The 4-Year Tax Incentive: Legally Protecting Your Foreign Income in Bali

Moving to Bali often comes with a major financial fear: Indonesian Worldwide Income Tax.

Under standard residency rules, you become a tax resident of Indonesia as long as you meet at least one of the following criteria:

• Stay in Indonesia for more than 183 days
• Hold a KITAS, regardless of how many days per year you stay in Indonesia.

In the past, this meant the Indonesian tax office (DGT) had a legal claim to tax your global income. However, under the current tax law (Omnibus Law) and its implementation regulation 2. Nomor 18 PMK.03/2021   (The implementation of The Law No. 11 Tahun 2020),, the government introduced a specific Territorial Tax System for foreigners.

This is not a loophole or a gray area. It is a formal government incentive designed to attract qualified professionals. It states that during your first 4 years of residency, you do not have to pay tax on foreign-sourced income. This exemption applies if you meet specific employment criteria.

Active Employment Requirement

You cannot claim this benefit as a tourist or a “digital nomad” with no legal footing. The regulation requires you to be employed in Indonesia with a specific “Foreign Expert” qualification.

To access this incentive, you must:

1. Have a Legal Employer: You must be hired by an Indonesian entity (like Emerhub).
2. Hold a Specific Work Title: Your work permit (RPTKA) must reflect a specialized role from the approved list:

3. Demonstrate Expertise: You must hold a University Degree relevant to that title OR have 5 years of proven experience in the field.

The Strategy: Compliance as an Investment

To unlock the 0% tax rate on your foreign income, you must become a compliant taxpayer in Indonesia and earn a local salary.

Think of this as an “admission fee” to the tax-free facility. You pay tax on a fixed local salary to legally protect your much larger foreign income.

How the Money Flows

A common confusion is that the local salary is a “fee” you pay to Emerhub. This is incorrect. The money remains yours.

Here is the cycle when using our Employer of Record (EOR) service:

1. Invoicing: You transfer the salary amount (e.g., IDR 20 Million) + the admin fee to Emerhub.
2. Compliance: We deduct the mandatory Income Tax (PPh 21) and Social Security (BPJS) and pay them to the Indonesian government on your behalf.
3. Salary Payment: We transfer the net salary back to your personal Indonesian bank account.

You are essentially paying the tax and admin fees to establish a legitimate paper trail. The principal salary amount comes back to you.

The Financial Breakdown

Is it worth paying Indonesian taxes to reduce your home-country taxes?

The “Maintenance Cost” of Residency: To maintain this legal status, you need a minimum compliant salary. We recommend IDR 20,000,000 (approx. $1,275 USD) per month to satisfy the Ministry of Manpower.

• Gov Taxes & BPJS: ~$250 USD/month (Paid to the State)
• EOR Management Fee: 10% of salary (~$125 USD/month)
• KITAS (Visa) Cost: ~$165 USD/month (Amortized from $2,000/year)

Total Annual Cost: Approx. $6,500 USD per year.

The ROI: If you earn $150,000 USD globally:

• Without this structure: You likely pay $40,000 – $70,000 in taxes to your home country (or to Indonesia if you fail to structure correctly).
• With this structure: You pay ~$6,500 in total fees and local taxes. Your foreign income remains 100% yours.

A Note for US Citizens 🇺🇸

The US taxes based on citizenship, so you cannot “disconnect” from the IRS entirely. However, this structure remains highly effective for:

1. Foreign Earned Income Exclusion (FEIE): Qualifying for the ~$120k+ exclusion often requires bona fide residency in a foreign country. This structure provides the strongest possible proof of residency.
2. Legal Stability: It allows you to live in Bali long-term without relying on volatile tourist visas.

How Emerhub Supports You

We handle the entire infrastructure so you can focus on living in Bali. Fill out the form below to schedule a consultation with one of our relocation experts.