A while ago, social media was shaken by the story of a woman with an American (the US) nationality—who has been a digital nomad for almost a year in Bali, Indonesia. The video went viral as she invited her social networks—the majority of whom are foreigners—to follow in her footsteps working remotely from the tourist paradise area of Bali by exploiting the weaknesses and negligence of Indonesia's immigration and tax controls.
Shortly thereafter, the confession of the US tourist immediately came under fire from the Indonesian netizens because in addition to abusing a tourist visa for work, she certainly did not pay the income tax (PPh) like expatriates in general, and the worst thing was that it encouraged the migration of foreign tourists to Bali amidst Indonesia's efforts to cope with the Covid-19 pandemic.
This viral video seemed to open the eyes of the public—as well as the government—regarding the existence of digital nomads in Indonesia, especially foreign tourists who earn income by browsing in the cyberspace while relaxing in the corners of cafes or co-working spaces in tourist areas such as Bali, Lombok, Yogyakarta, or other big cities in Indonesia.
Digital nomads are people who rely entirely on the internet to work, so they can work from anywhere and move to various destinations thousands of kilometers away from home, coworkers, bosses, and even their clients or customers.
Digital nomads usually earn income from online services related to web/app developing, digital marketing, graphics design, social media specialist, vlog and blog monetizing, copywriting, digital assistants, and online trading through drop shipping or remote selling systems. Their income can come from all over the world, paid through a digital account.
Tax Leaks
The phenomenon of foreign digital nomads—which seems to be free to travel while working—at least reveals one of the causes of tax leaks in Indonesia and possibly many other countries. Unfortunately, this viral video only reveals one identity of perhaps hundreds or thousands of "naughty" tourists' existence throughout the archipelago. The story would be different if the immigration rules were tightened, and the tax systems were strictly applied.
In fact, there are long-standing regulations governing the existence of foreigners as a resident tax subject (SPDN). The highest legal standard on this issue is Law Number 36 of 2008 on Income Tax, as last amended by Law Number 11 of 2020 on Job Creation.
The point is, Article 2 paragraph (3) of Income Tax Law confirms that resident tax subjects include individuals, both Indonesian citizens and foreigners, who reside or are in Indonesia for more than 183 days in 12 months or one fiscal year and have the intention to reside in Indonesia.
The technical methods in determining the resident and non-resident tax subjects are then regulated through Director General of Taxes Regulation Number PER-43/PJ/2011, which is still valid to date. In this case, an individual tax subject is deemed to have the intention of residing in Indonesia as long as they have the evidence of required documents. The documents are in the form of a work visa; a Temporary Stay Permit Card (Kartu Ijin Tinggal Terbatas/KITAS); or an employment contract/agreement, business, or activity in Indonesia for more than 183 days.
In addition to the document ownership required, individual tax subjects also need to show their intention to stay in Indonesia, such as by renting or leasing a residence and moving the family members, or obtaining a place provided by another party.
Based on the provisions, it is clear that the US female tourist—who invited their foreign friends to move to Bali—meets the requirements as a resident tax subject. It is because the person concerned has lived in Indonesia for more than 183 days by renting a permanent dwelling place, doing ordinary course of life like a common resident, and having a place of habitual abode.
Moreover, the woman in her vlog claimed that she had sold her assets in the US and chose to move to Bali. The problem is, she and most other digital nomads probably enter Indonesia on a 60-day visa on arrival (B211A) that is not for working purposes in Indonesia, especially if they don't have a KITAS as a work permit.
Tax Incentives
In fact, the taxation provisions—that were newly revised using the omnibus law scheme—provide some kind of relaxation or incentive, by only taxing the income received in Indonesia for a period of four years. This means that income originating from abroad is not subject to income tax for a period of four years. This provision also applies to foreigners who meet certain criteria.
Article 4 of Job Creation Law states tax object exemptions are only intended for foreigners who have certain expertise and also valid for four years from becoming a resident tax subject. The criteria of certain expertise as well as the procedure of imposition of income tax for foreigners are further regulated by the Minister of Finance. So far, no regulation has been issued by the Minister of Finance on this subject.
Thus, nomadic digital income actually meets the requirement for the tax exemption or income tax free since it is earned in connection with work, services, or activities in Indonesia paid from abroad. For the record, their field of work falls within the required specific skill criteria. One more thing, only foreigners entering Indonesian territory using the appropriate visa are entitled to the exemption.
So, what about the digital nomad in Bali whose video went viral? Surely, it was predictable. Killed two birds with one stone. While traveling, they trick immigration and avoid taxes. Just deport them to India, oops... America.
**) The article was published on Kumparan.com, 28 April 2021.
