How to pay 0% tax in Indonesia on offshore dividends - Celerity Bali

While Indonesia is not traditionally categorized as a tax haven, recent fiscal incentives offer significant advantages for foreign nationals, particularly those receiving offshore dividends. Under specific conditions, residents can achieve a 0% tax rate on foreign-sourced dividends brought into Indonesia.

Here is an analysis of how this mechanism works and how you can qualify.

Taxation of Offshore Dividends for Residents

In most jurisdictions, receiving dividends triggers a tax liability. In Indonesia, the tax rate for dividends depends on your residency status, which is typically determined by whether you hold a Stay Permit (KITAS):

• Resident tax on dividends: 10%
• Non-resident tax on dividends: 20%

Double taxation treaties (DTTs) usually apply to prevent investors from paying tax on the same income in two different countries.

The Omnibus Law: A Strategic Tax Incentive

The "Omnibus Law" (Law No. 11 of 2020 on Job Creation) was introduced to reduce bureaucracy, modernize the economy, and incentivize foreign investment. You can find the primary regulatory framework regarding tax procedures on the Directorate General of Taxes website.

One of the most consequential changes for expatriates is the ability to repatriate foreign dividends tax-free.

Repatriating Foreign Dividends Tax-Free

Foreigners residing in Indonesia who receive dividends or other financial revenue from outside the country can qualify for a 0% tax rate. To benefit, the recipient must agree to bring these funds into Indonesia and reinvest them in local assets for a set period. Essentially, you can fund your lifestyle or business interests using offshore passive income without incurring local income tax, provided you support the Indonesian economy.

Requirements for the 0% Tax Treatment

To qualify for the exemption, you must meet the following criteria:

1. Residency: You must be a formal Indonesian resident (holding a KITAS or KITAP).
2. Repatriation: The capital gains or dividends must be brought into the Indonesian banking system.
3. Investment: The funds must be placed in "eligible" Indonesian assets.
4. Holding Period: You must maintain the investment for a minimum of three years.

Once these conditions are satisfied, the repatriated income is considered tax-exempt. If you are planning a long-term move, you may want to order a KITAS to establish the necessary residency status.

Eligible Investment Instruments

The Indonesian government allows a broad range of investment categories for this exemption, including:

• Indonesian government treasury bonds (SBN).
• Publicly traded shares on the Indonesia Stock Exchange (IDX).
• Fixed-term bank deposits.
• Local investment funds.
• Paid-up capital for your own Indonesian company.
• Purchase of gold bullions.
• Real estate (land and building) investments.

Because the list includes paid-up capital, many founders choose to set up a PT PMA and fund its operations using their offshore dividends to satisfy the reinvestment requirement.

Pros and Cons of the Tax Exemption Scheme

Advantages

• Zero Taxation: A 0% rate is highly competitive globally and allows you to retain the full value of your offshore earnings.
• Economic Contribution: Investors help fund the growth of one of the world's fastest-growing emerging markets.
• Investment Flexibility: Unlike some "Golden Visa" programs that require very specific purchases, Indonesia allows you to choose between highly liquid stocks or tangible real estate.
• Asset Ownership: The funds remain yours. They are not "fees" paid to the government; they are your assets. If you need to exit the investment early, you simply pay the standard tax rate (10% for residents).

Disadvantages

• Liquidity Lock: You must commit to a three-year horizon to secure the tax benefit. This may be restrictive if you require immediate liquidity for emergencies.
• Geographic Concentration: Your wealth becomes more closely tied to the Indonesian Rupiah and the local economic climate.
• Product Variety: While the Indonesian financial market is growing, it may not offer the same complexity or volume of derivative products found in US or European markets.

Ideal Candidates for this Scheme

Retired Professionals

Expatriates living in Indonesia on a pension or investment portfolio can use this to receive income from their home country, reinvest it locally, and enjoy a tax-free retirement after the holding period.

International Entrepreneurs

If you operate a global business but reside in Bali, you can use dividends from your foreign entities to fund your local lifestyle or new Indonesian ventures without a 10% tax haircut.

Real Estate Investors

For those looking to diversify into the Indonesian property market, using offshore dividends to buy real estate serves a dual purpose: it builds your local portfolio while granting you a tax break on the capital used for the purchase.

Conclusion

The Omnibus Law has transformed Indonesia into a highly attractive destination for those with offshore passive income. By reinvesting your dividends into the local economy for three years, you can legally bypass dividend tax.

For professional assistance in structuring your residency or investments, contact Celerity's legal team to ensure full compliance with Indonesian tax reporting requirements.