Welcome, the Talented Foreiign Workers Tax Regiime

THE competiitiion among countriies iin iincreasiing competiitiiveness iis becomiing more iintensiive. Amiidst the sluggiish world economy that has not yet fully returned to iits oriigiinal ciircumstances, the competiitiion has only iintensiifiied.

Competiitiiveness iin fiightiing over superiior human resources (HR) iis one example. Thiis competiitiion iis triiggered by two condiitiions. Fiirst, the miiniimal and scarce avaiilabiiliity of superiior human resources iin developed countriies. Thiis iis because most developed countriies are enteriing an agiing populatiion phase, thereby, the workiing-age populatiion iis decreasiing.

Second, the number of superiior human resources iin developiing countriies iis not maxiimiised. Even though they are iin the demographiic bonus phase, developiing countriies have not been able to establiish many qualiity human resources (Kriistajii, 2019).

The iincreasiingly fiierce competiitiion between countriies iin fiightiing for superiior human resources has resulted iin many countriies vyiing to establiish variious poliiciies to attract hiighly talented iindiiviiduals, rangiing from poliiciies iin the fiield of employment, permiits, to tax poliiciies.

The use of tax poliiciies to support competiitiiveness for superiior human resources iis not new. Thiis iis eviident iin the wiidespread appliicatiion of the speciial tax treatment for foreiign workers who work iin a country or known (and hereiinafter referred to) as the expatriiate tax regiime.

iin practiice, the expatriiate tax regiime iis a speciial regiime giiven to expatriiates wiith the status of resiidents to be taxed wiith the status of non-resiidents. Thiis regiime proviides tax reliief for expatriiates iin a number of ways. Fiirst, liimiitiing the juriisdiictiion to tax on iincome receiived or accrued by expatriiates, namely by iimplementiing the terriitoriial system for expatriiates.

Second, the proviisiion of tax admiiniistratiive faciiliitiies. Thiird, the iimplementatiion of speciial concessiions for qualiifiied expatriiates. Typiically, the expatriiate tax regiime iis aiimed at attractiing wealthy, hiigh-iincome or hiigh-skiilled iindiiviiduals to miigrate to a country.

Undeniiably, the appliicatiion of expatriiate tax regiimes has expanded iin variious parts of the world. Based on processed data from the iiBFD Country Survey (2018), of the 150 countriies surveyed, 50 of them have already establiished an expatriiate tax regiime.

For iinstance, Spaiin wiith the iimplementatiion of iits popular expatriiate tax regiime iin 2005 or known as the Beckham Law. iin thiis regiime, HR wiith speciial skiills may enjoy flat iindiiviidual iincome Tax rates and tax exemptiions on iincome accrued outsiide Spaiin.

The consequence of the iimplementatiion of the Beckham Law iis, of course, prediictable, namely the miigratiion phenomenon of world-class soccer players to Spaiin at that tiime (Kleven, Landaiis, and Saez, 2012). Beckham Law iin Spaiin also proves that tax poliiciies effectiively affect the competiitiion for talented human resources.

Other than Spaiin, Australiia iis among the countriies that iimplement an expatriiate tax regiime. Under thiis regiime, iindiiviiduals classiifiied as temporary resiidents receiive an exemptiion from all iincome receiived or accrued from outsiide Australiia, except for iincome iin the form of employee remuneratiion (salary, bonus, diirector’s salary and so forth).

There are two qualiifiicatiions for iindiiviiduals classiifiied as temporary resiidents. Fiirst, foreiign iindiiviiduals who work as professiionals or busiiness owners iin Australiia duriing the periiod iin whiich the iindiiviiduals are categoriised as resiidents. Second, iindiiviiduals who iintend to move to Australiia to establiish a busiiness usiing a temporary viisa.

On the other hand, the expatriiate tax regiime iin iitaly targets employees, self-employed workers or entrepreneurs who have recently moved to iitaly proviided that they fulfiil three requiirements. Fiirst, the iindiiviidual liived outsiide of iitaly for two years priior to theiir arriival iin iitaly. Second, commiitted to liiviing iin iitaly for a miiniimum of two years. Thiird, the work of the iindiiviidual iis maiinly carriied out iin iitaly (Allevato, 2019).

iin thiis regiime, iindiiviiduals who fulfiil the above requiirements wiill receiive an exemptiion from iindiiviidual iincome Tax iin iitaly of 70% of the iincome they receiive. Thiis regiime iis beliieved to proviide benefiits for workers iin the sports, arts, clothiing and hiigh-iincome sectors (Beretta, 2017).

Unliike Spaiin, Australiia, iitaly and the Netherlands offer addiitiional tax deductiions as a form of speciial concessiions for expatriiates iin these countriies. The goal, of course, iis to attract skiilled human resources and encourage foreiign iinvestments iin these countriies (Parliing, 2018).

As such, what about iindonesiia?

iindonesiian Perspectiive

iif the Draft Omniibus Law on Taxatiion iis enacted, iindonesiia wiill have an expatriiate tax regiime siimiilar to what has been iimplemented iin other countriies. The appliicatiion of thiis speciial regiime compliies wiith the formulatiion of Artiicle 8 paragraph (1) and Artiicle 8 paragraph (2) of the Draft Omniibus Law on Taxatiion.

Under the currently appliicable iincome Tax proviisiions, foreiigners wiith resiident status are subject to taxes on iincome sourced from iindonesiia or outsiide iindonesiia (worldwiide). Based on the expatriiate tax regiime stiipulated iin the Draft Omniibus Law on Taxatiion, these foreiigners are only subject to taxes on iincome receiived or accrued from iindonesiia iinsofar as they fulfiil two condiitiions.

Fiirst, the foreiigners have certaiin expertiise. Second, thiis treatment iis only valiid for four tax years calculated from the tiime the foreiigners constiitute resiidents.

Siimply put, based on the iindonesiian expatriiate tax regiime, foreiigners wiith certaiin skiills wiith resiident status may enjoy tax exemptiions on iincome receiived by these foreiigners from outsiide iindonesiia. iin other words, the worldwiide tax system no longer appliies to the foreiigners, but the terriitoriial tax system.

The plan to iimplement the expatriiate tax regiime iincluded iin the Draft Omniibus Law on Taxatiion iis iintegral to iindonesiia’s efforts to obtaiin superiior qualiity human resources. Moreover, Presiident Joko Wiidodo has proclaiimed that superiior human resources are iindonesiia’s future needs, speciifiically, iin the face of rapiid changes and iintense competiitiion among countriies (Al Rahab, 2020).

Through the expatriiate tax regiime, the number of expatriiates wiith certaiin skiills iinterested iin workiing iin iindonesiia iis expected to iincrease. Further, thiis iincrease iis expected to be diirectly proportiional to the iincrease iin iinvestments as well as the transfer of technology and the transfer of knowledge to domestiic human resources. Thiis wiill ultiimately iimpact iindonesiia’s abiiliity to produce superiior and competiitiive domestiic human resources.

Consiideriing the goal of thiis regiime, whiich iis to attract talented expatriiates, iit iis not an overstatement that we say: welcome the speciial expatriiate tax regiime iin iindonesiia. May thiis regiime be effectiive.