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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 11/1/2012

Indonesia: VAT essentials 

Essential information regarding VAT as it applies in Indonesia.


Scope and Rates

What supplies are liable to VAT?


VAT is imposed on:


  • the delivery of taxable goods (tangible or intangible) by an entrepreneur in the Indonesian customs area
  • the importation of taxable goods
  • the rendering of taxable services in the Indonesian customs area
  • utilization in the customs area of intangible taxable goods from outside the Indonesian customs area
  • utilization of offshore taxable services in the Indonesian customs area
  • export of taxable goods, intangible goods, and taxable services by an entrepreneur
  • self-construction activities
  • the disposal of fixed assets by a Taxable Entrepreneur, including transfer in the course of a merger (except where VAT on the original acquisition could not be credited)

What is the standard rate for VAT?


The VAT rate is 10 percent, but the law allows the government to amend this rate to a minimum of 5 percent and a maximum of 15 percent. VAT is levied on exports at zero percent.


Are there any reduced rates, zero rates, or exemptions?


Goods not subject to VAT:


  • goods produced by mining or drilling that are taken directly from their source, i.e. crude oil, natural gas, geothermal energy, sand and gravel, coal (before processing into briquettes), and ores of iron, tin, gold, copper, nickel, silver, and bauxite
  • basic necessities needed by the populace as a whole, i.e. rice, corn, sago, soybeans and salt
  • Food and beverages sold at hotels, restaurants, eating shops, stalls, and the like, whether or not for dine-in, including food and beverages delivered by catering services
  • money, gold ingots and negotiable instruments.

Services not subject to VAT


  • medical and health services, including general practitioners, specialists, and dentists, veterinarian services, health expert services (acupuncturists, dental experts, nutritionists, physiotherapists), midwifing services, paramedic and nurse services, hospital, maternity clinics, health clinics, health laboratories, and sanatoria, psychologists and psychiatrists; and alternative medical treatments
  • social services, including orphanages, fire departments, rehabilitative institutions, burial services, and non-commercial sport services
  • letter delivery services with postage stamps
  • financial services, including lending, borrowing, leasing, factoring, credit card businesses, consumer financing, and underwriting. Note that services offered by a financial institution do not automatically qualify as financial services. For example, selling insurance product by banks is considered an agency service, rather than financial, and thus subject to VAT
  • insurance services that cover loss, life and reinsurance, conducted by insurance companies to holders of insurance policies, excluding insurance support services, such as agent, loss appraisal and consultancy
  • religious services
  • educational services, including schools and informal education services
  • arts and entertainment services
  • non-commercial broadcast services
  • public transportation services over the roads and on water, as well as domestic air transportation services (becoming inseparable from foreign air transportation services)
  • manpower services, including labor and outsourcing services, and training organizers
  • hotel services, including rooms and facilities offered at a hotel
  • services provided by the government in the context of running government administration in general
  • parking services
  • public payphone services
  • money remittance services with money orders and
  • catering services.

These goods and services are granted an exemption from VAT:


  • machinery and capital equipment in certain situations
  • electricity (unless household capacity exceeds 6,600 watts)
  • piped water
  • livestock, poultry and fish feed and/or raw materials for preparing feeds
  • certain agricultural crops in their natural state delivered by farmers
  • agricultural seeds, plantations, forestry, animal husbandry, breeding, and fishery sources
  • polio vaccines
  • textbooks
  • charter or purchase of ships used by national shipping and fishing companies, together with related components
  • charter or purchase of aircrafts used by national airline companies, together with related components
  • purchase of railway trains by PT Kereta Api Indonesia and related components
  • construction and sales of simple houses of various types
  • equipment and supplies of certain kinds used by Defense and Police forces.

Special schemes for VAT apply to sales of used cars, cigarettes, pre-recorded cassette tapes and compact discs. VAT is levied on exports of goods and services (subcontracted manufacturing, repair and maintenance and construction services) at zero percent.


What are the other local indirect taxes beside VAT?


  • Sales tax on luxury goods
  • stamp duty (“Bea Materai” at IDR6,000, maximum per legal document)
  • excise and customs duty.

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Registration

Who is required to register for local VAT?


A person or body, in whatever form, which in the course of its operations, produces, imports or exports taxable goods, conducts trading activities or renders taxable services, is required to register with the Directorate General of Tax (DGT as a Taxable Entrepreneur) if total annual turnover exceeds IDR600 million.


Are there penalties for not registering, or late registration?


The DGT will deem registration. The obligations related to the registration are then assumed to have occurred five years prior to registration.


Is voluntary VAT registration possible for an overseas company?


No, only a resident or a permanent establishment can obtain a VAT registration. Registration by non-residents is not allowed.


Are there any simplifications that could help avoid the need for an overseas company to register for VAT?


Non-resident companies cannot register for VAT.


Does an overseas company need to appoint a fiscal representative?


No. If a transaction entered into by a non-resident is subject to VAT, it will be administered by the resident counterparty. If the non-resident is paying, VAT will be charged by the resident. If the non-resident is receiving income, VAT will be self-assessed (not withheld) by the resident.

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VAT grouping

Is VAT grouping possible?


VAT centralization is allowed for branches of an entity.


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


Monthly.


Are there any other returns that need to be submitted?


No.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


The Minister of Finance issues weekly exchange rates that should be used for all tax reporting and payments within the relevant period.

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VAT recovery

Can a business recover VAT if it is not registered?


A non-taxable entrepreneur is only able to expense the input VAT it paid, as long as it is related to business. This means that it can only recover 25 percent of the amount of input VAT paid.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


N/A.


Are there any items from which businesses cannot recover VAT?


Input VAT can be credited against output VAT except for:


  • acquisition of taxable goods or services, or utilization of taxable services and intangible goods from outside the Indonesian customs area, before entrepreneur is deemed a taxable entrepreneur
  • acquisition of taxable goods or services having no direct relationship to business activities, or related to non-VAT-able business activities
  • acquisition and maintenance of motor vehicles in the form of sedans and station wagons, except as commodities or rentals
  • acquisition of taxable goods, taxable services, intangible taxable goods, and taxable services from outside the Indonesian customs area with invalid tax invoices
  • acquisition of taxable goods or taxable services where the input tax is collected by issuing a tax assessment
  • acquisition of taxable goods or services where the input tax is not reported in monthly VAT Returns and is discovered at the moment of audit and
  • acquisition of taxable goods, other than capital goods or taxable services, before a taxable entrepreneur starts production as intended in paragraph (2a)
  • input VAT more than three months from the end of the period in which it is incurred.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Export goods are subject to 0 percent VAT.


Export services subject to 0 percent VAT include:


  • subcontracting services
  • repair and maintenance services attached to movable goods and utilized outside of the Indonesian customs area
  • construction services attached to immovable goods situated outside of the Indonesian customs area.

How are goods dealt with on importation?


In general, 10 percent VAT applies to imports. Certain exemptions may apply, based on the goods being imported.


How are services brought in from abroad treated for VAT purposes?


Services rendered by non-residents are subject to 10 percent self-assessed VAT administered by the resident service recipients.

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Invoices

Is a business required to issue tax invoices?


Yes, once it is registered as a VAT-able taxpayer.


What do businesses have to show on a tax invoice?


  1. Code and Serial Number of Tax Invoice
    A code and serial number must appear on the tax Invoice in a format which is controlled by the DGT.
  2. Taxable Entrepreneur
    The name, address, and taxpayer registration number of the taxable entrepreneur delivering taxable goods and/or services, in accordance with the information in the stipulation letter of taxable entrepreneur. If the company changes its address, they need to update the tax ID and Taxable Entrepreneur stipulation letter in the tax office.
  3. Purchaser of Taxable Goods and/or Recipient of Taxable Services
    The name, address and taxpayer registration number of the purchaser of the taxable goods and/or recipient of taxable services.
  4. Taxable Goods/Taxable Services being delivered:

  • Serial Number
    The serial number of taxable goods or services delivered.
  • Name of Taxable Goods/Taxable Services
    The name of the taxable goods and/or services delivered.

    • In the event that an advance payment or installment is received, the column “Name of Taxable Goods or Taxable Services” must include information such as advance payment or installment for the purchase of goods and/or acquisition of services.
    • If necessary, Taxable Entrepreneur may add the number of units, and price per unit delivered.
  • Sales Price/Compensation/Advance Payment/Installment

    • Sales price or compensation on taxable goods or services delivered before deducting advance payments or installments.
    • In the event of receipt of advance payments or installments, the basis for calculating VAT is the amount of advance payment or installment concerned.
    • If the sales price/compensation/advance payment/installment is made in foreign currency, then only the lines "Tax Collection Basis" and "VAT = 10 percent X Tax Collection Basis" must be converted into rupiah using the exchange rate mandated by Minister of Finance decisions during the preparation of Tax Invoices.
    • In the event that the information for Name of Taxable Goods/Taxable Services delivered cannot be accommodated on a single tax invoice, a Taxable Entrepreneur may:

      • make more than one tax invoice, with each of them using the same Code, Serial Number, and tax invoice date, as well as signed and showing the number of pages on each sheet, and especially the amount, price discount, advance payment received, Tax Collection Basis, and Value-Added Tax on the last form of the tax invoice; or
      • make one Tax Invoice indicating the number and dates of sales invoices constituting an inseparable attachment to the tax invoice, in the event that a Sales Invoice is made separately from the Tax Invoice.
  1. Total Sales Price/Compensation/Advance Payment/Installment
    The total amount of figures in the column of sales price/compensation/advance payment/installment.
  2. Price Discount
    The total value of any price discount on taxable goods and/or services delivered.
  3. Advance Payment received
    The value of any advance payments received from the delivery of taxable goods and/or services.
  4. Tax Collection Basis
    The amount of sales price/compensation/advance payment/installment, minus any price discount and advance payment received.
  5. VAT = 10 percent X Tax Collection Basis
    The amount of VAT payable, equal to 10 percent of the tax collection basis.
  6. Sales Tax on Luxury Goods
    Only filled in for delivery of luxury taxable goods; amounting to the sales tax tariff on luxury goods multiplied by tax collection basis becomes the basis for calculating Sales Tax on Luxury Goods.
  7. Date
    The place and date, where and when tax invoice is created.
  8. Name and Signature
    The name and signature of an officer appointed by the taxable entrepreneur to sign tax invoices; determined by giving written notification to the Tax Service Office where taxable entrepreneur is stipulated, or where VAT is centralized, no later than the end of the month following when the appointed officer begins signing tax invoices.

    If a taxable entrepreneur is an individual with no organizational structure, the owner of business signs the tax invoices himself, or may authorize another party to sign tax invoices. Written notification must be given to the Tax Service Office where the taxable entrepreneur is stipulated, or where VAT is centralized, no later than the end of the month following the authorized party signing tax invoices. If signing tax invoice is authorized to another party, then additional information must be included in the name column of the tax invoices for "Proxy of Business Owner".

    The officer or proxy appointed to sign the invoices does not have to be the same as the one authorized to sign periodic VAT returns.

    A signature stamp is not allowed for tax invoices.
  9. In the event of taxable goods and/or services delivery using foreign currency:

  • the taxable entrepreneur must add the column “Foreign Currency”.
  • the taxable entrepreneur must add the column “Foreign Currency”.
  • the exchange rate information must use the rate published by the Minister of Finance at the time the tax invoice is prepared. the exchange rate information must use the rate published by the Minister of Finance at the time the tax invoice is prepared.

Can a business issue VAT invoices denominated in a foreign currency?


The VAT invoices can show the foreign currency amount, but should also have the conversion amount into IDR by using Minister of Finance exchange rate on the date of VAT invoicing.

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Transfers of Business

Is there relief from VAT for the sale of a business as a going concern?


Yes in the case of a merger, consolidation or expansion, if the transacting parties are VAT-able entities.

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Options to Tax

Are there any options to tax transactions?


This option is not available in Indonesia.

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Head Office and Branch transactions

How are transactions between a head office and branches treated?


If the entities involved are Indonesian residents and have opted for centralized VAT reporting, there is no VAT effect from inter-company transactions. In other cases, for the delivery of taxable goods between branches or a head office, normal VAT applies.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


The VAT Law gives the DGT the authority to reassess transfer prices in related-party transactions.

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Penalty Regime

What is the penalty and interest regime like?


Input VAT invoices are required to qualify as “complete” to be credited against the VAT payable. Failure to comply with one of the requirements will result in denial of the input VAT credit, and will result in a VAT underpayment and related tax penalty (2 percent per month for a maximum of 48 percent), in the case of an underpayment assessment from a tax audit.


Invalid VAT overpayment carry-forward in a VAT return reporting overpayment will result in a 100 percent penalty on the amount invalidly carried forward if it is discovered in a tax audit situation.


A company is obliged to issue a “valid” tax invoice at delivery of taxable goods and/or services (output VAT) to its customers. Failure to issue valid tax invoices is subject to a tax penalty at the rate of 2 percent of VAT base/transaction value.


According to the latest VAT Law, the monthly VAT returns should be submitted to the ITO by the end of the month following the respective fiscal period of VAT returns. Failure to comply with this regulation may result in an IDR500,000 fine per return.


The buyer of taxable goods or recipient of taxable services may be held accountable for VAT not properly remitted by the seller if evidence of VAT payment cannot be furnished.

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Tax authorities

Tax audits


How often do tax audits take place?


The most common trigger of a tax audit is submitting a tax return claiming refund of a tax overpayment. This usually occurs only once a year, since refunds can be claimed only in annual CIT returns or December VAT returns, except for certain types of businesses.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


No.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes.


Are rulings and decisions issued by the tax authorities publicly available in your country?


No, rulings are not publicly available, since it is addressed specifically to a particular company.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


No.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


Yes, for businesses in certain areas and based on government or Ministry of Finance regulations.

 

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