I've done some fairly extensive reading, and quite a bit of thinking about this very topic. The following information is simply what's found on the internet for free, and coming from someone who is still in the planning process of residing in Indonesia, and more importantly not a tax person or an accounting person. I'm sure other US citizens may have their own stories, and my guess is that it's not a consistent experience for everyone. That said here we go...
The primary document I've read is from
this tax treaty document at the Ketentuan Pajak (Tax Provisions) website. Of particular interest are Articles 21, 22, and 23. The summary that I gather from these articles are:
1. Tax on pension income "may not exceed 15% of the gross amount". Not sure if the progressive tax rates would be applied up to the 15% cap
as described here, but will assume so.
2. US Social Security payments are exempt from taxation in Indonesia.
3. US citizens are not subject to double taxation.
So taking all these into consideration, let's assume there is a pension income of $30,000/year, and social security is $15,000/year, for a total of $45K/year. Using a handy online tax calculator (from HR Block), it's showing that the US Federal tax would be $1,205. According to the treaty, Indonesia would only tax the $30,000 at 15%, or $4,500 assuming no progression. If the the tax progression rules apply (
per this guide from Deloitte - pg. 26-27), then there should also be a deduction for a couple, which was 54.000.000 for the "taxpayer", and another 54.000.000 for the "spouse" (assuming the spouse was also part of the income total, otherwise it would be 4.500.000). So let's break this down:
Pension amount: $30,000 @13.300 IDR = 399.000.000
Deductions: 399.000.000 - 108.000.000 = 291.000.000
5% tax on the 1st 50M:
2.500.000
Remaining 15% tax: 291.000.000 - 50.000.000 = 241.000.000 @15% =
36.150.000
Combining the amounts and convert: 2.500.000 + 36.150.000 = 38.650.000 @13.300 IDR =
$2,906
Since the US IRS was already paid, you would apply that amount as a tax credit: $2906-$1205 =
$1,701
Using the figures above, and assuming that the Kantor Pajak is consistent, then I'm guessing you'd owe them $1,701 @13.330 IDR =
22.623.300 IDR.
This is a simple example of pension/social security income. There are all kinds of things that will probably come into play - like deductions on the US taxes. In other words, you may be able to reduce your adjusted gross income, by contributing to an IRA, charitable donations, medical expenses, and a host of other things. These would only help to drive down the AGI, which I'm guessing is the main item the Indonesian tax office would be interested in. It is after all, something I would assume they could verify from the IRS should they take an interest in you.
Likewise, you may earn other income that's not from a pension or social security. Quite frankly, I don't know how this other income would be handled (relative to the pension amount) - at least from the Indonesian tax side. For example, maybe you made $50,000 from stock sales. According to the tax treaty, that's not a pension and would be subject to the full progression of taxation up to 30%. I just don't know if it's treated separately, or what - that's above my tax analysis pay grade...
I'd be interested to hear from other retired US citizens to see if this is more-or-less the process. What is it like going into the Kantor Pajak? Are they only interested in your submitted 1040 forms showing AGI and taxes?
Thanks.
