Time flies so fast that I even do not realize that I have entered the third month of 2020. As for someone who works in a Tax Consulting Firm, this is the time when I have to start throwing sleeves and (maybe) being prepared to listen (again) to clients’ complaints during the preparation of their Annual Income Tax Returns (Surat Pemberitahuan Tahunan – SPT). Do not get me wrong. It does not mean I am not happy working as a Tax Consultant. I actually feel excited and curious: what other issues will come? Something that seems to not be a matter for me can turn out being a crucial issue for my clients. One example is about the merger and recalculation of income of married couple who choose to make a Prenuptial Agreement.
Prenuptial Agreement itself is possible or allowed for married couple in Indonesia. It is permitted by the Indonesian Marriage Law Number 1 Year 1974. Practically, the agreement regulates the distribution of joint property, including the percentage of its distribution in case of divorce, family financial arrangements and handling during the marriage, and the separation of properties and/or income during the marriage. Thus, many married couples do not only make the agreement to separate their joint properties from personal properties (properties before marriage), but also for their respective incomes, both incomes earned by husband and wife.
However, even when a husband and wife has a Prenuptial Agreement to regulate the separation of properties and/or income during the marriage, according to the Indonesian Tax Law, they are still required to recalculate their respective incomes by combining both of their net income in one tax year. This is in accordance with Income Tax Law Article 8 Paragraph (3), that:
“The net income of a married individual referred to in paragraph (2) subparagraph b and c shall be taxed on aggregate net income of the married individual, and the amount of tax to be paid by each of them shall be in proportion to their respective net income.”
Furthermore, in calculating the amount of annual income tax payable, husband and wife who has a Prenuptial Agreement (hereinafter referred to as “PH”, which stands for Pisah Harta) will get an additional deduction in a form of Non-Taxable Income (Penghasilan Tidak Kena Pajak – PTKP) of Rp. 54.000.000, as stipulated by the Income Tax Law Article 7 Paragraph (1). The following simulation provides an example on how to calculate the tax payable and reporting it in the SPT of husband and wife with PH status.
Andy is married to Amy and has 2 children. Before marriage, Andy and Amy made a prenuptial agreement which stated that they agreed to have a property separation in their marriage. Andy and Amy are employees in different private companies. Andy is a Finance Director at PT XYZ, while Amy works as a Marketing Manager at PT DEF. The following are income and income tax article 21 with-held by their employers in 2019, taken from their With-holding Income Tax Slips of Form 1721-A1:
Assuming that both Andy and Amy do not work elsewhere and only earn income from the employment, the 2019 income tax should be paid by Andy and Amy is as follows:
In terms of the reporting of Annual Income Tax Return, there are 2 (two) things that need to be noted by husband and wife with PH status: (1) husband and wife with PH status must attach 1 (one) additional special attachment which is inseparable from the SPT, namely the Calculation of the Income Tax for Taxpayers with PH status and (2) the presentation of the husband and wife’s income tax calculation must be reflected in the main form of their SPT.
Using the case of Andy and Amy above, the following are examples on how married couple should report their combined-income in the SPT:
I. Annual Income Tax Return 2019 – Husband (Andy) :
II. Annual Income Tax Return 2019 – Wife (Amy) :
III. Additional Special Attachment – Calculation of the Income Tax Payable for Taxpayers with PH Status:
The explanation and simulation above show that the Indonesian Tax Regulations accommodate married-couple taxpayers to report their properties separately, as made possible by the Indonesian Marriage Law. However, for tax purposes, husband and wife who have a PH Agreement are required to combine their incomes and to calculate the tax payable owed by each of them based on the proportion to their respective net income.
At last, happy preparing Tax Returns for all ?!!!