Becoming a tax resident in Indonesia has important tax consequences, especially for foreigners living in Bali who receive foreign income or operate businesses abroad.
Moving or living in Bali as a tax resident makes you taxable on your worldwide income. If you do not operate a business in Bali, this situation may make you liable to pay tax at progressive rates. These rates can be significant, indicating that Indonesia is not a tax haven. However, there are solutions to optimize your tax without failing to declare your foreign income.
This article explains how Indonesia taxes assets and dividends and outlines legal mechanisms that may help tax residents optimize their tax position while living in Bali.
Taxation Rules for Assets (Capital Gains) and Dividends in Indonesia
The taxation of assets (capital gains) and dividends in Indonesia depends on the type of asset, the taxpayer’s residency status (resident or non-resident), and whether the income is subject to the standard progressive Individual Income Tax (IIT) or a Final Tax (Withholding Tax).
Taxation on Assets (Capital Gains)
The government generally taxes capital gains either as regular income or, for certain asset categories, through a final tax at the point of sale.
| Asset Type | Taxpayer Status | Tax Rate and Notes |
| General Capital Gains | Resident Individual | Assessed together with other income at the progressive IIT rates (5% to 35%). |
| General Capital Gains | Resident Corporation/PMA | Assessed as ordinary income and subject to the standard Corporate Income Tax (CIT) rate (currently 11 to 22%) |
| Land and/or Buildings | Seller (Resident or Non-resident Individual or Corporate) | 2.5% Final Income Tax of the transaction value or government-determined value (whichever is higher). The buyer is also subject to a 5% transfer duty. |
| Shares Listed on Indonesia Stock Exchange (IDX) | Seller (Resident or Non-resident) | 0.1% Final Withholding Tax (WHT) on the gross sales consideration. An additional 0.5% applies to founder shares. |
| Unlisted Shares | Non-resident Seller | 5% Final Capital Gains Tax on the gross transfer value. |
| Unlisted Shares | Indonesian Resident Seller | 25% Capital Gain Tax on a net basis |
| Indonesian Assets | Non-resident Seller (General) | 5% Final Tax on the gross proceeds, which may be reduced under a tax treaty. |
Taxation on Dividends
Taxation of dividends depends heavily on the recipient’s residency and whether the dividend is sourced domestically or abroad.
For Resident Individuals
- Standard Rate: Dividends received from an Indonesian company are subject to a 10% Final Income Tax.
- Tax Exemption (0%): Dividends (domestic or foreign-sourced) are non-taxable if the funds are reinvested in Indonesia.
Conditions for 0% Tax Exemption (Reinvestment)
- Investment Requirement: The funds must be placed into eligible domestic investment instruments. For foreign-sourced dividends from a non-listed subsidiary, the investor must reinvest at least 30% of the profit after tax.
- Holding Period: The investor must maintain the investment for a minimum of three consecutive tax years.
- Reporting: An Investment Realization Report must be submitted annually to the Directorate General of Taxes (DGT).
- Eligible Reinvestments are broad and include:
– Financial Instruments: Bank savings or deposits, current accounts, shares listed on the IDX, government or corporate bonds (Sukuk), and mutual funds.
– Direct Investments: Purchasing property (land and/or buildings) in Indonesia, direct equity injection into an Indonesian company, and investment in gold bars or bullion (99.99% purity).
For Non-Resident Recipients
- Withholding Tax (WHT): Dividends paid to a non-resident individual or entity are subject to a 20% Final WHT.
- Tax Treaty Reduction: The Double Taxation Avoidance Agreement (DTAA) between Indonesia and the recipient’s country of residence may reduce this rate.
For Resident Corporate Taxpayers
Dividends received from an Indonesian limited liability company (PT) are non-taxable.
| Term | Definition |
|---|---|
| Dividend | Profit distribution paid by a company to shareholders, subject to tax rules depending on residency and source of income. |
| 0% Dividend Tax Exemption | A tax incentive allowing qualifying domestic or foreign dividends to become non-taxable when reinvested in Indonesia under prescribed conditions. |
| Investment Realization Report | An annual reporting requirement submitted to tax authorities to confirm compliance with reinvestment obligations. |
| DTAA (Double Tax Avoidance Agreement) | A bilateral treaty between Indonesia and another country designed to prevent the same income from being taxed twice. |
| Eligible Reinvestment | Approved investment placement qualifying for dividend tax exemption, including property, securities, deposits, or equity investment in Indonesia. |
How Can Tax Residents in Bali Reduce Their Tax Liability?
As a tax resident in Bali, if you spend more than 180 days in Indonesia or hold a KITAS, there are legal mechanisms available to reduce your tax liability.
Indeed, as a tax resident holding an NPWP, you are subject to normal tax rates on income, such as dividends or salary, for example, if you own an LLC or have an entrepreneur or self-employed status overseas.
Creation of a Holding Company in Indonesia
One solution is to incorporate a holding company (PT PMA) in Indonesia. This holding company may invoice your overseas company or directly hold shares in your LLC or Ltd located in another country.
The holding company’s operational income will be subject to the standard Corporate Income Tax (CIT) of 22% or 11%, while SMEs may qualify for a 0.5% Final Tax on turnover.
As a shareholder of the company, you may receive dividends at a rate of 10%, or 0% if the amount is partially or fully reinvested.
This option may be attractive for people looking to reinvest part of their capital into real estate or financial assets in Indonesia.
This may offer a significantly lower tax burden than the progressive personal tax rate, which ranges from 5% to 35%.
A holding company may be incorporated in a regional capital such as Denpasar or Jakarta. The process itself takes approximately three weeks and does not require you to be physically present in Indonesia.
| Term | Definition |
|---|---|
| Holding Company | A corporate entity established primarily to own shares, investments, or other companies rather than conduct direct operational business. |
| PT PMA (Foreign-Owned Company) | An Indonesian limited liability company with foreign ownership that may be used for investment structuring and business operations. |
| SME Final Tax | A reduced final tax regime allowing qualifying small and medium enterprises to pay tax based on turnover rather than profit. |
| Equity Injection | The transfer of capital into a company in exchange for ownership or investment participation. |
Invoicing from a PT PMA Company in Indonesia
Another solution is to move your business activity directly to Indonesia instead of continuing to invoice clients through an LLC or another company abroad.
Setting up a company overseas might seem like a smart move, especially when you’re looking at jurisdictions that offer low or even 0% tax rates for non-residents. But there’s a factor that often gets overlooked: the individual’s country of residence.
A person living in Bali, Lombok, or elsewhere in Indonesia with a KITAS, or who spends more than 180 days in the country, is generally considered an Indonesian tax resident.
As a taxpayer, the person is subject to tax on worldwide income. This means that even if you pay 0% tax abroad, you may still have tax obligations in Indonesia.
Indonesia’s tax rates are more competitive than many people expect. The government generally taxes dividends at 10% for residents, and corporate tax can start as low as 0.5% on turnover for the first three years, with certain businesses qualifying for reduced rates as low as 11%.
This means that a taxpayer or remote worker invoicing directly from Indonesia may pay only 10.5% tax in Indonesia, instead of the progressive 5% to 35% rate that could apply when receiving income through an LLC, for example, in the US.
If you move to Indonesia, you can apply for an Investor KITAS valid for 2 years. This permit lets you work and run your business directly in Indonesia, giving you more flexibility and new opportunities.
Being a tax resident in Indonesia brings both responsibilities and benefits. Choosing the right business and tax setup can make a big difference in how your foreign income, dividends, and business activities are handled while you live in Bali.
ILA Global Consulting assists foreign residents with tax residency planning, PT PMA structuring, Investor KITAS applications, and Indonesian tax compliance, helping clients build efficient and legally compliant structures aligned with their long-term goals.
Contact ILA Global Consulting to evaluate your tax position and explore compliant strategies to optimize your tax while living in Indonesia.
