KPMG HADIBROTO

A Primer on
Indonesian Added
Value Tax
kpmg.com/id
Overview 1
Scope and Rates 2
Registration Requirements 6
VAT Grouping 8
Return Requirements 8
VAT Recovery 8
Import and Export of Goods and Services 10
Tax Invoices 11
Record Keeping Requirements 15
Transfers of Business 15
Options to Tax 15
Head Ofce and Branch transactions 16
Anti-Avoidance 16
Penalties 17
Tax audits 18
Advance rulings and decisions from the tax authority 18
Contents
A Primer on Indonesian Added Value Tax | 1
Value Added Tax is a tax on the consumption of goods and services in
Indonesia that is imposed on production and distribution. VAT is typically
due to transfers of taxable goods or services.
Indonesian VAT is a single rate. The current rate is 10 percent but the
law allows the government to alter the rate to a minimum of 5% and a
maximum of 15%.
VAT must be collected by a Taxable Entrepreneur (Pengusaha Kena Pajak).
In most case, VAT liabilities are settled using an input-output mechanism.
To be able to credit the input VAT, an entity must be registered as a Taxable
Entrepreneur.
Overview
2 | A Primer on Indonesian Added Value Tax
What goods and services are subject to VAT?
VAT is imposed on:
The delivery of taxable goods (tangible or intangible) by an entity in
Indonesia;
The importation of taxable goods;
The rendering of taxable services in Indonesia;
Utilization in Indonesia of intangible taxable goods from outside the
Indonesia;
Utilization of offshore taxable services in Indonesia;
Export of taxable goods, intangible goods and taxable services by an
entity in Indonesia;
Self-construction activities; and
The disposal of xed assets, including transfers 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 current VAT rate is 10 percent, but the law allows the government to
amend this rate to a minimum of 5% and a maximum of 15%. VAT is levied
on exports at zero percent.
Scope and Rates
A Primer on Indonesian Added Value Tax | 3
Are there any reduced rates, zero rates or exemptions?
Goods not subject to VAT are:
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 hard rock ores (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 (however other local taxes may apply);
and
Money, gold ingots and negotiable instruments.
Services not subject to VAT are:
Medical and health services, including general practitioners,
specialists and dentists, veterinarian services, health expert services
(acupuncturists, dental experts, nutritionists, physiotherapists),
midwing services, paramedic and nurse services, hospital, maternity
clinics, health clinics, health laboratories, sanatoria, psychologists and
psychiatrists; and alternative medical treatments;
Social services, including orphanages, re departments, rehabilitative
institutions, burial services and non-commercial sport services;
Letter delivery services with postage stamps;
4 | A Primer on Indonesian Added Value Tax
Financial services, including lending, borrowing, leasing, factoring,
credit card businesses, consumer nancing and underwriting.
Note that all services offered by a nancial institution do not
automatically qualify as nancial services. For example, bank selling
insurance products are considered to be providing an agency service,
rather than nancial, which is subject to VAT;
Insurance services that cover loss, life and reinsurance, provided
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 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 (however
other local taxes may apply);
Services provided by the government in the context of running
government administration in general;
Parking services;
Public coin telephone services;
Money remittance services with money orders; and
Catering services.
Scope and Rates (continued)
A Primer on Indonesian Added Value Tax | 5
Goods and services granted exemptions from VAT are:
Machinery and capital equipment in certain situations;
Electricity (unless household capacity exceeds 6,600 watts);
Piped water;
Livestock, poultry and sh 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 shery sources;
Polio vaccines;
Textbooks;
Charter or purchase of ships used by national shipping and shing
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; and
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.
6 | A Primer on Indonesian Added Value Tax
Who is required to register for local VAT?
A person or entity, 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 (approximately USD65,000).
Is a business required to issue tax invoices?
Yes, once it is registered as a VAT-able taxpayer.
Are there penalties for not registering, or late registration?
Yes, the DGT will deem registration. Obligations related to registration are
then assumed to have occurred ve years prior to registration.
Is voluntary VAT registration possible for an overseas company?
No, only a resident or a Permanent Establishment (PE) can obtain a VAT
registration. Registration by non-residents is not allowed.
Is there any other kind of VAT registration?
No.
Can I recover input VAT incurred prior to registration?
No.
Are there any simplications that could help avoid the need for an
overseas company to register for VAT?
Non-residents cannot register for VAT.
Registration Requirements
A Primer on Indonesian Added Value Tax | 7
Does an overseas company need to appoint a scal representative?
No. If a transaction entered into by a non-resident is subject to VAT, it
must be administered by the resident counterparty. If the non-resident
is paying, VAT must be charged by the resident. If the non-resident is
receiving income, VAT must be self-assessed and paid (not withheld) by
the resident.
What documentation does an overseas company needs for VAT
registration?
Overseas companies cannot register
Is consignment stock subject to VAT?
Yes, VAT applies normally.
How is the supply of installed or assembled goods treated?
VAT applies normally to both the goods and the embedded services.
Is a foreign company supplying goods locally required to register for
VAT?
No, if a foreign company has no presence in Indonesia and supplying
goods is done by exporting to Indonesia.
Yes, in the case that a PE is deemed, or a subsidiary exists, with the
threshold to register being delivery of taxable goods and/or services over
IDR600 million (approximately USD65,000) within its scal year.
8 | A Primer on Indonesian Added Value Tax
VAT Grouping
Return Requirements
Is VAT grouping possible?
VAT centralization is allowed for Indonesian branches of an entity.
Can an overseas company be included in a VAT group?
No
How frequently are VAT returns submitted?
Monthly.
Are there any other returns that need to be submitted?
No.
Can I recover VAT if I am not registered?
No, however a non-taxable entity is able to expense for income tax
purposes input VAT paid, if it is related to business activities. This means
that 25% of the amount of input VAT paid can be recovered (25% being the
corporate income tax rate).
VAT Recovery
A Primer on Indonesian Added Value Tax | 9
Does Indonesia apply reciprocity rules for reclaims submitted by non-
established businesses?
No.
Are there any items from which you cannot recover VAT?
Input VAT cannot be credited against output VAT for purchases of:
Taxable goods or services, or utilization of taxable services and
intangible goods from outside Indonesia, before an entity is deemed a
Taxable Entrepreneur;
Taxable goods or services having no direct relationship to business
activities;
Taxable goods or services related to non-VAT-able business activities;
Motor vehicles (sedans and station wagons) and their maintenance,
except as commodities or rentals;
Taxable goods, taxable services, intangible taxable goods and taxable
services from outside Indonesia with invalid tax invoices;
Taxable goods or taxable services if the input tax results from a tax
assessment;
Taxable goods or services if the input tax is not reported in the monthly
VAT returns and is discovered by audit; and
Taxable goods, other than capital goods or taxable services, before a
Taxable Entrepreneur starts production and Input VAT that is more than
three months old cannot be recovered.
Can I recover input VAT on certain employee expenses?
Yes, as long as the expenses are directly related to business activities that
are subject to VAT and are borne by the company.
10 | A Primer on Indonesian Added Value Tax
How are exports of goods and services treated?
Export goods are subject to 0% VAT.
Export services subject to 0% VAT, include :
1. Subcontracting services;
2. Repair and maintenance services attached to movable goods and
utilized outside of Indonesia; and
3. Construction services attached to immovable goods situated outside of
Indonesia.
How are goods dealt with on importation?
In general, 10% 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% self-assessed VAT
administered and paid by the resident service recipients.
What kind of written evidence is required for supplying goods
abroad?
These documents are generally required in processing the export of
goods:
Sales Invoices;
Airway Bills;
Export Declarations; and
Tax Payment Slips (if applicable)
How is VAT on purchases of goods from abroad paid and recovered?
VAT on imports is payable by the importer. As long as it is related to VAT-
able output, VAT on a purchase is creditable against the importers output
VAT.
Import and Export of
Goods and Services
A Primer on Indonesian Added Value Tax | 11
What is the required content of a tax invoice?
The format of a tax invoice is very detailed and is mandated by DGT and
includes the following:
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 the taxable goods and/or services, in
accordance with the information in the Stipulation Letter of Taxable
Entrepreneur.
If the Company changes its address, it must update the tax ID and
Taxable Entrepreneur stipulation letter in the Tax Ofce.
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:
a. Serial Number
The serial number of taxable goods or services delivered
b. 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.
Tax Invoices
12 | A Primer on Indonesian Added Value Tax
c. Sales Price/Compensation/Advance Payment/Installment
Sales price or compensation of 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 the advance payment or
installment concerned.
If the sales price/compensation/advance payment/installment is
made in a foreign currency, then the lines Tax Collection Basis
and VAT = 10% X Tax Collection Basis must be converted into
Indonesian Rupiah (IDR) using the exchange rate mandated by
Minister of Finance.
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
being signed and showing the number of tax invoice pages on
each sheet, and especially the amount, price discount, advance
payment received, tax collection basis, and VAT 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.
5. Total Sales Price/Compensation/Advance Payment/Installment
The total amount of gures in the column of sales price/compensation/
advance payment/installment.
Tax Invoices (continued)
A Primer on Indonesian Added Value Tax | 13
6. Price Discount
The total value of any price discount on taxable goods and/or services
delivered.
7. Advance Payment Received
The value of any advance payments received for the delivery of taxable
goods and/or services.
8. Tax Collection Basis
The amount of sales price/compensation/advance payment/
installment, minus any price discount and advance payment received.
9. VAT = 10% X Tax Collection Basis
The amount of Value-Added Tax payable, equal to 10% of the Tax
Collection Basis.
10. Sales Tax on Luxury Goods
Only lled in for delivery of Luxury Taxable Goods; amounting to a
sales tax tariff on luxury goods multiplied by Tax Collection Basis which
becomes the basis for calculating sales tax on luxury goods.
11. Date
The place and date the tax invoice is created.
12. Name and Signature
The name and signature of an ofcer appointed by the Taxable
Entrepreneur to sign tax invoices.
Written notication must be given to the Tax Service Ofce where the
Taxable Entrepreneur is assigned, or where VAT is centralized, no later
than the end of the month following when the appointed ofcer begins
signing tax invoices.
14 | A Primer on Indonesian Added Value Tax
In the event that a Taxable Entrepreneur is an individual with no
organizational structure, the owner of the business signs the tax
invoices himself, or may authorize another party to sign tax invoices.
Written notication must be given to the Tax Service Ofce where the
Taxable Entrepreneur is assigned , or where VAT is centralized, no later
than the end of the month following when the authorized party begins
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 ofcer or proxy appointed to sign the invoices does not have to be
the same as the one authorized to sign VAT Returns.
A signature stamp is not allowed for tax invoices.
13. In the event of taxable goods and/or services delivery using 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.
Note: The Tax Ofce consider incomplete and incorrectly prepared
tax invoices as invalid.
Can a business issue VAT invoices denominated in a foreign currency?
Yes, the VAT invoices can show the foreign currency amount, but must
also have the conversion amount into IDR by using Minister of Finance
exchange rate on the date of VAT invoicing
Tax Invoices (continued)
A Primer on Indonesian Added Value Tax | 15
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.
Transfers of Business
Record Keeping
Requirements
Options to Tax
How long must records and invoices be retained?
Books, records and other documents used as the basis for bookkeeping,
including data processing records, must be maintained in Indonesia for 10
years.
Can the invoices be stored abroad?
No.
Are there any options to tax transactions?
There are no options available in Indonesia.
16 | A Primer on Indonesian Added Value Tax
Is there a general anti-avoidance provision under VAT law?
Yes, the VAT Law gives the DGT the authority to reassess transfer prices in
related-party transactions.
Anti-Avoidance
Head Ofce and Branch
transactions
How are transactions between a head ofce 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.
For the delivery of taxable goods between branches or a head ofce,
normal VAT applies if centralized VAT reporting has not been obtained.
A Primer on Indonesian Added Value Tax | 17
Penalties
What is the penalty and interest structure like?
Input VAT invoices that qualify as complete can be credited against
VAT payable. Failure to comply with any one of the requirements for a
complete tax invoice will result in denial of the input VAT credit. This will
result in a VAT underpayment. The related tax penalty is 2% per month, up
to a maximum of 48%, 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% penalty on the amount invalidly carried
forward if discovered in a tax audit situation
A company is obliged to issue a valid tax invoice at the time of 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% of VAT
base/transaction value.
According to the latest VAT Law, the monthly VAT returns must be
submitted to the ITO by the end of the following month. Failure to comply
with this regulation may result in an IDR500,000 ne 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.
What is the reassessment period?
The DGT can perform a tax audit within ve years of submitting a tax
return. After ve years, a tax year is considered closed, except in cases
where evidence of a tax crime is indicated.
18 | A Primer on Indonesian Added Value Tax
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 specically to a
particular company.
Advance rulings and
decisions from the tax
authority
How often do tax audits take place?
The most common trigger of a tax audit is submission of a tax return
claiming a refund of a tax overpayment. This can occur only once a year,
since refunds can be claimed only in the December VAT returns, except for
certain types of businesses.
Are there audits done electronically in Indonesia (e-audit)? If so, what
system is in use?
No.
Tax audits
A Primer on Indonesian Added Value Tax | 19
Contact us
KPMG Hadibroto
Tax Services
33rd Floor Wisma GKBI
28, Jl. Jend. Sudirman
Jakarta 10210, Indonesia
T: +62 (0) 21 570 4888
F: +62 (0) 21 570 5888
Erlyn Tanudihardja
Partner
E: Erlyn.Tanudihardja@kpmg.co.id
Ade Irawan
Director
E: Ade.Irawan@kpmg.co.id
Yuandri Simanjuntak
Director
E: Yuandri.Simanjuntak@kpmg.co.id
kpmg.com/id
The information contained herein is of a general nature and is not intended to address the circumstances of any
particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no
guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the
future. No one should act on such information without appropriate professional advice after a thorough examination of
the particular situation.
2012 KPMG Hadibroto, an Indonesian limited liability company and a member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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KPMG HADIBROTO
A Primer on
Indonesian Added
Value Tax
kpmg.com/id