your tax amount depends a lot on where the exchange rate is on the 31st December of every year (so depending on luck).

 

[make_batik_great_again]

Unrealized foreign exchange gain / loss goes in profit/loss in Indonesia, art 4.1.L/6.1.E of the Tax law.
Commodities no (gold would be selling price minus purchase price).

So basicallly you should calculate realized and unrealized fx gain/loss every year-if you have time to do so.

This point regarding unrealized fx gain/loss applies only in corporate tax law or also applies for residents (income tax)?

As you wrote, unrealized gain/loss applies not on commodities like gold. I assume, with stocks and funds it should be the same like with commodities, right? Gains by stocks and funds only taxable if already realized that gain?

 

[centurion]

This point regarding unrealized fx gain/loss applies only in corporate tax law or also applies for residents (income tax)?

As you wrote, unrealized gain/loss applies not on commodities like gold. I assume, with stocks and funds it should be the same like with commodities, right? Gains by stocks and funds only taxable if already realized that gain?

As I understand, it applies to all.
Every 31st December you should mark to market the deposits in fx and calculate the gain/loss. 1st January the cycle resets and starts from that date.
Commodities are out of it, but purchase and sales for shares abroad would be taxed by ordinary progressive rate (up to 35%) if you do on your personal name.
This is the exact quote from the law:

Article 4
(1) Taxable Object is income, which is defined as any increase in economics capacity received by or accrued by a Taxpayer from Indonesia as well as from offshore, which may be utilized for consumption or increasing the taxpayer’s wealth, in whatever name and form, including:
a. compensation or remuneration received or accrued in respect of employment or service rendered, including salary, wage, allowance, honorarium, commission, bonus, gratuity, pension, or other forms of remuneration, unless otherwise stipulated by this Law;
b. lottery prizes, or gifts in respect of employment or activities, and reward;
c. business profits;
d. gains from the sale or transfer of property, including: 1. gains from a transfer of property to a company, a partnership, and other entity in exchange for shares or capital contribution;
2. gains accrued by a company, a partnership or other entities from the transfer of property to its shareholders, partners or members;
3. gains from a liquidation, merger, consolidation, expansion, split-up, acquisition, or reorganization in whatever name and form
4. gains from transfer of property in the form of grant, aid or donation, unless they are given to relatives within one degree of direct lineage, and to religious body, educational or other social entity including foundation,cooperative, or to any individual who conducting micro and small business which stipulated by Minister of Finance, provided that aforementioned parties have no business, employement, ownership nor control relationship; and
5. gains from the sale or the transfer of part or all of mining rights, participation in financing, or capitalization in a mining company; e. refund of tax payments which already deducted as an expense and any additional payment of tax refund; f. interest including premium, discounts, and compensation for loan repayment guarantees;
g. dividends, in whatever name and form, including dividends from an insurance company to its policyholders, and distribution of net income by a cooperative;
h. royalty or compensation from the use of right;
i. rents and other income from the use of property;
j. annuities;
k. gains from the discharge of indebtedness up to a certain amount stipulated by Government Regulation;
l. gains from foreign exchange
m. gains from revaluation of assets;
n. insurance premium; o. contribution received by or accrued by an association from its members who are taxpayers engaged in business or independent services; p. an increase in net wealth from income which has not been taxed;
q. income from sharia business; r. compensation as stipulated by Laws concerning General Provisions and Tax Procedures; and
s. surplus of Bank of Indonesia.
(2) The following income may be subject to a final income tax: ....

 

[Helpful Herbert]

gains from transfer of property in the form of grant, aid or donation, unless they are given to relatives within one degree of direct lineage,

I wonder if this includes spouses

 

[centurion]

gains from transfer of property in the form of grant, aid or donation, unless they are given to relatives within one degree of direct lineage,

I wonder if this includes spouses

Yes, if they have a prenup. If not, they are in joint property and considered one tax unit, so no tax.

 

[make_batik_great_again]

As I understand, it applies to all.
Every 31st December you should mark to market the deposits in fx and calculate the gain/loss. 1st January the cycle resets and starts from that date.
Commodities are out of it, but purchase and sales for shares abroad would be taxed by ordinary progressive rate (up to 35%) if you do on your personal name.
This is the exact quote from the law:

Article 4
(1) Taxable Object is income, which is defined as any increase in economics capacity received by or accrued by a Taxpayer from Indonesia as well as from offshore, which may be utilized for consumption or increasing the taxpayer’s wealth, in whatever name and form, including:
a. compensation or remuneration received or accrued in respect of employment or service rendered, including salary, wage, allowance, honorarium, commission, bonus, gratuity, pension, or other forms of remuneration, unless otherwise stipulated by this Law;
b. lottery prizes, or gifts in respect of employment or activities, and reward;
c. business profits;
d. gains from the sale or transfer of property, including: 1. gains from a transfer of property to a company, a partnership, and other entity in exchange for shares or capital contribution;
2. gains accrued by a company, a partnership or other entities from the transfer of property to its shareholders, partners or members;
3. gains from a liquidation, merger, consolidation, expansion, split-up, acquisition, or reorganization in whatever name and form
4. gains from transfer of property in the form of grant, aid or donation, unless they are given to relatives within one degree of direct lineage, and to religious body, educational or other social entity including foundation,cooperative, or to any individual who conducting micro and small business which stipulated by Minister of Finance, provided that aforementioned parties have no business, employement, ownership nor control relationship; and
5. gains from the sale or the transfer of part or all of mining rights, participation in financing, or capitalization in a mining company; payment of tax refund;
...
l. gains from foreign exchange
....

Thanks for the information. So, if I do not misunderstand this, it seems that fx gains are taxed (even if they are still unrealized), but stock price gains only if you realize/sell them (because letter d says "gains from the sale or transfer"). I assume, letter d also refers to index funds, bond funds, money market funds etc. At least, I did not find a letter that fits funds better than letter d. Then gains from funds would be taxed also only after selling them.