Taxpayers pay VAT at a rate of 11%.
Businesses are required to register for VAT once they reached an annual revenue of 4.8 billion rupiah (US$321,677), with businesses earning an annual revenue of less than this figure allowed to register for VAT voluntarily.
Value-added tax in Indonesia is imposed on the provision of services or the transfer of taxable goods. VAT rates are set out below:
- 11 percent imposed on most manufacturers, retailers, wholesalers, and importers from April 2022 and 12 percent by 2025;
- Export of tangible and intangible goods is subject to zero percent VAT; and
- Export of services is subject to zero percent VAT.
Taxable goods and services include:
- The import of taxable goods;
- The delivery of taxable services or import of taxable goods into a customs area;
- The consumption of taxable goods in a customs area in which the goods have originated from outside the customs area;
- The consumption of taxable services originating from outside the customs area, in the customs area; and
- The export of taxable goods by a VATable entity.
Goods and services not subject to VAT
The government sets out which goods and services are categorized as non-taxable.
Non-taxable goods are the following:
- Food and beverages served in restaurants and hotels;
- Products obtained from drilling or mining such as natural gas, crude oil, coal, gold ore, iron ore, coal, copper ores;
- Commodities such as rice, eggs, milk, fruit, tubers, meat, sugar, soybeans, and salt;
- Gold bars, money used for government forex reserves.
Non-taxable services are the following:
- Religious services;
- Entertainment, hotel, parking, catering, and art services;
- Educational services;
- Medical and health services;
- Public transportation services;
- Financial services; and
- Labor services.
Entities that are obligated to pay VAT must settle their VAT liabilities on their business activities every month. Furthermore, since Indonesia’s VAT regime is decentralized, businesses with multiple branches located in different jurisdictions of the district tax offices must register each branch with the relevant tax office.
VAT on digital services
Non-resident suppliers of digital services within Indonesia can now be appointed as VAT collectors and as such, are now required to collect 11 percent VAT and pay to the Indonesian government.
The following utilization of intangible goods will now be subject to VAT:
- The use of or right to exercise the copyright in the field of literature, art or scientific work, patent, design or model, plan, secret formula or process, trademark, or other forms of intellectual property right, industrial property right, or other similar rights;
- The utilization or right to use industrial, commercial, or scientific tools/equipment;
- Utilization of knowledge or information obtained from the scientific, technical, industrial, or commercial sectors;
- The use of additional or complementary assistance in the utilization or right to exercise the right as referred to in the first point, the utilization or right to use the tools/equipment as referred to in the second point, or provision of knowledge or information as referred to in the third point;
- The use of or the right to use motion picture films, films or video tapes for television broadcasting, or sound tapes for radio broadcasts; and
- The acquisition of all or part of the rights relating to the use or granting of intellectual property rights, industrial property rights, or other rights as referred to in the above mentioned points.
Certain imports can be exempted from VAT. These include:
- The import of taxable goods into free trade zones;
- Import of services and goods financed by foreign aid;
- Import of raw materials by companies in bonded zones; and
- Imports made by companies in specific industries such as national airlines.
All decisions related to VAT refunds are approved by Indonesia’s Directorate General of Taxes (DGT). Entities that apply for VAT refunds have to undergo an audit by DGT and the results are normally issued 12-months of their application.
Export services eligible for zero-rated VAT
The following types of exported services are subject to zero-rated VAT:
- Toll manufacturing;
- Repair and maintenance;
- Freight forwarding services for export-orientated goods;
- Construction consulting services (which includes the development of feasibility studies, assessments, and designing of a building or master plan that is located outside of Indonesia);
- Information and technology services;
- Research and development services;
- Charter of aircraft or ships for international flights or shipping services;
- Business consultation and management;
- Legal consultation;
- Architecture and interior design consulting;
- HR consulting;
- Accounting or bookkeeping;
- Financial audits;
- Trading services to find Indonesian suppliers for export purposes; and
- Interconnection, satellite providers, and/or communication and data
Export services eligible for zero-rated VAT must comply with two formal requirements.
There must be a written agreement between the Indonesian taxable business and the foreign recipient that must include the type of service, the value of the exported services, and a description of the service provided by the Indonesian taxable business that will be utilized by the foreign recipient, and show supporting documents for payments from the recipient of the exported service to the Indonesian service provider.
Failure to meet the above requirements will mean the service is deemed to have occurred within the territory of Indonesia and will be subject to 10 percent VAT.
VAT during pre-production period
A VAT-able entity is considered to not have made a delivery if they have not exported or delivered any VAT-able services or goods. Any deliveries made for the entity’s own use, or as gift for customers, or deliveries from a head office or branch office, are not considered as deliveries when assessing if an entity has moved beyond the pre-production stage.
The pre-production stage is generally three years, which is extended for manufacturing sectors and businesses sectors under the National Strategic Projects to five or six years, respectively.
Input VAT cannot be credited and must be paid back to the state treasury by the VAT-able entity, if that the entity has received a refund of the tax overpayment and/or has credited the input VAT as output VAT payable in a tax period.
Crediting input VAT prior to becoming a VAT-able entity
If the Directorate General of Tax deems an entity to be VAT-able, then the input VAT prior to this can now be creditable 80 percent of the output VAT.