Living and working in paradise comes with a complex financial reality: the Indonesian tax system. For many expats and business owners, understanding Tax in Bali is a blur, often leading to costly audits years down the line. The assumption that “working online” or “being a freelancer” exempts you from local tax obligations is a dangerous myth that local authorities are aggressively correcting in 2026.
The confusion usually peaks when dealing with the two most common tax codes: PPh 21 and PPh 23. PPh 21 slices into your personal salary, while PPh 23 is a withholding obligation you might face when paying for services like legal consulting, architectural design, or equipment rentals. Failing to distinguish between the two can result in double taxation or, worse, fines of 100% surcharge for non-compliance. Navigating Bali tax obligations requires more than just a KITAS; it demands a clear understanding of your role as a taxpayer versus a tax collector.
This guide clarifies the critical differences between PPh 21 and PPh 23, specifically tailored for the local context. We will break down the new “TER” calculation method for monthly salaries, explain the 183-day residency rule that triggers tax liability, and provide a roadmap to ensure your island lifestyle remains legally secure. For complex cross-border income planning, consulting a trusted tax management company is highly recommended to optimize your position.
Table of Contents
- Bali Tax Basics: Residency and the 183-Day Rule
- What is PPh 21? (Income Tax for Individuals)
- The New 2026 "TER" Calculation Method
- What is PPh 23? (Withholding Tax for Services)
- Real Story: The Villa Manager’s 20% Mistake
- PPh 23 Rates: Rentals vs. Dividends
- Common Compliance Pitfalls in Bali
- How to File and Pay Correctly
- FAQ's about Tax in Bali
Bali Tax Basics: Residency and the 183-Day Rule
The foundation of tax residency on the island lies in your physical presence, not just your visa type. Indonesia operates on a worldwide income basis for tax residents. You are considered a domestic tax subject (Subjek Pajak Dalam Negeri) if you reside in Indonesia, intend to stay, or are physically present in the country for more than 183 days within any 12-month period. Once you cross this physical presence threshold, you are legally obliged to report your global income—whether earned from a client in Canggu or a company in California.
For those staying less than 183 days without an intent to reside, you are typically classified as a foreign tax subject. In this case, you are taxed only on Indonesia-sourced income, usually at a final withholding rate of 20% (PPh 26). The “gray area” that traps many nomads involves having a KITAS (which signals intent to reside) but failing to register for an NPWP (Tax Identification Number). In 2026, data integration between Immigration and the Tax Office (DJP) makes it nearly impossible to hide long-term residency status.
What is PPh 21? (Income Tax for Individuals)
PPh 21 (Pajak Penghasilan Pasal 21) is the tax withheld from income derived from employment, services, or activities performed by individual tax residents. If you are employed by a PT PMA in Bali, your employer is responsible for withholding this tax from your monthly salary. It applies to regular employees, freelancers, and even pension receivers. The key takeaway for managing your fiscal responsibilities is that PPh 21 is a progressive tax—the more you earn, the higher percentage you pay.
The progressive rates for 2026 remain tiered to ensure fairness. Income up to IDR 60 million per year is taxed at 5%, while income above IDR 5 billion hits the top bracket of 35%. For many expats on a mid-to-high salary, the bulk of earnings falls into the 15% (IDR 60M–250M) and 25% (IDR 250M–500M) brackets. It is crucial to note that if you do not have an NPWP, you will be penalized with a tax rate that is 20% higher than the standard rate.
The New 2026 "TER" Calculation Method
Starting from 2024 and continuing into 2026, the government introduced the Tarif Efektif Rata-rata (TER) or Average Effective Rate mechanism to simplify monthly payroll withholding. Previously, every month involved complex progressive calculations. Now, for the months of January through November, employers use a simplified percentage based on your gross income and PTKP (non-taxable income) status. This simplification has streamlined how companies calculate monthly deductions for their staff.
Under the TER system, employees are categorized into groups (A, B, or C) based on their marital and dependent status. For example, a single individual (TK/0) falls into Category A. If they earn IDR 10 million in a month, the employer simply checks the TER table for that bracket (e.g., 2.25%) and withholds that amount. It is only in December that the “real” calculation happens: the employer calculates the total annual tax using the progressive rate, subtracts what was already paid via TER from Jan-Nov, and the remainder is the December tax bill. This can sometimes lead to a higher deduction in December, so budgeting is essential.
What is PPh 23? (Withholding Tax for Services)
While PPh 21 covers individuals, PPh 23 targets income paid to corporate residents or individuals for specific activities like rentals (non-land/building), dividends, and technical services. This is a common blind spot for business owners dealing with local tax compliance. If your villa management company hires a local PT to handle pool maintenance, legal consulting, or architectural design, you are legally required to withhold PPh 23 from their invoice and pay it to the government on their behalf.
You are acting as the tax collector in this scenario. If the agreed fee is IDR 10 million for legal services, you do not pay the full IDR 10 million to the lawyer. Instead, you withhold 2% (IDR 200,000), pay the lawyer IDR 9.8 million, and remit the IDR 200,000 to the tax office. Failing to do this means your company is liable for that tax during an audit, often plus interest.
Real Story: The Villa Manager’s 20% Mistake
Sarah, a British national running a boutique marketing agency in Pererenan, hired a local freelance graphic designer and a corporate web development firm in Denpasar to overhaul her website. She paid the invoices in full—IDR 50 million total—assuming taxes were the receiver’s problem.
Two years later, during a routine audit of her financial records, the tax officer flagged these transactions. Because she failed to withhold PPh 23 (2%) on the web firm and PPh 21 (variable) on the freelancer, she was deemed non-compliant. Worse, because the freelance designer didn’t have a Tax Identification Number recorded in her system, the potential liability skyrocketed. Sarah was forced to pay the taxes she should have withheld out of her own pocket, plus a monthly interest penalty for late payment. The lesson: in Indonesia, the payer is often responsible for the tax compliance of the transaction.
PPh 23 Rates: Rentals vs. Dividends
Understanding the specific rates for PPh 23 is vital for accurate bookkeeping. The rates are generally flat but differ by income type. For most services—including management, consulting, technical, and design services—the rate is 2% of the gross amount (before VAT). This same 2% rate applies to the rental of assets, such as renting a car or sound system for an event (excluding land and building rentals, which fall under a different final tax, PPh 4(2)).
However, “passive” income attracts a higher rate. Dividends paid to a local individual shareholder are often tax-exempt if reinvested, but dividends paid to a local corporate shareholder (with <25% ownership) or interest payments are subject to a 15% PPh 23 rate. Crucially, if the recipient of the income does not possess a valid NPWP, the standard withholding rate increases by 100%—meaning the 2% service tax becomes 4%, and the 15% dividend tax becomes 30%.
Common Compliance Pitfalls in Bali
One of the most frequent errors in fiscal responsibilities in Bali management is the “Gross vs. Net” confusion. Vendors often quote a “net” price, expecting to receive the full amount regardless of tax. If you agree to this, you must “gross up” the invoice effectively paying the tax on top of the fee, which increases your operational costs. Always clarify if a quote is “before tax” or “after tax” in contracts.
Another pitfall is misclassifying income. Paying a salary to a “freelance” consultant who works full-time hours might be seen by the tax office as disguised employment, which should be taxed under PPh 21 (progressive) rather than PPh 23 (flat 2%). Additionally, forgetting to file the monthly tax return (SPT Masa) even when there is no tax to pay (nil return) can attract administrative fines and flag your company as inactive or non-compliant in the system.
How to File and Pay Correctly
The Directorate General of Taxes has digitized most processes, but strict deadlines apply. For PPh 21 and PPh 23, the withheld tax must be paid to the state treasury by the 10th of the following month. The reporting (filing the tax return) must be done by the 20th of the following month. Late payment incurs an interest penalty based on the Ministry of Finance’s monthly interest rate, while late filing attracts a fixed administrative fine.
To file your returns, your company uses the e-Bupot (electronic withholding slip) system. You generate a billing code (ID Billing), make the payment via a local bank or Tokopedia, and then upload the data to the DJP Online portal. Providing the “Bukti Potong” (withholding proof) to the service provider or employee is mandatory, as they need this document to claim tax credits on their own annual returns.
FAQ's about Tax in Bali
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Do I need to pay PPh 21 if I work remotely for a US company?
If you live in Bali for >183 days, you are a tax resident. You must declare your worldwide income and pay Tax in Bali via a self-assessment scheme if your employer is offshore and not a local PT PMA.
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What is the PPh 21 rate for expats?
Expats with an NPWP pay the same progressive rates as locals (5% to 35%). Without an NPWP, the rate is 20% higher.
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Is PPh 23 applicable to rent for a villa?
No. Rental of land and buildings is subject to PPh 4(2), which is a Final Tax of 10%, not PPh 23. PPh 23 applies to movable asset rentals like cars or equipment.
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Can I get a tax refund if I leave Indonesia permanently?
Yes, you can apply for an EPO (Exit Permit Only) and deregister your NPWP (NE status). This triggers a tax audit to ensure all debts are cleared before you leave.
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Does the new TER system change how much tax I pay annually?
No. The TER is only for monthly withholding convenience. The total annual tax liability remains based on the standard progressive rates calculated at year-end.
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Who pays the PPh 23, me or the vendor?
Legally, you (the payer) withhold it from the vendor's payment. However, commercial negotiation often dictates who actually bears the cost.
