This post is also available in: Indonesia (Indonesian)
A Guide to Everything You Need to Know About Indonesia Value-Added Tax (VAT)
Enforced on most services and goods, the Indonesia Value-Added Tax (VAT) impacts both ends for consumers and businesses.
If you intend to do business in the country, you need to be aware of how VAT is going to impact your business and your customers. Most people living in Indonesia consider VAT an affordable cost. VAT is no doubt a crucial component of the country’s economy. It is important to note that VAT is mandatory if you plan to run a business.
Why the Need for VAT?
VAT is a system applied by many countries all over the world to generate revenue for the Government. Complying with VAT in Indonesia is mandatory is you want to run a business.
The VAT system was introduced in Indonesia in 1984. The VAT law was then introduced but is subject to change based on regulations by the Government. It was a way to minimise tax invasion from both Indonesia companies and individuals. It was also to help create uniformity and transparency with the country’s tax process.
Since it was introduced, the VAT laws have undergone little change. It is not expected to change significantly anytime soon either. Indonesia relies on VAT as one of the country’s contributors to economic growth. The revenue collected over the years has helped the growth of several sectors. This includes health, manufacturing, agriculture, technology and more.
The VAT contributes to the country’s Gross Domestic Product (GDP) too. Using VAT has made it easier for Indonesia to integrate itself into the global business scene, especially where trade practices are concerned. This is thanks to the proper enforcement of the system. It has helped minimise legal loopholes being exploited and made it easier for import and export.
How VAT Works in Indonesia?
If your annual turnover amounts to more than 4.8 billion IDR, you are eligible for VAT. This is applicable to individuals too, not just companies. Voluntary registration of VAT is possible in Indonesia. However, this does not apply for overseas companies or a company that has a fiscal representative.
Filing your VAT is done monthly in Indonesia. Payments and filings must be completed before the last day of the month.
How to Report Your Indonesia VAT?
If your company is considered a PKP (Pengusaha Kena Pajak), you must report your VAT and business activities. This must be done monthly. If you own several branches of your company, you must register each branch. Registration is done with the KPP (Kantor Pelayanan Pajak). Any VAT liabilities will be sorted via the input-output tax mechanism.
Invoices must contain certain details for VAT purposes. These details include a serial number and code, supplier details, purchaser details, goods and services details. You must also supply details of the prices and any applicable discounts. Applicable advance payments must be detailed too, along with the VAT amount payable. A date, signature, and name must be available on the invoice.
Which Products and Services Are Exempted from the Indonesia VAT?
The following is a list of goods and services that are not VAT taxable:
- Basic commodities (rice, soybeans, corn, salt, sago)
- Food and drink services for dine-in and take away in restaurants and hotels
- Cash, gold bars and securities
- Mining or drilling extraction directly from the source (crude oil, gas, coal mining, iron ore, copper, gold, tin, silver ore and so on)
- Hotel services
- Food and catering
- Mail services
- Medical and health
- Social services
- Religious services
- Public transport
- Manpower services
- Broadcasting (not related to advertising)
The Rates Incurred in VAT
VAT rates are calculated by applying the VAT rate to your base tax rate. The base tax rate is agreed on between the parties involved. It will be based on the value of the transaction.
Indonesia VAT rates fall into four categories:
- 0% on the export of services
- 0% on the export of any tangible and intangible goods that are taxable
- Either 5 or15%, which would depend on the Government’s regulations
- In most cases, VAT rate is taxed at 10% and will be increased to 11% starting from 1 April 2022 and 12% by 1 January 2025
Certain activities must be included in the calculation of the base tax rate too. These include:
- 20% of a piece of land’s total cost
- Services for package shipment (this includes 10% of the actual billing cost)
- Market value transactions between parties
- The cost of the sale of any taxable goods that are used as gifts or internally
- Imported movies that are worth more than IDR12 million per movie
- The auction price for the delivery of taxable goods
- The agreed-upon price for the delivery of taxable goods
- Delivery of gold jewellery (this includes 20% of the selling price)
- Delivery of freight forwarding (this includes 10% of the actual billing cost)
- Tourism agency and tour services (includes 10% of actual billing for non-commission based deliveries)
Claiming Your VAT Refund
You can get a VAT refund by submitting your application. This is done at the end of the book year. The Directorate General of Taxes (DGT) makes all decisions about VAT refunds in Indonesia. Your refund is subject to the audit that will be conducted within 12-months after you submit your application. If no decision is made, consider your refund request approved. The DGT will notify you within one month of receiving your application if they need more documents.
Ready to Incorporate a Business in Indonesia?
3E Accounting has a long and steady history of helping businesses achieve their goals. We know the ins and outs of the local industry and what is needed to be compliant. Our insight will be invaluable as you forge your way in the business world in Indonesia. Let us help you get started on a strong footing and meet all your local tax regulations and compliance requirements. For more information about our VAT services, contact our team today.