The expat’s need for financial services
Undoubtedly one of the attractions of expatriate life is the increased salary and allowances paid to foreign nationals while they are serving their companies on overseas assignments. Whether it’s called hardship pay, location allowance, overseas bonus, or a plain ‘ol raise, the additional funds paid to senior managers during their overseas assignments can be quite significant. For many expats, an overseas move is a part of a long-term strategy to save for retirement.
While this remains true for many corporate assignments, the profile of expatriates in Indonesia has evolved. Today, many expats are on shorter-term contracts, regional roles, or self-initiated moves, often with fewer allowances than in the past. Regardless of the package structure, financial planning remains a critical part of any overseas assignment.
Paired with additional tax exclusions or incentives that your country may allow you because you are working overseas, as well as the additional allowances that cover or assist in covering the costs of housing, transportation, education, travel, etc. during your stay, the average expatriate on a corporate assignment makes a significant amount more money on an overseas tour than in his/her home country.
It is important to note that tax treatment varies significantly depending on your nationality and residency status. For example, US citizens remain taxable on worldwide income, while other nationalities may benefit from tax residency rules or bilateral tax treaties. Professional advice is strongly recommended to understand your specific obligations.
With these additional funds comes the need to think about the future and ensure that the funds are safeguarded for your future needs.
What this means for expats in Indonesia:While earnings may be higher, costs such as international schooling, housing, and travel can also be significant. Without a clear financial plan, it is easy to lose the long-term benefit of an overseas assignment.
Advantages to having a financial planning advisor in Asia
Financial planners in your hometown may not understand the tax implications of monies made on overseas investments. There are distinct advantages to working together with a financial planner who is fully versed in the tax and financial implications of working, living and investing overseas:
Financial planners in the region are on the spot and accessible for a quick consultation or lengthy discussion at your convenience. No need to rush through important financial discussions when your adviser is available for a face-to-face meeting.
Reputable financial planners who are based regionally specialize in the kinds of investments that best suit expatriate’s personal financial needs and tax situations.
An expatriate financial planner knows your situation because they have the experience and the same needs and concerns as you do.
In Indonesia, you may also encounter both locally licensed advisors and offshore financial planners operating regionally. It is important to understand under which regulatory framework your advisor operates.
Indonesia’s financial services industry is regulated by Otoritas Jasa Keuangan (OJK). If you are considering local financial products or advisors, ensure they are properly licensed and regulated.
What are financial services?
‘Financial Services’ is a phrase often used about the handling of money. Indeed, the oldest form of financial service is money lending which goes back millennia. In the modern day, however, the term financial services has come to mean looking after the long-term needs and meeting the aspirations of clients.
Financial planning in the main is divisible into two parts. Firstly, the protection of the client’s current position and secondly, the planning for future requirements.
Protection of the present is mainly met by insurance. For example, a young couple with a family will require life assurance and possibly critical illness insurance on the main wage earner to protect the family in the event of death or serious illness. Clients may also need cover for medical expenses and illness, which again can be catered for.
In Indonesia, expatriates should carefully review whether they are covered by international health insurance, local private insurance, or Indonesia’s national health system (BPJS Kesehatan). Coverage levels and access to international-standard hospitals can vary significantly.
For amounts of money which are relatively small, a family can be protected against death, serious illness and other catastrophes.
Once the client is protected against the calamities life can throw up, the main area of concern tends to be to acquire a sufficiently large sum of money so as to have the prospect of buying a house or a comfortable retirement. This is normally done through regular investment in savings plans or pension plans utilizing spare income over a number of years.
The choice of investment company and the investment funds used is of primary importance. They must match the appropriate fund with the client’s risk profile, maximizing opportunity for growth whilst minimizing risk.
Currency exposure is another important consideration for expatriates in Indonesia. Income may be earned in one currency while expenses or investments are held in another, introducing exchange rate risk over time.
It may well be that for a number of years the client will pursue a high-risk strategy, but attitudes will change. As retirement approaches and large fluctuations in capital become less acceptable, a good planner will gradually move investments into more conservative areas.
When clients are retired, a financial planner’s role is to obtain the income they require whilst preserving capital as far as possible.
Financial planning also involves knowledge of tax rules and regulations which may be applicable. Through instruments such as wills or trusts, taxes such as capital gains or inheritance tax may be reduced or managed.
For expatriates with assets in multiple countries, estate planning can become more complex. It is advisable to ensure that wills and legal structures are valid across jurisdictions and aligned with both home country and Indonesian regulations.
Financial services therefore encompass a vast range of product providers, savings schemes, and investment funds, but in the end it all comes down to helping you protect your family and plan for a comfortable retirement.
What to look for in a financial planner
Commitment to serving the expatriate community in Indonesia. You want to know that you are entrusting your long-term financial planning needs to someone who will be able to advise you throughout your stay and beyond.
References from current and past clients.
Experienced and qualified to operate in international markets.
Familiarity with tax regulations in your own country as well as regionally.
Clear explanation of how they are compensated. Some advisors operate on a commission basis, while others charge transparent advisory fees. Understanding this structure is important when evaluating recommendations.
Regulatory status and licensing. Confirm whether the advisor is licensed in Indonesia, offshore, or both, and what protections apply to you as a client.
Experience working with expatriates in Indonesia specifically, including familiarity with local banking systems, currency considerations, and repatriation of funds.
Frequently Asked Questions: Financial Planning for Expats in Indonesia
Is it better to use a financial advisor in Indonesia or in my home country?
This depends on your situation. Advisors in Indonesia may better understand local regulations and day-to-day realities, while advisors in your home country may be more familiar with your long-term tax obligations. In many cases, a combination of both perspectives is beneficial.
Are financial advisors in Indonesia regulated?
Yes, financial services in Indonesia are regulated by Otoritas Jasa Keuangan (OJK). However, many expatriate-focused advisors operate offshore. It is important to understand which regulatory framework applies to your advisor.
Do expatriates pay tax in Indonesia?
In most cases, yes. If you are working in Indonesia under a KITAS or KITAP, you are generally considered a tax resident if you stay more than 183 days in a 12-month period. This means you are liable for Indonesian income tax on income earned in Indonesia, and in some cases on worldwide income depending on your residency status.
In many corporate assignments, the sponsoring company will handle tax payments on behalf of the employee as part of the compensation package. However, this does not remove your obligation to be properly registered with the Indonesian tax office and to understand your personal tax situation. It is strongly recommended to seek professional tax advice.
Can I invest locally in Indonesia as an expat?
Some investment options are available, but there may be restrictions depending on your visa status and the type of investment. Many expats choose to maintain offshore investment structures.
What is the biggest financial mistake expats make?
Failing to plan early. Many expatriates focus on short-term lifestyle improvements and miss the opportunity to maximize long-term savings during their assignment.
