VAT, GST and Sales Tax in Indonesia

Summary

Name of the tax Value-added tax (VAT)
Local name Pajak Pertambahan Nilai (PPN)
Date introduced 1-Jan-84
Trading bloc membership None
Administered by The Directorate General of Taxation (http://www.pajak.go.id)
VAT rates
Standard 10%
Other Zero-rated and exempt
VAT number format 11.111.111.1-111.111
VAT return periods Monthly
Thresholds
Registration for small entrepreneurs IDR4.8 billion of supplies of goods or services
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to the following transactions:

  • Supplies of taxable goods and taxable services made in the Indonesia Customs Area in the course of a business by a taxable entrepreneur
  • Imports of taxable goods into Indonesia, regardless of the status of the importer
  • The use of taxable services and intangible goods provided by overseas entities inside the Indonesia Customs Area
  • Export of taxable goods (tangible or intangible) and/or taxable services by a taxable entrepreneur
  • Self-construction activities performed outside the course of business or work by an individual or company if the results are for the person’s own use or for use by others
  • Deliveries of assets not originally acquired for sale. An exemp­tion applies if the input VAT on acquisition cannot be credited because the purchase was not related to business or because it was a purchase of a luxury car.

Who is liable

All businesses engaged in supplies of goods or services subject to VAT are required to register for VAT as “taxable entrepre­neurs,” unless they qualify as “small entrepreneurs.” This requirement also applies to any permanent establishment of a nonresident business located in Indonesia.

Small entrepreneurs. A business qualifies as a small entrepreneur if its gross annual turnover (from supplies of goods or services) does not exceed IDR4.8 billion.

Nonresident businesses and tax representatives. A legal require­ment to appoint a fiscal representative in Indonesia is not imposed. However, a taxable entrepreneur may appoint a proxy to handle its VAT refunds or audits.

Registration procedures. Taxpayers who meet the definition of “taxable entrepreneur” must register with one of these two tax authorities:

  • The tax office whose jurisdiction includes the taxpayer’s resi­dence or domicile or place of business
  • Another tax office assigned to that taxpayer by the provisions of tax laws and regulations

In the event that a taxpayer’s business is resident in two or more tax office jurisdictions, the Directorate General of Taxation (DGT) can stipulate where the taxpayer must register.

The application should be submitted using the hard copy form prescribed by the tax office, which shall verify the application and issue a VAT Registration Number no later than five working days after a fully completed application is received.

During the verification process, the tax office may conduct a visit to the taxpayer’s office.

Late-registration penalties. If a taxable entrepreneur registers late, penalties may be imposed on the supplies of taxable goods and services made before the date of registration. Input VAT (see Section F) incurred during the period before registration may not be claimed as a deduction against output VAT due after the regis­tration date.

Reverse charge. VAT is imposed on utilization of taxable services and intangible taxable goods provided by overseas entities inside the Indonesia Customs Area. The VAT shall be self-assessed by the party that receives the taxable services and intangible taxable goods.

Utilization of intangible taxable goods and taxable services shall occur at the earliest of the following moments:

  • The acquisition price is declared as debt by the party that receives them.
  • The selling price of intangible taxable goods or reimbursement for taxable services is collected by the party who delivers them.
  • The acquisition price of intangible taxable goods or taxable services is paid, entirely or in part, by the party who utilizes them.

Depending on the status of the party who utilizes the taxable service or intangible taxable goods, the paid self-assessed VAT shall be claimed as tax credit or claimed as cost.

Digital economy. The same rules that apply to digital supplies and transactions as to ordinary supplies and transactions.

Deregistration. The Directorate General of Taxation (DGT) ex-officio or upon application of the registered taxpayer can revoke the VAT Registration Number in the event that one of the follow­ing circumstances arises:

  • The taxable entrepreneur changes address to the jurisdiction of a different tax office.
  • The taxable entrepreneur’s stock value or gross receipts for an accounting year does not exceed IDR4.8 billion.
  • The taxable entrepreneur’s place of VAT payment has been centralized in other places.
  • The taxable entrepreneur misuses the VAT Registration Number.

The revocation of VAT Registration Number shall be performed by verification or audit, and it shall not eliminate any VAT obliga­tion of the taxable entrepreneur.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices that are liable to VAT, including at the zero rate. The two VAT rates are the standard rate of 10% and the zero rate (0%), which applies to exported taxable goods (tangible or intangible) and taxable services.

Nontaxable goods include mining or drilling products extracted from source, basic commodities for public necessities (rice, corn, sago, soybean, iodized and non-iodized salt, fresh meat, eggs, milk, fruits and vegetables), food and beverages served in hotels, res­taurants, food courts and such other places (dine-in or take-away, including catering), money, gold bars and valuable documents.

Nontaxable services include the following:

  • Medical health services
  • Social services (orphanages and funerals)
  • Mail services with stamps (postal services)
  • Financial services including fund raising and placement
  • Financing services including shariah-based financing (finan­cial lease, factoring, credit card and consumer financing)
  • Underwriting and mortgage
  • Insurance services
  • Religious services
  • Educational services
  • Commercial art and entertainment services that are subject to regional entertainment tax
  • Broadcasting services for non-advertising (radio or television broadcasting performed by a government institution or private agency that does not constitute advertising and that is not financed by a sponsor for commercial purposes)
  • Public transport on land or water
  • Domestic air transport as an integrated part of international air services
  • Manpower services
  • Hotel services
  • Public services provided by the government
  • Parking space services
  • Money order services
  • Catering services

Examples of zero-rated supplies of goods

  • Exports of taxable goods (tangible or intangible) and taxable services

However, the implementing regulation states that exports of services subject to zero-rated VAT, are limited to the following categories:

  • Toll manufacturing services for overseas customers that meet certain requirements (in the toll manufacturing process, a con­tractor manufactures goods using raw materials provided by the party ordering the goods, and the manufactured goods are delivered to the ordering party or others appointed by the order­ing party)
  • Reparation and maintenance services relating to movable goods that are being used outside the Indonesia Customs Area
  • Construction services, which include construction planning con­sultation services, construction execution work services and construction supervising consultation services, if these services are related to immovable goods located outside the Indonesia Customs Area

The term “exempt deliveries” refers to deliveries of certain tax­able goods and taxable services that are exempt from VAT and that do not give rise to a right of input tax deduction or credit (see Section F).

VAT exemption also applies to deliveries or importation of goods that fall under the category of “strategic goods.” These goods include, but are not limited to capital goods in the form of plant machinery and equipment, certain agricultural products, seeds for agriculture and electricity for houses.

Examples of exempt supplies of “strategic goods”

  • Capital goods in the form of plant machinery and equipment, in either built-up or knock-down condition, not including spare parts
  • Livestock, poultry, fish feed and raw materials for the manufac­ture of livestock, poultry and fish feed
  • Agricultural produce (goods produced from business activities in the sectors of agriculture, plantations, forestry, livestock farming, hunting or trapping, or breeding fisheries, whether from fishing or cultivation)
  • Seeds or sperm of agricultural, plantation, forestry, livestock, breeding or fishery products
  • Clean water channeled through pipes by a potable water com­pany
  • Electricity, except for residences with power in excess of 6,600 watts

According to a Circular Letter published by the DGT in July 2014, the VAT exemption on agricultural products only applied for fruits and vegetables while other agricultural products such as plantation products, ornamental or medicinal products, and for­estry products, which were exempted from VAT according to the previous regulation, are now subject to 10% VAT.

Examples of exempt supplies of goods and services

  • Official textbooks
  • Religious books
  • Vaccines
  • Certain ships, aircraft and trains
  • Some real estate transactions
  • Services supplied to local shipping companies
  • Services supplied by the national army

The Free Trade Zone (FTZ) regimes provide a VAT exemption for the delivery of goods or services within the FTZ and the non-collection of VAT for the delivery of taxable goods or services to the FTZ. The areas that have been confirmed as FTZs are Batam Island, Sabang Island, and Bintan and Karimun Islands.

Option to tax for exempt supplies. Not applicable.

Time of supply

In Indonesia, VAT becomes payable at the earlier of the date on which the taxable goods or services are supplied or the date of receipt of advance payments. Tax invoices must be issued when the delivery of goods or services takes place, or on receipt of payment for a supply of goods or services, whichever is earlier.

Imported goods. The time of supply for imported goods is either the date of importation, or, for goods imported by companies determined to be bonded zone companies, the date on which the goods leave the bonded zone area.

Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on taxable goods and taxable services supplied to it for business purposes to the extent that costs corresponding to the input tax are for sales that are subject to VAT. A taxable person generally recovers input tax by deducting it from output tax, which is VAT charged on supplies made. If the input VAT exceeds output VAT due, this excess tax can be claimed as a refund (see Refunds).

Input tax includes VAT charged on goods and services supplied in Indonesia, VAT paid on imports and self-paid VAT on the use of taxable services and intangible goods provided by overseas entities inside the Indonesia Customs Area (under the self-paid method, the party who uses the intangible goods or services may pay the 10% VAT directly to the state treasury on behalf of the overseas party).

A valid standard tax invoice or customs document must gener­ally accompany a claim for input tax.

In September 2010, the Indonesian Tax Authority released a cir­cular stipulating that the export of “strategic goods” (including animal feed, raw materials for production of animal feed, agricul­tural products and seeds), is subject to 0% VAT. The circular confirms that a taxpayer exporting “strategic goods” may claim an input VAT credit relating to export sales. This can be claimed as a tax refund if it results in a VAT credit (that is, the balance of the input VAT credit is greater than the amount of output VAT).

Non-creditable input tax. In general, a credit may not be claimed for input tax on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepreneur).

In addition, input tax on purchases of goods and services that were made before the taxable entrepreneur started to deliver tax­able goods or services also cannot be credited, except for input VAT on capital goods that can still be claimed as a tax credit.

Input VAT on capital goods purchased or imported that were credited and refunded during the preproduction stage by a VAT-able firm must be repaid if the enterprise is unable to produce VAT-able goods within three years.

The following lists provide some examples of items of expendi­ture for which input tax is not creditable and examples of items for which input tax is creditable.

Examples of items for which input tax is non-creditable

  • Purchases used for nonbusiness purposes
  • Business gifts
  • Purchase, lease or hire of benefits in kind (such as employee accommodation or personal cars)

Examples of items for which input tax is creditable
(if directly related to a taxable business use)

  • Advertising
  • Attending conferences and seminars
  • Purchase, lease or hire of cars, vans or trucks
  • Maintenance and fuel for vans and trucks
  • Business travel expenses

Refunds. If the amount of input tax credits in a period exceeds the VAT payable in the same period, the excess amount is refundable. In general, refund claims must be made at the end of the year. However, certain taxpayers may claim refunds on a monthly basis. The Indonesian tax authorities conduct audits to ensure the validity of VAT refund claims. The tax audit must be concluded within one year after the date of the request for a refund.

If the tax audit confirms that the VAT refund claim is valid, the taxable person may recover the overpaid tax within one month after the date of the tax audit assessment letter.

The Indonesian tax authorities must pay an interest penalty for delays in making valid repayments, calculated at the rate of 2% per month of the tax refundable.

An accelerated refund process through a tax examination is pro­vided for certain taxable entrepreneurs who meet the criteria for a compliant taxpayer or a low-risk taxpayer.

Partial exemption. Not applicable.

Preregistration costs. Input tax paid prior to issuance of the VAT Registration Number is not creditable.

Recovery of VAT by nonresident businesses

Indonesia does not refund VAT incurred by businesses that are neither established nor registered for VAT in Indonesia. A perma­nent establishment of a nonresident business in Indonesia may request a VAT refund in the same manner as other Indonesian taxable persons.

Invoicing

VAT invoices and credit notes. A standard VAT invoice for all tax­able supplies made must be provided by Indonesian taxable entrepreneurs except those who are engaged in retail business or are the end-users of the goods.

The VAT invoice number is determined by the Directorate General of Taxation (DGT). Indonesian taxable entrepreneurs are required to request the VAT invoice number from the DGT before issuing VAT invoices.

On 2 April 2015, the DGT issued a circular letter regarding the use of VAT invoice serial numbers and the procedure for issuing a VAT invoice. The regulation stipulates the following:

  • A VAT-able entrepreneur shall issue a VAT invoice using the VAT invoice serial number, which is determined by the DGT.
  • The VAT invoice serial number provided by the DGT should be used to issue the VAT invoice on or after the date of the VAT invoice serial number granting letter, within the calendar year indicated by the year code in the VAT invoice serial number.
  • If the date of the VAT invoice precedes the date of the VAT invoice serial number granting letter, the VAT invoice is con­sidered incorrect and thus incomplete.
  • A VAT-able entrepreneur issuing an incomplete VAT invoice is subject to an administrative penalty of 2% of the VAT base.
  • To replace the incomplete VAT invoice as defined in point 3, the VAT-able entrepreneur may do the following:
    • Cancel the incomplete VAT invoice
    • Make a new VAT invoice using the same VAT invoice serial number as the cancelled VAT invoice
    • Make sure the date of the new VAT invoice does not precede the date of the VAT invoice serial number granting letter
  • If the VAT invoice as described in point 5 is issued before the date of the VAT invoice serial number granting letter, the VAT invoice is considered a late-issued VAT invoice.
  • If an invoice is issued more than three months before the date of the VAT invoice serial number granting letter, the invoice is considered not issued.
  • The cancellation of an incomplete VAT invoice and the issu­ance of a new VAT invoice as described in points 5 and 6 can be done as long as the monthly VAT return submitted has not been audited, an examination of open preliminary evidence has not been conducted, and the VAT-able entrepreneur has not yet received notification of verification results.
  • The late-issued VAT invoice as described in point 6 can be credited as VAT input as long as it meets the requirements in accordance with the prevailing regulations.

Indonesian taxable entrepreneurs are also required to submit a specimen of the signature of the authorized person who will sign VAT invoices.

A complete and correct standard VAT invoice is generally neces­sary to support a claim for input tax credit.

A purchaser who returns goods to a supplier or cancels services may issue a credit note or cancellation note. A credit note or can­cellation note must refer to the original VAT invoice and clearly indicate details of the returned goods or cancelled services. A credit note or cancellation note may be used to adjust the amount of VAT due for a taxable supply of goods or services.

Proof of exports. Exports of goods are subject to VAT at the rate of 0%. However, export supplies must be supported with evi­dence that the goods were exported outside Indonesia. Valid evidence of export includes “Notification of Export Goods” (PEB) documents issued by the customs office for goods that have been approved for loading.

Foreign-currency invoices. For supplies denominated in a foreign currency, the amounts of output tax shown must be stated in Indonesian rupiah (IDR). The official exchange rate issued by the Minister of Finance on the date on which the VAT invoice is issued must be used to convert the currency.

Electronic invoicing. In June 2014 the DGT announced its plan to require all taxpayers to use electronic VAT invoices. The plan is aimed at minimizing the administrative burden of VAT invoices and to improve tax compliance. The requirement is being intro­duced in three phases, as follows:

  • Effective 1 July 2014, 45 selected corporate taxpayers were required to issue electronic VAT invoices.
  • Effective 1 July 2015, electronic VAT invoices are mandatory for corporate taxpayers registered in the 17 regional tax offices in the islands of Java and Bali.
  • Effective 1 July 2016, all taxpayers nationwide will have to use electronic VAT invoices.
  • Use of an electronic VAT invoice is mandatory, and noncompli­ance will result in a defective VAT invoice subject to a fine equaling 2% of the VAT base.

VAT returns and payment

VAT return. The due date for the submission of monthly VAT returns is the end of the following tax period. The VAT payable, if any, must be settled before the submission deadline of the monthly VAT returns.

VAT liabilities must be paid in Indonesian rupiah.

A new form of VAT return (SPT Masa PPN 1111) was introduced for VAT reporting periods beginning with the January 2011 period.

Under the new regulation, the VAT return application has been integrated with the electronic invoicing application.

Special VAT-free regimes. Other VAT regimes technically elimi­nate the payment of VAT due. These include the following:

  • The non-collection of VAT payable to companies in bonded zone areas and to manufacturers of goods for export
  • The non-collection of VAT payable arising from goods or ser­vices supplied by principal contractors of projects financed by foreign aid loans or grants

In this context, non-collection refers to the tax facility under which the VAT due is not collected for certain taxable goods and services. Under such tax facility, the related input VAT can still be claimed as a tax credit.

Electronic filing and archiving. The taxable entrepreneur can sub­mit the VAT return electronically via one of several application service providers (ASP) appointed by the DGT. The ASP must comply with the following requirements:

  • It must be a legal entity.
  • It must have a processing business license to be an ASP.
  • It must have a processing Tax ID Number and already be stipu­lated as a taxable entrepreneur.
  • It must sign an agreement with the DGT.

Taxable entrepreneurs who wish to file electronically must apply for an Electronic Filing Identification Number (e-FIN) and obtain a digital certificate from the DGT. The local tax office must reply no later than one working day after receiving a cor­rectly completed application.

A VAT return completed according to regulations shall be signed electronically and submitted electronically through the ASP. Taxable entrepreneurs will receive proof of electronic receipt for every completed VAT return.

If there are additional documents that must accompany the VAT return but cannot be delivered electronically, the taxable entre­preneur must deliver them to the correct tax office (where it is registered) in person or by mail with a proof-of-delivery letter, or via courier or forwarder with a proof-of-delivery letter.

With regard to the VAT documents (both hard copy and elec­tronic documents), these shall be archived for 10 years. In case of a VAT audit, the tax auditors will check the hard copy documents.

Annual returns. Not applicable.

Penalties

A penalty is charged at the rate of 2% per month on late payments of VAT. In the case of a tax audit, the maximum period is 24 months. An additional penalty of IDR500,000 is assessed for each VAT return submitted late.

A penalty, charged at a rate of 2% of the sales value, is imposed for the failure to issue a VAT invoice or for the issuance of a VAT invoice that is considered defective (including a VAT invoice that is issued late).

For severe evasion or fraud, criminal penalties apply. Two crimi­nal offenses that may be charged with respect to VAT are described below.

Criminal offenses related to general tax administration excluding the issue related to a tax invoice. Criminal offenses related to general tax administration other than the issue related to the tax invoice that cause losses to the revenue of the state are punishable by imprisonment from six months to six years and a fine of twice the amount of the unpaid or underpaid taxes (minimum fine) or of four times the amount of unpaid or underpaid taxes (maximum fine). This criminal sanction may be doubled if the taxpayer com­mits another criminal tax offense before one year elapses from the date of completion of the taxpayer’s jail term.

Criminal offenses related to the issuance of a tax invoice. Criminal offenses related to the issuance of a tax invoice are punishable by imprisonment from two years to six years and a fine ranging from two times to six times the amount of tax declared in the tax invoice.