In the early 2021, Indonesian social media were heated up by a controversy from American digital nomad, Kristen Gray with her visa violation controversy and people dragging her with taxation matters for working in Indonesia to foreign clients around two years long only with traveling visa. It is all happening because of the advancement of technology from the device and application that help people working without space limit into the kind of jobs that went digital such as freelance that create opportunities to work mobile. Thus, people who work in such a flexible condition might be called a digital nomad or someone who decides to work freelance and take advantage of technology so that they are not bound by time and place.
Not long after the issue, Covid-19 pandemic struck the whole world including Indonesia, forcing people not to work from office to avoid crowds. Uniquely at the same moment, there is a shifting trend on how people work from rigid places such as offices, shops, etc. called Work from Office (WFO), into work from home (WFH) and even work from anywhere (WFA) because people have flexible mobility and behavior. This trend is giving an impact on the increase of digital nomads that seek leeway to work in places that are less crowded, with a lot of attraction and low-cost living such as Bali rather than working in populous, tiresome and high-cost living places such as big cities around the world. The phenomenon is a line with Indonesian Minister of Tourism and Creative Economy, Sandiaga Uno, stating that Bali is one of favorite places for digital nomads around the world to temporarily stay and work followed by places like Yogyakarta and Lombok. Most digital nomads in Indonesia, especially in Bali according to the minister, are from Russia, Germany, England, USA, Ukraine, Kazakhstan and Uzbekistan.
The minister also promotes policy to legally support digital nomad around the world to work mobile in Indonesia for the long term by pursuing Digital Nomad Visa or second home visa that is projected to be released around 2022 and 2023. Before the release of the policy, currently the affecting permit is B211A Visa that stated foreign citizens were allowed to work by online in Indonesia for 60-180 days with 4 times extension, 30 days each, or 6 months total without paying taxes as long as the payroll comes from abroad. The proposed Digital Nomad Visa in the meantime would allow them to work by online for 5 years is still discussed because of the fear of gentrification and degradation of culture with the benefit of income to place where digital nomad works and stays and not to mentions tourist abroad. Listed below are countries who enacted Digital Nomad Visa:
|Anguilla||Cayman Islands||Germany||Mexico||South Africa*|
|Antigua and Barbuda||Croatia||Greece||Montenegro*||Spain|
* Visa for digital nomads introduced or proposed but not yet released or implemented
The legal basis on taxes for foreign digital nomad based on Constitution No.7 of 1983 regarding Income Tax as last amended by Constitution no.11 of 2020 regarding Job Creation stated that a person may be subject to Income Tax as long as the person meets the subjective and objective requirements. Subjectively, According to Job Creation Constitution, Digital Nomad may be counted as domestic tax subject as if stay in Indonesia for more than 183 days in 12 months period or in one tax year stay in Indonesia and intended to live in, if less than that would not be counted as domestic tax subject or counted as foreign tax subject. In the imposition of tax income received by tax subjects that cross the boundaries of the tax jurisdiction, attention is required to the provisions of the tax treaty as a lex specialis from the provisions of the Income Tax and Job Creation Constitutions. Comparing provisions in Income Tax and Job Creation with Tax Treaties in order to avoid double taxation on digital nomad and categorize them in accordance with Tax Treaties.
Objectively, Due to the enactment of the Job Creation Constitution, Indonesia enacts territorial taxation principle rather than worldwide income taxation principle on foreign citizens that become domestic tax subjects. Territorial taxation means Indonesia imposes taxes only for income sourced from Indonesia Jurisdiction to domestic tax subjects including foreign citizens as long as having special skills and valid for 4 years. On the other side, the worldwide income taxation principle means Indonesia, before the Job Creation Constitution, was imposed tax to overall income either domestic or abroad sourced of its domestic tax subject including foreign citizens. However, as in determining the subject of tax, this provision will be aborted if the person concerned takes advantage of tax treaties. Therefore, as long as digital nomad income or payroll comes from abroad, it does not count as taxed income otherwise if the income comes from domestic.
In conclusion, digital nomad is a rising phenomenon where a person decides to work freelance and take advantage of technology so that they are not bound by time and place. The phenomenon keeps rising due to advancement of technology and also the trend of WFA caused by Covid-19 Pandemic. Indonesia itself has promoted supportive policies such as proposed digital nomad visa and currently provide B211A Visa that could be extended into total 6 months or even 5 years if digital nomad visa released and hindered digital nomad from tax sourced abroad. These policies are in line with the legal basis of taxes in Indonesia according to Constitution No.7 of 1983 regarding income tax as last amended by Constitution no.11 of 2020 regarding Job Creation. Subjectively if a digital nomad stays in Indonesia more than 183 days in a 12 months period could be counted as domestic tax subjects. Then, objectively the taxed income of digital nomad, who is counted as domestic tax subject, is only income sourced from Indonesia and income sourced abroad would not be counted as taxed income. This provision will be aborted if the digital nomad concerned takes advantage of tax treaties.
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By Olina Rizki Arizal – International Tax & Transfer Pricing Partner