Value Added Tax (VAT) is a crucial component of Indonesia’s taxation system, applying to businesses and individuals involved in the sale of goods and services. Understanding who is subject to VAT in Indonesia is essential for compliance and business operations.
Also read: Indonesia’s PPN (VAT) Guide: 2025 Regulation, Rates, Calculation
Who is Subject to VAT in Indonesia?
In Indonesia, VAT applies to both businesses and individuals involved in taxable transactions. The two main categories of VAT subjects are:
Taxable Entrepreneurs (Pengusaha Kena Pajak – PKP)
Taxable entrepreneurs (PKP) are businesses required to collect, report, and remit VAT. A business must register as a PKP if its annual revenue exceeds IDR 4.8 billion (approximately USD 309,500). However, smaller businesses can voluntarily register for VAT if they wish to gain the benefits associated with PKP status.
PKP Responsibilities
Once registered as a PKP, businesses must:
- Collect VAT on taxable goods and services.
- Issue electronic invoices (e-Faktur) for every transaction.
- Submit periodic VAT reports to the Direktorat Jenderal Pajak (DJP) (Indonesia’s Directorate General of Taxes).
- Pay any outstanding VAT if output tax (collected from sales) exceeds input tax (paid on purchases).
Failing to comply with these obligations may result in administrative penalties, including fines and interest charges.
Also read: Indonesia VAT Returns: How Often Do Businesses Need to File?
Non-PKP Businesses and Individuals
Individuals and non-PKP businesses consuming taxable goods or services in Indonesia are also indirectly subject to VAT. In most cases, the price of goods and services includes VAT, meaning consumers bear the tax burden even if they are not registered PKPs.
VAT is also imposed on:
- Importers: VAT is due on the importation of taxable goods (BKP) into Indonesia.
- Users of foreign intangible goods and services: VAT applies when Indonesian entities purchase intangible goods (such as software) or services from overseas providers.
- Self-construction activities: Individuals or businesses constructing buildings without hiring professional contractors may be subject to VAT.
VAT Registration Threshold and Compliance
The VAT registration threshold in Indonesia is IDR 4.8 billion in annual revenue. Businesses exceeding this threshold must register as a PKP and fulfill their VAT obligations. Those below the threshold can opt-in voluntarily, which may provide credibility and allow them to claim input VAT credits.
VAT Invoicing and Reporting
A crucial aspect of VAT compliance is proper invoicing through the e-Faktur system. The Indonesian tax authorities require PKPs to issue electronic tax invoices for all taxable transactions. These invoices ensure transparency and allow businesses to claim input VAT credits.
Failure to issue proper VAT invoices can lead to penalties, making it essential for businesses to comply with tax documentation requirements.
Understanding Input and Output VAT
VAT in Indonesia operates on an input-output mechanism:
- Output VAT: The VAT collected on sales of taxable goods and services.
- Input VAT: The VAT paid on purchases of taxable goods and services, which can be deducted from output VAT.
If output VAT exceeds input VAT, the business must pay the difference to the tax authority. Conversely, if input VAT is higher, businesses may request a refund or carry the excess forward.
Special VAT Exemptions and Regulations
Certain transactions qualify for VAT exemptions or special regulations, including:
- Exports: Exported goods and services are generally zero-rated for VAT.
- International organizations: Certain organizations and diplomatic entities may be exempt from VAT under specific conditions outlined in the Minister of Finance Decree (Keputusan Menteri Keuangan – KMK).
- Luxury Goods Sales Tax (PPnBM): Some high-value goods incur an additional tax beyond standard VAT. (check Luxury Goods Tax (PPnBM) in Indonesia: A Complete Guide 2025)
Businesses dealing with VAT-exempt transactions must ensure they have proper documentation to support their claims.
Also read: VAT Exemption in Indonesia: Key Policies and Implications
Understanding VAT obligations is crucial for businesses operating in Indonesia. Whether you are a PKP responsible for VAT collection or an individual consumer paying VAT on purchases, staying compliant with tax regulations is essential.
For businesses, proper VAT invoicing, accurate reporting, and adherence to tax deadlines are key to avoiding penalties. The Indonesian government has made VAT compliance easier with digital systems like e-Faktur and online tax filing.
If you need further assistance, you can rely to InvestinAsia’s Indonesia tax consultant and compliance services.
Our experienced team of professionals is ready to assist you in every tax matter, such as:
