Taxation for expatriates in Indonesia when temporarily returning home | Salary taxation and 183-day rule while staying in Japan
When expatriates temporarily return to Japan from Indonesia, they need to check salary taxation, 183-day rule, declaration and foreign tax deduction on the Indonesian side during their stay in Japan.
When Japanese nationals stationed in Indonesia temporarily return to their home country, there may be an issue as to whether their salary will be taxed in Japan or Indonesia.
This may not be a big problem if it is a normal short-term business trip or vacation, but if you are temporarily returning to your home country for an extended period of time, or if you are receiving salary from both a Japanese corporation and an Indonesian corporation, you need to check the tax treatment.
In particular, if the stay in Japan is long, multiple issues will be involved, such as non-resident taxation on the Japanese side, tax exemption for short-term residents under tax treaties, and foreign tax credits on the Indonesian side.
In this article, we will explain salary taxation, the 183-day rule, and the burden of temporary return expenses when expatriates in Indonesia return home temporarily.
Points to check regarding tax matters when returning to Japan temporarily
When expatriates in Indonesia return to Japan temporarily, the first thing they should check is the following:
| Confirm items | Main points |
|---|---|
| Length of stay in Japan | 183Is it less than 183 days or more than 183 days? |
| salary payer | Is it a Japanese corporation or an Indonesian corporation? |
| Actual work situation | Where did you work during your stay in Japan? |
| Payroller | Which company ultimately bears the burden? |
| post | Are you an employee or an officer of a Japanese corporation? |
| tax treaty | Does it meet the requirements for short-term resident tax exemption? |
In payroll taxation, it is important to consider not just "which bank account the payment was made into," but also where the employee worked, who received the salary from, and what work the salary was paid for.
Salary paid by Japanese corporation
Some expatriates in Indonesia receive salaries and allowances from their Japanese corporations in addition to their salaries from their Indonesian corporations.
Under Japanese income tax, non-residents are generally taxed on their domestic source income. However, when it comes to salary, it is important to consider whether the salary is based on where you work, not simply whether it is paid by the Japanese corporation.
As a general rule, wages corresponding to the period of work in Indonesia as an ordinary employee are not taxed in Japan, even if they are paid by a Japanese corporation, and the taxation relationship will need to be confirmed on the Indonesian side. The National Tax Agency also explains that, as a general rule, the salary received by a non-resident is not subject to Japanese income tax if the workplace is in a foreign country, even if the salary is paid by the Japanese head office.
On the other hand, salaries and bonuses that correspond to the period you worked in Japan during your temporary return may be subject to tax in Japan as domestic source income. When paying domestic source income that is subject to withholding tax in Japan to a non-resident, as a general rule, withholding tax is required.
Additionally, if bonuses are paid to employees working overseas or executives who are permanently working abroad as employees, and the period of work in Japan is included in the calculation period, a 20.42% withholding tax is required on the portion corresponding to the period of work in Japan.
If you are working overseas as an officer of a Japanese corporation
If you are working overseas as an officer of a Japanese corporation, the treatment will be different from if you are working overseas as a regular employee.
If you work overseas as an executive of a domestic corporation, your salary will be treated as earned in Japan and will be subject to 20.42% withholding tax.
However, even if you are an officer, if you are constantly working overseas as an employee of the domestic corporation, such as an overseas branch manager, your salary for your work as an employee may not be subject to withholding tax.
It should be noted here that simply being an officer overseas does not mean that withholding tax is not required. It is necessary to confirm whether the employee is constantly working overseas as an employee, and whether the salary is compensation for being an officer or compensation for work as an employee.
Therefore, when paying salary tax when returning to Japan temporarily, it is important to check not only the place where the salary is paid, but also the place of work, the period covered by the salary, who is paying the salary, whether the employee is an officer or an employee, and whether tax treaties apply.
Salary paid by Indonesian corporation
Next, if you are receiving salary from an Indonesian corporation.
Even if you are temporarily returning to your home country, your employment relationship with the Indonesian corporation may continue and your salary may be paid by the Indonesian corporation.
If you actually work in Japan while staying in Japan, your salary during that period may be subject to tax in Japan as domestic source income. However, if you meet the requirements for short-term resident tax exemption under the tax treaty, you may be exempt from taxation in Japan.
The so-called 183-day rule is important here.
183day rules and tax exemption for short-term residents
Under the Japan-Italy tax treaty, if certain conditions are met, the wages of short-term residents may be exempt from taxation in the country of stay.
In general, look for requirements such as:
・The length of stay in Japan must not exceed 183 days within a certain period.
・The person paying the salary is not a resident of Japan.
・Salary is not covered by a permanent establishment in Japan
If these requirements are met, the salary paid by the Indonesian corporation may be exempt from taxation in Japan.
However, the 183-day determination is not necessarily based solely on the calendar year. You need to check the applicable period under the tax treaty and how to count the number of days of stay.
If your temporary return to Japan lasts for 183 days or more
If your temporary return to Japan is prolonged and your stay in Japan exceeds 183 days, it may be difficult to apply for short-term visitor tax exemption.
In this case, there is a high possibility that the salary for work during your stay in Japan will be subject to tax in Japan.
For example, even if you are receiving salary from an Indonesian corporation, you may be required to file a tax return in Japan for the portion of your work in Japan during your stay in Japan.
On the other hand, if you continue to be treated as an Indonesian resident for Indonesian tax purposes, you may be required to declare your employment income on the Indonesian side as well.
Therefore, the Indonesian side may consider providing foreign tax credits for the income tax levied in Japan.
Handling on the Indonesian side when taxed in Japan
Even if income tax is levied on your salary in Japan, it does not mean that you will no longer need to file a tax return in Indonesia.
Regarding the period of being treated as an Indonesian resident, in principle, it is necessary to organize the income that is subject to declaration in Indonesia.
Income taxes paid in Japan may be eligible for foreign tax credit in Indonesia's final tax return. However, there are restrictions on the amount that can be deducted and the required documents, so it is important to keep Japanese tax certificates, withholding tax slips, pay slips, records of working days, etc.
Burden of temporary return expenses
An important issue is whether the Japanese corporation or the Indonesian corporation should bear the costs of air tickets, accommodation, transportation, etc. associated with a temporary return home.
As a general rule, which corporation should bear the expenses will be determined depending on the purpose of the temporary return.
For example, if you temporarily return to Japan to attend a conference at the request of the Japanese headquarters, it is natural for the Japanese corporation to bear the expenses because it can be said to be for the purpose of the Japanese corporation's business.
On the other hand, if the Indonesian corporation temporarily returns to Japan due to business reasons, or if it is necessary for the Indonesian corporation's employment management, the Indonesian corporation may bear the costs.
In addition, if the secondment contract or expatriate regulations stipulate ``which corporation will bear the expenses of the expatriate's temporary return home,'' it is also necessary to check the consistency with the contents.
Risks if you make a mistake in paying costs
If the burden of temporary repatriation expenses does not match the actual situation or contract, there are risks such as the following.
・Risk of being considered as a donation by the Japanese corporation
・Risk of being denied loss on the Indonesian corporation side
・Risk of being judged as salary tax or salary in kind
・Risk that cost sharing between group companies may be seen as unreasonable in terms of transfer pricing
In particular, whether the Japanese corporation or the Indonesian corporation will bear the costs needs to be consistent with the secondment contract, employment contract, actual business purpose, and command and command relationship.
Tax checklist when returning to Japan temporarily
If there is a possibility that your temporary return to Japan will be prolonged, it is a good idea to check the following points.
| Confirm items | Main confirmation details |
|---|---|
| Length of stay in Japan | 183Is it less than 183 days or more than 183 days? |
| Number of working days | Japan work day and Indonesia work day |
| salary payer | Japanese corporation, Indonesian corporation, presence or absence of payment from both parties |
| Payroller | Which company ultimately bears the burden? |
| post | Are you an employee or an officer of a Japanese corporation? |
| tax treaty | Applicability of tax exemption for short-term residents |
| Japanese side tax | Withholding tax and necessity of final tax return |
| Indonesian tax | Resident determination, foreign tax credit |
| Cost burden | Which corporation should bear the cost of temporary repatriation? |
| contract | Consistency with secondment contracts and expatriate regulations |
FAQ
Q1. Will my salary paid in Japan during my temporary return be taxed in Japan?
If the salary corresponds to the period of work in Japan while staying in Japan, it may be subject to tax in Japan. On the other hand, as a general rule, wages corresponding to the period of employment in Indonesia as an ordinary employee are not taxed in Japan even if they are paid by a Japanese corporation. In the case of officers, the handling is different, so individual confirmation is required.
Q2. What happens if I am stationed in Indonesia as an officer of a Japanese corporation?
If you are working overseas as an officer of a Japanese corporation, your salary may be subject to a 20.42% withholding tax as if it were earned in Japan. However, if you are constantly working abroad as an employee of a domestic corporation, such as an overseas branch manager, you may not be required to withhold tax from your salary for your work as an employee.
Q3. If I am an executive, will all my salary be withheld in Japan while working overseas?
Not necessarily. As a general rule, your salary as an officer of a domestic corporation is subject to 20.42% withholding tax, but if you are constantly working overseas as an employee of that domestic corporation, you may not be required to withhold tax on your salary for your work as an employee. It is necessary to confirm the classification of executive remuneration and employee remuneration, work conditions, and contractual relationships.
Q4. 183If it is less than 1 day, will it be tax exempt in Japan?
This does not necessarily mean that it will be tax exempt. To use the short-term visitor tax exemption, you must meet requirements such as not only the length of stay, but also who will pay your salary, who will pay your salary, and whether you have a permanent facility.
Q5. 183What happens if I stay in Japan for more than one day?
It will be difficult to apply the short-term resident tax exemption, and there is a possibility that wages for work while staying in Japan will be subject to tax in Japan. If you are required to declare as a resident on the Indonesian side, we will consider foreign tax credit for the amount of tax paid in Japan.
Q6. Should the Japanese corporation or the Indonesian corporation bear the cost of temporary repatriation?
It depends on the purpose of your temporary return. If it is for the business of the Japanese head office, the Japanese corporation will be responsible for the expense, and if it is necessary for the business or employment management of the Indonesian corporation, the Indonesian corporation will be responsible for the expense. Consistency with secondment contracts and expatriate regulations is also important.
Q7. Do I need to declare in Indonesia even during my temporary return to Japan?
You may be required to file a return in Indonesia for any period during which you are a tax resident of Indonesia. Even if tax is imposed in Japan, Indonesia may consider foreign tax credits.
summary
When expatriates in Indonesia return to Japan temporarily, for tax purposes, it is necessary to confirm the number of days they stay in Japan, who pays their salary, who pays their salary, their work status, and whether they are an officer or an employee.
As a general rule, the salary corresponding to the period of work in Indonesia as a regular employee is not taxed in Japan even if it is paid by a Japanese corporation. On the other hand, wages for the period you worked in Japan during your temporary return may be subject to tax in Japan.
Additionally, if you are working overseas as an officer of a Japanese corporation, please note that, unlike regular employees, you are subject to a 20.42% withholding tax in principle.
If your temporary return to Japan is prolonged and your stay in Japan exceeds 183 days, there is a high possibility that you will be subject to payroll tax on the Japanese side. Additionally, if you continue to be required to file a tax return as a resident on the Indonesian side, you will need to consider foreign tax credits for the income tax paid in Japan.
Regarding temporary repatriation costs, it is necessary to confirm which company should bear the costs in light of the secondment contract and business purpose.
Keystone Consulting Group provides practical support for Japanese companies regarding taxation, Japanese salaries, 183-day rule, foreign tax credits, and the burden of temporary return expenses for expatriates in Indonesia when they return to Japan temporarily.
Related services:Indonesia accounting tax support
