Companies and foreign investors need to comply with tax obligations in Indonesia consisting of individual income tax, corporate income tax, value-added tax (VAT), withholding taxes, international tax agreements, luxury-goods sales tax, tax concessions, customs & excise, and land & building tax. Value Added Tax or Pajak Pertambahan Nilai (VAT) is a tax imposed on the transaction of taxable goods and services inside the Indonesian customs area. Particular goods and services are subject to VAT while others obtain exemptions. This article will review regulations concerning VAT that will affect your business and customers in Indonesia.
Governing law and regulation
- Law No. 8/1983 on the Value Added Tax of Goods and Services and Tax of Luxury Goods Sale
- Law No. 42/2009 on the Third Amendment Law No. 8/1983 on the Value Added Tax of Goods and Services and Tax of Luxury Goods Sale
- Minister of Finance Regulation (Permenkeu) No. 197/PMK.03/2013 on Limitation of VAT on Small Entrepreneur
Subject to VAT
VAT is imposed on and deposited by registered taxable entrepreneurs “Pengusaha Kena Pajak” (PKP). However, the VAT burden is often borne by the final consumer. Entrepreneurs who are obliged to become PKP are entrepreneurs who have a turnover of at least IDR 4.8 billion per annum. Even so, if the entrepreneur has a turnover less than IDR 4.8 billion, the entrepreneur can apply to be a PKP.
Taxable events
VAT is imposed to:
- Delivery of taxable goods and/or services;
- Utilization of taxable intangible goods/and or services from outside the customs area;
- Utilization of the taxable services from outside of the customs area;
- Import of taxable goods;
- Export of taxable tangible goods, intangible goods, and/or services.
List of goods that are exempted from VAT:
- Drilling or mining from direct extraction of their sources such as natural gas, crude oil, coal, geothermal energy, gravel and sand, iron ore, copper ore, gold ore, tin order, silver ore, etc.
- Food and drink services in hotels and restaurants, both dine-in and take away Gold bars, securities, and cash
- Basic commodities such as salt, rice, salt, soybeans, corn, and sago
List of services that are exempted from VAT:
- Medical and health services
- Mail services social services such as funeral religious services
- Insurance services
- Art and entertainment services
- Educational services
- Public transportation services
- Hotel services
- Manpower services
- Food and catering services
- Public telephone services
- Broadcasting services that are not relevant to advertising
VAT rates
Below are the applicable VAT rates:
- The tariff of VAT shall be 10 %.
- Tariff of VAT as much as 0 % shall be applied to:
- export of the tangible taxable goods;
- export of the intangible taxable goods; and
- export of the taxable services.
- Tax tariff as set forth in section (1) above could be changed at least 5% and no more than 15% of which the change shall be pursuant to ministerial regulation.
VAT liabilities
By becoming a PKP, entrepreneurs must collect, deposit and report the VAT owed. In the calculation of VAT that must be paid by PKP, there is what is called an output tax and an input tax. The output tax is the VAT collected when PKP sells its products. Meanwhile, the input tax is the VAT paid when PKP purchases, obtains or makes its products.
If the accumulated VAT output in a particular month exceeds the accumulated VAT input for the same period, the company must settle the difference by the end of the following month prior to the VAT return filing due date.
VAT reporting
PKP is required to report their business activities and settle their VAT liabilities every month.
- PKP (whose business is delivery of taxable goods, export of taxable goods or services) that conducts its business in more than one area, can apply for a centralized VAT reporting by delivering written notification to the Directorate General of Taxes to choose a tax office jurisdiction as their main.
- In the case of PKP whose business is in the import sector, payable tax occurs when taxable goods enter the customs area and are collected through the Directorate General of Customs.
- PKP who utilizes the taxable goods or taxable services from outside of the customs area, tax is payable at the residence or domicile and/ or place of business activity.
Value Added Tax (VAT) on investment & trade
VAT applies to the delivery of taxable goods and services in Indonesia, the import of taxable goods, the use or consumption of intangible goods or services from overseas, and the export of taxable goods and services by a taxable enterprise from Indonesia.
The VAT rate, in general, is 10% and may be 5% or 15% for a number of specifically regulated transactions.
Non-taxable goods and services include:
- Mining and drilling products which are extracted directly from their sources
- Basic food commodities (rice, corn, salt, soybeans, sago, etc.)
- Drinks in hotels and restaurants
- Gold bars, money, securities
- Services such as medical, financial and insurance, education, and manpower
Companies are obligated and report and settle their VAT liabilities on a monthly basis.
Centralized VAT-reporting
Each company branch is obligated to the tax office in its own area. Companies may apply for centralized VAT reporting. VAT liabilities are settled with a VAT input-output mechanism. VAT paid by companies on goods and services purchased to run a business (VAT input) may be credited against the VAT that the business receives from selling products (VAT output). If the accumulated VAT output in a particular month exceeds the accumulated VAT input for the same period, the company must settle the difference by the end of the following month prior to the VAT return filing due date.
