A freelance economy is a professional market where independent workers "gig and thrive", and this economy thrives in Indonesia. An Indonesian freelancer receives short-term projects that are on-demand and deadline-dependent. These include freelance remote work as well! About one-third of the Indonesian workforce are freelancers, with Bali serving as a top hot spot.
With creative freedom and flexibility in choosing your working hours, freelancing may seem like a job straight out of a dream! Most "freelancers" get to decide when they work, where they work, and for who they work. However, it comes with an uncertainty of constant workflow and income.
Weighing the pros and cons of freelance work, here is a comprehensive list of everything you should know before starting as a freelancer in Indonesia.
Why is freelancing the future in Indonesia?
In Indonesia, the gig economy is relatively new and brings a special kind of renaissance with it. The country's archipelago suffers from humongous jobs v/s productive population gap, and freelancing shines as a promising path for individuals.
According to reports, Indonesia's gig economy will see a boom in the next decade, with almost 70% of the population being of the working age (15-64 years).
Freelancing acts as a financial savior by generating income for those who once had none. Besides cash crunchers, students with education loans, parents with young kids, or retired professionals with free time on their hands, are also indulging in freelancing & earning a few gig bucks. It also makes its brownie points for giving individuals the opportunity to experience varied work ethics and cultural differences by connecting them with global clients.
And imagine enjoying surfing, scuba diving, and other adventure activities like walking through a rainforest canopy or tanning on the pink beach on your workday; well, it's possible through freelancing and efficient time management!
Not only individuals but companies are equally in awe with the benefits of freelancing and the new gig economy trend. Hiring freelancers is easy on a company's pockets compared to full-time employees. They get the leverage of 100% productivity while saving on 50% of costs such as bonuses, benefits, pensions, etc.
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How to get started as a freelancer in Indonesia?
Officially, any individual who is either an Indonesian citizen or holds a work permit (ITAS) can engage in freelancing in Indonesia. To date, the Indonesian government does not have a regulatory umbrella in place for the freelancing community. However, in the past, they formulated a law where they discouraged companies from hiring an expat for a job done by a local. So the idea of an expat working as a freelancer lies in a grey area.
What are the eligibility & requisites for becoming a freelancer in Indonesia?
To find freelance work in Indonesia, you have to fulfill the following conditions:
- Above 18 years of age for unrestricted legal work
- Citizen or permanent resident of Indonesia or hold a work permit (ITAS/KITAP)
- Person is not barred from rendering or receiving services under the law
- An email ID
- Photo (for profile)
- Deck/Freelancer portfolio (where applicable such as a designer)
- Additional IDs proofs such as Resident Identity Card (KTP), Passport
- TAX ID Number & e-Filing Number as issued by the ITA for tax purposes
Freelancing comes with a great deal of freedom. But that freedom does not discount the need for good tax-saving planning. So here we are, guiding you through the hurdles of tax liabilities and helping you put your tax strategies in place.
How to get freelance jobs online?
Are freelance jobs good? This question pops up in most Indonesian minds as freelancing is uncommon in the community and has a stigma attached to not being a real job. But being the 4th most populous country globally, with a significant productive population, the Indonesian market has now started gaining the attention of global organizations to meet skilled freelancers, especially in certain sectors such as IT.
Though Facebook and LinkedIn groups remain the go-to platforms to connect with global opportunities, your visibility to the organization is still questionable. Most enterprises follow the mantra "fish where the best fishes are" and prefer connecting with freelancers via freelancing websites like Skuad, Upwork, Peopleperhour, Guru, Sribulancer, etc. They bridge the gap between organizations and best-in-class Indonesian freelancers and only roll out a carpet of opportunities.
Today, you're now one step closer to fetching world-class projects!
How to receive payment for a freelance job in Indonesia?
Bank transfers & cash are predominant payment models for freelance project work in Indonesia. Accepting cheques is one of the easiest, conventionally reliable modes of payment transfer. The only downside is the manual effort of depositing them. Then there is another easy and quick way to get paid: electronic funds transfer (EFT). Here, payments move directly from one bank account to another.
Indonesia is gradually moving towards a cashless economy with a rise in mobile payments and e-wallets. Today, they have about 38 e-wallet apps registered with Bank Indonesia, the country's central bank. Most preferred e-wallets are local such as GoPay, OVO, DANA, LinkAja, Jenius, Go-Jek, DANA, Paytren, and DOKU, with instant cashback offers and QR convenience.
One of the most well-known payment methods used by freelancers in Indonesia is PayPal. Once your balance is equivalent to Rp1,500,000 or more, you can withdraw it to your local bank without an additional withdrawal fee. PayPal, however, charges around 4.4% of your transfer as a service fee when payment is in foreign currency. Likewise, Payoneer has garnered interest from freelancers due to the higher exchange rate and availability of a Payoneer debit card free of charge.
How can freelancers plan financially & save taxes?
In Indonesia, the tax liabilities and exemptions are dependent on the freelancer's residency status. The residency test of Indonesia is as follows:
- Domiciled in Indonesia
- Stayed in Indonesia for more than 183 days in any 12 monthly period
- Present in Indonesia during the tax year
If you fulfill any of the criteria mentioned above, you come under the fold of resident taxpayers. You have to comply with the below-mentioned tax liabilities & exemptions.
Taxable Income & Tax Liabilities:
For the resident freelancers in Indonesia, the net taxable income after the standard personal deduction is subject to the progressive rates starting 5-30% on income above Rp50,000,000. For non-resident freelancers, a flat tax rate of 20% is applicable.
Above mentioned rates increase by 20% in case the freelancer does not have a Tax Number.
Note: If you are a resident freelancer with a worldwide income, assets, or liabilities, you must declare the same regardless of the source.
A withholding tax rate of 2% is applicable on a gross amount if the freelancer provides technical design management services. For income derived from dividends, interests, and royalties, resident freelancers have to pay 15% final taxes. In the case of non-residents, a 20% rate is applicable unless reduced under the tax treaty.
Are freelancers exempt from taxes?
Given the tax treatment in Indonesia, it is crucial to understand the liabilities and know about the tax exemptions available to save on taxes. While the entire taxation process may seem tricky, the following are the few exemptions that may apply:
Double Tax Agreement
If an Indonesian freelancer has to pay taxes on their income generated through a foreign gig, they can avoid paying double taxes through DTA. Tax paid to the authorities can reduce the amount of tax paid/due/accrued by Indonesian residents on income from abroad in the same taxation year. The number of reduction limits to the least among the following:
- Actual tax paid in the source country/jurisdiction
- Maximum allowable on the effective tax rate
- Tax treaty (DTT) rate
Since the country follows an ordinary-credit-per-country approach, claims on tax reduction are only against tax due on income generated in a particular region. For example, An Indonesian freelancer can only claim taxes paid in India against tax owing on India sourced income.
What is the frequency of tax liabilities for a freelancer?
Resident taxpayers need to pay monthly tax installments, which occurs when annual income tax becomes due. An individual’s provisional monthly income tax should be settled by the 15th of the following month and filed by the 20th of the next month. A freelancer should file annual tax returns by 31st March of every financial year.
Income Tax Returns (ITR)
Freelancers access their taxable income and fill ITR accordingly. To file a tax return, Indonesians have to register and get a tax identification number known as NPWP. They have to fill Form SPT 1770, Form 1770-S, or Form 1770-SS, depending on their income. The government of Indonesia encourages individuals to file tax returns electronically through the e-Filing system. They have to obtain an e-Filing Number (e-FIN) from ITA to access the system. They must file tax returns for 1st January to 31st December by 31st March of the following year.
ITR filing extension is applicable for a maximum of two months. Late tax payments are subject to a 2% tax penalty per month, while for late reporting, the administrative penalty is Rp100,000.
Do freelancers have to pay VAT?
One needs to register for VAT if they provide taxable goods and services exceeding a certain limit; currently, Rp4.8 Bn per annum. VAT is applicable on local delivery, import & export of taxable goods and services. In Indonesia, freelancers generate VAT invoices through an electronic system (e-VAT invoices) designated by ITA.
These invoices must bear Rupiah currency (Rp), electronic signature, and a VAT serial number. Generally, the VAT rate is 10% in Indonesia.
However, the exact rate may increase or decrease according to government regulation and your goods/service nature. VAT on the export of taxable tangible and intangible goods and export of services is 0% if one meets the criteria.
So, be careful with the VAT and do your research to know whether your freelance service falls in the realm of VAT or not!
Note: Few Islands like Batam Island, Bintan Island, etc., exist as ‘Free Trade Zones’ in Indonesia. Here businesses are not required to register as a VAT-able entity.
Looks complicated? Let Skuad help you!
Today, Indonesia is in its bonus decade, with various global tech giants relying on young Indonesian professionals who showcase the best freelancing skills. Now is the perfect time for Indonesian tech minds to try something new & take a walk in the digital nomadic lifestyle. And if you still find yourself confused about becoming a freelancer online, then Skuad experts can help you! Come, be a part of this flourishing community and actively pursue your passion-driven career with little or no boundaries.