We’re going to assume you follow some local news. If you don’t, you should, because as an expat living and working in Indonesia, this directly affects you.
If you do keep up, you may have read or overheard conversations over a Bintang or three that the government is tightening regulations on foreign workers and business owners, and this time, they’re serious, connecting dots across multiple agencies to ensure compliance. If you thought Immigration, Badan Koordinasi Penanaman Modal (BKPM), and the Tax Office work separately, as they have done for many years before, it’s time to think again.
So, what’s going on?
This isn’t just about overstaying your visa or forgetting to file taxes on time. The government is now actively cross-checking data to catch inconsistencies in work permits, tax obligations, and investment structures. If you’re working in Indonesia, running a business, or even semi-retired but earning income here, there are some things you need to know.
Let’s unpack this in a way that makes a bit more sense.
The “One System” Approach
For years, Indonesia’s government agencies operated in independent silos. You could get your Kartu Izin Tinggal Terbatas (KITAS) approved by Immigration without necessarily worrying about BKPM cross-referencing your work permit details. Likewise, the Tax Office rarely questioned business structures set up for foreigners. Not anymore.
The government is now implementing a more integrated approach, and BKPM, Immigration, and the Tax Office are sharing databases and tracking foreign workers more efficiently than they did before. This means:
- If you have a work permit, they’ll check if your employer is correctly reporting your income and taxes;
- If you own a Penanaman Modal Asing (PMA), they’ll verify that you’re following capital investment and employment rules;
- If you’re paying tax (or not), expect them to match that data with your residency and work permits;
- If something doesn’t add up — for example, reporting a lower salary to avoid taxes while showing higher income elsewhere — you might receive a letter, a visit, or, in some cases, a fine or even deportation.
“It’s not about scaring expats, it’s about enforcing compliance,” says Terje H. Nilsen, Co-Founder and CEO of Seven Stones Indonesia. “We all know about the loopholes. But we forget that so does the government. This isn’t a witch hunt; the authorities aren’t looking to purge foreign investors. They are more than happy to share information to ensure compliance. So, if you’re in doubt, ask.”
Red Flags
Here are some things that cause red flags:
- Business owners working without the right permit: For example, if you’re running a business under a PMA company but holding a spouse-sponsored KITAS without an Izin Mempekerjakan Tenaga Kerja Asing or IMTA (the permit for the company to hire an expat);
- Freelancers and digital nomads on tourist visas: Indonesia isn’t ignoring the rise of online work anymore. If you’re earning from Indonesia-based clients while on a tourist or social visa, you might well violate labour laws;
- Employees holding one type of work permit but doing another job: For example, if your Rencana Penggunaan Tenaga Kerja Asing(RPTKA) states you’re a Marketing Director but you’re managing operations, that’s a mismatch Immigration can now detect.
What You Need to Do
- Check your visa type: If you’re actively working, a work-sponsored KITAS or business visa is essential;
- Update job roles with BKPM: If your role in the company has evolved, ensure your work permit reflects that;
- Don’t assume digital work is “invisible”: The government is aware of foreign workers earning remotely, and a special Digital Nomad visa is being discussed, but until then, follow local laws.
Tax Evasion and Underreporting Are Now High-Priority Issues
If you live in Indonesia for more than 183 days per year, congratulations — you’re officially a tax resident and legally required to pay tax on worldwide income. However, many expats still avoid registering for Nomor Pokok Wajib Pajak or NPWP (Indonesian tax ID), believing that if they don’t declare anything, they’re off the radar. That’s no longer the case.
What’s Changing?
- Banks are now required to report foreign transactions. If you’re receiving regular income from overseas into an Indonesian account, expect some scrutiny;
- Land and property ownership records are under review. If you hold assets through a nominee arrangement but haven’t declared the income linked to them, be careful;
- Expatriates who “live under the radar” might get caught. Even if you’re paid overseas, Immigration’s records can show whether you’re effectively residing in Indonesia (remember the 183-day regulation), making you liable for local taxes.
How to Stay Safe
- Register for an NPWP if you qualify as a tax resident. Even if you don’t owe much, remember — this is all about compliance;
- Declare foreign income properly. Indonesia offers tax treaties with various countries, meaning you might avoid double taxation, but you must file correctly;
- Get professional advice. If your tax situation is complex, hire a tax consultant familiar with expat regulations.
Crackdowns on PMAs are Increasing
The rules for foreigners running a PT PMA (foreign-owned company) can be complex and recently, BKPM as well as tax authorities have been clamping down on businesses that don’t comply with minimum investment requirements and employment obligations.
The Indonesian National Police website posted at the end of February this year that “the Directorate General of Immigration detained 312 foreign citizens in Bali for visa violations linked to problematic foreign investment companies during the Wira Waspada operation from January to February 2025.” They went on to report that “authorities inspected 267 foreign investment companies, leading to the revocation of their business identification numbers (Nomor Induk Berusaha or NIB) in November 2024.”
Here are some reasons you can expect increased audits:
- Your business isn’t meeting the Rp10 billion (approximately US$640,000) minimum investment requirement;
- Your company is inactive or filing zero revenue tax reports;
- You’re not hiring enough local employees as per manpower regulations;
- Your work permits don’t match the number of foreign workers employed.
If BKPM finds irregularities, it can freeze your business license (NIB), revoke your PMA status, or refer cases to the tax office for further penalties.
How to Protect Your Business
- Review your PMA structure: Ensure it meets investment, tax, and employment regulations;
- File accurate reports: Even if your business is small, ensure compliance with regular tax filings;
- Follow manpower laws: Hiring locals isn’t just a regulation, it’s a necessity for smooth operations.
What Happens If You Get Caught in a Violation?
The consequences depend on the severity of the infraction:
- For minor violations (incorrect visa type, missing paperwork): You’ll likely receive a warning or fine;
- For moderate violations (underreported taxes, overstaying a visa, mismatched work permit roles): Expect fines, possible business restrictions, or temporary visa suspensions;
- For serious violations (tax evasion, illegal work, fraudulent investment structures): Deportation, blacklisting, or even legal action.
What Expats Should Do Right Now
- Check your visa, work permit, and tax compliance status;
- Ensure your business structure aligns with new regulations.
If in doubt, consult a legal or tax professional; - Stay updated on regulation changes. Policies shift frequently, and ignorance isn’t an excuse.
Final Thoughts: Are You Ready?
Don’t panic. “This should be a wake-up call to get everything in order. The era of slipping through the cracks is ending, and the best thing you can do is stay compliant, stay informed, and avoid trouble before it finds you,” says Nilsen, who adds that “we communicate regularly with central government-related institutions and offer an extended service direct to central ministries through our Jakarta office.”
Understanding and managing Indonesia’s complex regulatory requirements doesn’t have to be overwhelming. Seven Stones Indonesia offers a one-stop solution for foreign businesses, providing comprehensive services ranging from company incorporation and immigration applications to tax and accounting management.
Don’t leave compliance to chance. Partner with Seven Stones Indonesia today and take the first step toward securing your business’s success in one of Southeast Asia’s most promising investment destinations. Reach out to us now via hello@sevenstonesindonesia.com to make compliance the easiest part of your journey.
Sources: The Indonesian National Police website, Seven Stones Indonesia, ANTARA News, Jakarta Globe, Directorate General of Taxes, BKPM, Directorate General of Immigration