The worldwide tax system is applied by many countries, including countries that have the largest economic scale in the world. A country that adheres to the worldwide tax system will impose tax on all income received or earned by the country’s Resident Taxpayer, regardless of whether the income comes from within the country or abroad. Indonesia also adheres to the worldwide income system. This means that if a taxpayer is a domestic taxpayer from a country that adheres to the worldwide system, then the taxpayer will be taxed in his country regardless of the source of income generated by the taxpayer because this is in accordance with the Indonesian Tax Imposition Principle, namely the Domicile Residence Principle.
In addition to imposing taxes on all income received by domestic taxpayers, countries that adhere to the worldwide tax system also impose taxes on income received by foreign taxpayers sourced from their countries. So it can be concluded that the worldwide tax system has two principles including:
- The domicile principle used to tax the income of domestic taxpayers.
- The source principle used to tax Foreign Taxpayers’ income.
From this explanation, we can understand that for countries that apply the worldwide tax system there are several provisions including:
- All income received by Domestic Taxpayers, will be taxed regardless of where the income comes from, whether from within the country or from abroad.
- Any income received by Foreign Taxpayers sourced from the country will also be taxed in the country concerned.
One of the impacts of the imposition of tax on worldwide income in Indonesia is that Expatriates who live in Indonesia for more than 183 days within a period of 12 months which causes them to become Domestic Taxpayers, need to calculate the income they receive from abroad, including from their home country as tax in Indonesia.
However, since the enactment of the Job Creation Law and Minister of Finance Regulation Number 18 of 2021, there is a special exception to the tax treatment of worldwide income for foreign nationals who have certain expertise. Namely, Foreign Citizens who have become Domestic Tax Subjects are subject to Income Tax only on income received or obtained from Indonesia with the following provisions:
- Having certain expertise
- Valid for 4 (four) tax years calculated since becoming a domestic tax subject.
TBrights is a tax consultant in Indonesia which currently is an integrated business service in Indonesia providing comprehensive tax and business services
By Olina Rizki Arizal – Partner TBrights
Reference:
Minister of Finance Regulation Number 18/PMK.03/2021 of 2021 on the Implementation of Law Number 11 of 2020 on Job Creation in the Field of Income Tax, Value Added Tax and Sales Tax on Luxury Goods, as well as General Provisions and Tax Procedures
