Monday, November 29, 2010

Standard Guidelines for Foreign Employees Salaries (Expatriate)

The development of global business now showing as if there are no more boundaries between countries, more and more Foreign Investment Company (PMA), which grows in Indonesia, prompting the rise of foreign workers (expatriates) who come and work in Indonesia.

The treatment of foreign employees is often different than the local employees. The existence of various facilities and benefits (such as housing allowances, children education allowances, leave allowances, allowances for transport to return to their home country and so on) are given to foreign employees cause trouble determining how much actual income and benefits received from the company, so often it is becoming trigger a tax dispute.

Not to mention if the foreign employee is a worker who sent directly by the parent company was in default of Foreign Affairs and his salary had been determined directly by the State party. In addition to tax will arise disputes with tax authorities (during tax audits) in terms of Income Tax Article 21/26, can also arise differences in perceptions about the amount of salary costs that can reasonably be deducted from net income in the Annual Financial Report Corporate Tax Return. The value of fairness is often associated with the term of Relationship as stipulated in Article 18 of the Income Tax Act.

Above considerations, the Director General of Taxation to set a standard salary for foreign workers as a guide in determining the reasonableness of the amount of salaries paid to foreign workers as stipulated in Decree of Directorate General of Taxation Number KEP-173/PJ./2002 dated May 22, 2002. Unfortunately, these guidelines are based on the situation in 2002 and until now there has been no change.

The meaning of the standard salary of foreign employees is stipulated in the amount of gross income KEP-173/PJ./2002 1 (one) month in connection with the work in the form of salary and other benefits received or accrued foreign employees who work in areas outside the field oil and gas drilling.

Guidelines for foreign employees' salaries as listed in Attachment of the Director General of Taxation Number KEP-173/PJ./2002 is used in case:

  • There are hints that the books are not true so that taxpayers can not be calculated the amount of tax that should be payable;
  • Obtained evidence indicating that there is payment of salaries of foreign employees who are not entirely accounted for repayment of Income Tax Article 21 or Article 26;
  • Examiner did not obtain data that can be used to determine the amount of salaries of foreign employees in the establishment of Tax Article 21 or Article 26 is owed.

Use of standard guidelines for salaries of foreign employees should consider:

a. Nationality of foreign employees concerned;

b. Type of business of a foreign company where employees earn (the employer);

c. The position or office of foreign employees within the company where the related work.

questions that might arise from the establishment of standard guidelines for foreign employees' salaries, for example:
  1. Does the company have to follow the guidelines in terms of determining its foreign employees' salaries?
  2. What if expatriates are receiving salaries below the standards established by the Director General of Taxation?\
  3. What if the foreign workers (expatriates) are actually received no salary at all from the company, because it was directly paid for by parent companies overseas?
  4. Are salaries paid and enjoyment (fringe benefits) given to employees of foreign companies (expatriates) can be deducted as a cost-cutting corporate income tax if the obligations of Article 21 / 26 are met?
Evidence could be prepared to solve the problem of foreign workers (expatriates) who are not paid by the company in Indonesia, can be either a letter agreement (employment contract), cash flow, general ledger, and so forth. With strong evidence that seems to be a supporter in resolving tax disputes with the examiner.


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