Indonesia’s Value Added Tax (VAT) is a central component of the country’s tax system, imposed on most goods and services. Starting from January, 1st 2025, the standard VAT rate has officially increased to 12 percent under the HPP Law.
However, for most non-luxury goods and services, the effective VAT remains 11 percent because the tax base is calculated at 11/12 of the transaction value. A full 12 percent applies only to designated luxury goods and services (e.g., luxury vehicles, yachts, high-end property).
For decision-makers, adhering to the proper process ensures compliance, avoids costly errors, and unlocks significant savings for both retail shoppers and corporations.
Understanding business VAT in Indonesia
For businesses, VAT is a consumption tax on goods and services. Indonesian VAT operates on an input-output credit system:
- Input VAT: Paid on purchases/business expenses.
- Output VAT: Collected on sales.
The difference (Output minus Input VAT) is settled monthly. If Input VAT exceeds Output VAT, a refund (restitution) may be claimed.
When refunds apply
Businesses typically qualify for VAT refunds in these situations:
- Excess input VAT: Common for exporters, capital-intensive projects, or businesses with high upfront expenses.
- Exports and zero-rated supplies: Exports are subject to a 0 percent VAT rate, which usually generates refund claims.
- Investment projects: Heavy investment in capital goods often leads to excess input VAT.
- Overpaid VAT due to transitional rules: In early 2025, invoices issued at 12 percent instead of the effective 11 percent are refundable upon correction.
Types of business VAT refunds
Businesses may be eligible for different types of VAT refunds, depending on the nature of the transaction and the circumstances under which the tax was paid. The main categories include:
Overpayment refunds
These occur when a business has paid more VAT than required, often because of accounting errors, miscalculations, or excess input VAT compared to output VAT. In such cases, companies can file a claim to recover the excess amount.
Import VAT refunds
Import-related refunds are common when businesses overpay VAT during customs clearance. This can happen if goods are returned, shipments are cancelled after VAT has been paid, or if the tariff classification of goods is later adjusted. Businesses can seek a refund to correct the overpayment and align their costs with actual transactions.
Industry-specific refunds
Certain industries operate under special VAT refund rules due to their economic importance or unique cost structures. For instance, mining and oil, and gas projects often involve large upfront costs that qualify for specific refund schemes.
Similarly, digital service providers and companies in infrastructure development may be eligible for tailored refund mechanisms to support investment and operational viability.
Who is eligible for a business VAT Refund?
Not all businesses can claim a VAT refund. Eligibility is tied to a company’s registration status and the nature of its activities. The main categories include:
- PKP-Registered Businesses: Only Pengusaha Kena Pajak (PKP) can request VAT refunds. Businesses must register if annual turnover exceeds IDR 4.8 billion (USD 289,334), though smaller companies may register voluntarily.
- Exporters and Investors: Entities engaged in zero-rated activities or major investment projects.
- Golden taxpayers: Taxpayers with compliant status may qualify for accelerated refunds.
The business VAT refund claim process
Claiming a VAT refund involves several procedural steps, from filing returns to receiving the disbursement. The process is regulated to ensure transparency and accountability, while also providing certain accelerations for qualified taxpayers.
Filing the monthly VAT return
The process begins with the submission of the monthly VAT return (SPT Masa PPN), which must be filed online no later than the end of the following month. Businesses should accurately report input and output VAT, as this forms the basis for determining whether a refund is due.
Indicating the refund request
If a business qualifies for a refund, it must indicate “refund requested” in the VAT return and submit a supporting application letter. This step formally registers the claim with the tax authority.
Preparing supporting documents
To substantiate the claim, businesses are required to provide comprehensive documentation. These typically include:
- Valid tax invoices;
- Customs clearance papers for imports;
- Relevant contracts;
- Payment records; and,
- Any additional tax forms requested by the authorities.
Audit or review by the Tax Office (KPP)
Once the claim is submitted, the Directorate General of Taxes (DGT) will initiate an audit or review process to verify its accuracy. By law, the DGT must complete this process within 12 months. However, exporters and businesses with “golden taxpayer” status may benefit from accelerated procedures, including the possibility of a pre-audit refund within as little as one month.
Refund disbursement
After the review is completed—or automatically approved due to statutory deadlines—the refund is transferred directly to the business’s bank account. If the DGT fails to issue a decision within the legal timeframe, the refund claim is considered approved by default, ensuring businesses are not disadvantaged by administrative delays.
Frequently Asked Questions (FAQs) on VAT Refunds in Indonesia
Can digital nomads get VAT refunds?
No. Digital nomads and remote workers are not classified as tourists if residing in Indonesia for more than 60 days, and therefore are ineligible for VAT refunds on retail goods. Eligibility is strictly for short-term tourists on temporary visas.
Can tourists claim VAT on hotel stays or restaurant bills?
No. Services such as hotels, restaurants, transportation, and tour operators are excluded from the VAT refund system. Only physical goods, carried as accompanied baggage, are eligible.
How long does a business VAT refund usually take?
By law, a decision must be issued within 12 months for standard claims. For exporters or “golden taxpayers,” pre-audit or accelerated refunds can be processed in as little as 1 month. Delays may occur due to audit complexities or documentation disputes.
What happens if my tourist VAT claim is rejected at the airport?
If documentation or goods do not match requirements, your claim may be denied. No refund is paid, and you must ensure all minimum eligibility is clearly met (goods present, receipts in order, within the purchase/export window, at eligible airports).
