A Primer on Indonesian Added Value Tax

8/10/2019 A Primer on Indonesian Added Value Tax

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KPMG HADIBROTO

A Primer on

Indonesian AddedValue Tax

kpmg.com/id


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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 Office and Branch transactions 16

Anti-Avoidance 16

Penalties 17

Tax audits 18

Advance rulings and decisions from the tax authority 18

Contents


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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


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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 fixed 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


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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),midwifing services, paramedic and nurse services, hospital, maternity

clinics, health clinics, health laboratories, 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;


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Financial services, including lending, borrowing, leasing, factoring,credit card businesses, consumer financing and underwriting.

Note that all services offered by a financial institution do not

automatically qualify as financial services. For example, bank selling

insurance products are considered to be providing an agency service,

rather than financial, 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)


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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 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; 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.


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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 five 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 simplifications that could help avoid the need for an

overseas company to register for VAT?

Non-residents cannot register for VAT.

Registration Requirements


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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

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 supplyinggoods 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 fiscal year.


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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


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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 thanthree 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.


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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 TaxableEntrepreneur.

If the Company changes its address, it must 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:

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


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6. Price DiscountThe 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 BasisThe amount of Value-Added Tax payable, equal to 10% of the Tax

Collection Basis.

10. Sales Tax on Luxury Goods

Only filled 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 officer appointed by the Taxable

Entrepreneur to sign tax invoices.

Written notification must be given to the Tax Service Office where the

Taxable Entrepreneur is assigned, or where VAT is centralized, no later

than the end of the month following when the appointed officer begins

signing tax invoices.


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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 KeepingRequirements

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.


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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 Office and Branchtransactions

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.

For the delivery of taxable goods between branches or a head office,

normal VAT applies if centralized VAT reporting has not been obtained.


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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 carriedforward 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 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.

What is the reassessment period?

The DGT can perform a tax audit within five years of submitting a tax

return. After five years, a tax year is considered closed, except in cases

where evidence of a tax crime is indicated.


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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.

Advance rulings anddecisions 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


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Contact us

KPMG Hadibroto

Tax Services

33rd Floor Wisma GKBI

28, Jl. Jend. SudirmanJakarta 10210, Indonesia

T:+62 (0) 21 570 4888

F:+62 (0) 21 570 5888

Erlyn Tanudihardja

Partner

E:[email protected]

Ade IrawanDirector

E:[email protected]

Yuandri Simanjuntak

Director

E:[email protected]

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 firm of the KPMG network of

independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.

All rights reserved. Printed in Indonesia.

A Primer on Indonesian Added Value Tax

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