Value Added Tax (VAT) is a tax applied to most goods and services in the Indonesian Customs Area, the tax applied to each production stage until the final product sales. Therefore, Indonesia VAT has impact on both end consumers and businesses.
Through this article, we will answer the most frequently asked questions about VAT in Indonesia and VAT-liable company in Indonesia.
How much VAT rates in Indonesia?
VAT rates in Indonesia are described in detail as follows:
- 10% for most cases
- 5% or 15% depending on government regulation
- 0% for export of taxable intangible and tangible goods
- 0% for export of services
When is VAT implemented?
A VAT-liable company in Indonesia must pay taxes for the following goods and services:
- Delivering taxable goods and services
- Importing taxable goods
- Utilizing intangible goods from abroad
- Exporting tangible and intangible goods and services
What kind of goods and services are exempt from VAT?
Through incentives provided by the Indonesian government, some items are indeed exempt from VAT or it is just not collected:
- Food and drinks served in the restaurant, hotel, cafe and similar places (including a caterer)
- Gold and obligations
- Medical services
- Social services
- Financial services
- Education services
- Recreational services
- Manpower services
If all the goods and services you sell are exempt, your business is exempt and you will not be able to register for VAT in Indonesia. Hence, you cannot reclaim VAT on your business purchases or expenses.
When is it required to register as a VAT-liable company in Indonesia?
Registering as a VAT-liable company is required once your annual revenue reaches 4,8 billion IDR (~360,000 USD). You do not have to be VAT-liable but you will want to if your revenue comes mostly from other Indonesian companies. Note that you can also register as a VAT-liable company voluntarily if your revenue is less than 4,8 billion IDR per year.
When am I entitled to a VAT refund?
VAT-in of one tax period is credited with the VAT-out during the same tax period. Meaning that if in one tax period, the VAT-out is greater than the VAT-in, the taxable entrepreneur pays the VAT.
Note that if during one tax period, the creditable VAT-in is greater than the VAT-out, then the excess tax is compensated to the next tax period. For excess VAT in, a request for return can be submitted at the end of the financial year.
How to register your company as a VAT-liable company in Indonesia?
Step 1: Submitting the Application
- You need the copies of complete company documents. Note that a public notary must also legalize this set of paperwork for you.
- One of the directors of the company must have a tax card (Nomor Pokok Wajib Pajak, NPWP) in Indonesia. A foreign director should first proceed with applying for work and stay permit (KITAS) and can then get a tax card. Another option would be appointing an Indonesian director.
- The third and last requirement when applying is that you must already be operating. During this stage, you will also prove paying withholding taxes on the office rental payments.
Step 2: Field Verification by the Tax Authorities
As soon as your application is lodged, expect a `sudden visit` from the tax office. The purpose of this visit is to check whether the information on your application is valid. The authorities can stop by anytime between 7-12 working days after receiving and evaluating your application. Make sure that either you or someone from your staff is present during the planned inspection. Note that failing to meet the tax officer will result in your application being denied.
Step 3: Approving or Declining Your Application
The final decision is made the latest after 5 working days after the tax officers have visited you. You will either receive a decree confirming you are now a VAT-liable company or a rejection letter. Those receiving a decree will also get an access code and can start using the online VAT system.
Step 4: Director’s Visit to the Tax Office
The decree for the VAT-liable company does not automatically mean that you can start issuing the 10% VAT invoices to clients. As soon as you receive the decree and the code, you must visit the tax office to create a login ID and password. As this is a confidential procedure, the director of the company must physically attend and confirm the information with the authorities. Once this is done, you can start charging an additional VAT on top of your invoice value.
Do you have more questions regarding VAT and other tax compliance in Indonesia? You can email us anytime at firstname.lastname@example.org