Understanding Indonesia’s Value-Added Tax (Pajak Pertambahan Nilai – PPN) is essential for businesses operating within the country. This guide provides a comprehensive overview of VAT rates, legal frameworks, and upcoming changes to help businesses navigate the complexities of Indonesian tax regulations and ensure compliance.
Key Takeaways
- Current VAT rate in Indonesia is 11% as of April 1, 2022.
- VAT rate set to increase to 12% by January 1, 2025.
- Exports are subject to a 0% VAT rate; imports incur 11%.
- Expanded scope of 0% VAT services includes IT and R&D services.
- Accrual basis for VAT collection; monthly reporting required.
- Non-taxable transfers include consignments and capital contributions.
- Key implications for businesses include increased costs and compliance burdens.
- Strategic planning can mitigate negative impacts of VAT changes.
Also read: What is NPWP in Indonesia: A Comprehensive Guide
What is PPN in Indonesia?
Pajak Pertambahan Nilai (PPN), or Value-Added Tax (VAT), is a consumption tax applied on the sale of goods and services in Indonesia. This tax is a crucial revenue source for the Indonesian government and impacts both domestic and international businesses operating within the country.
The Value Added Tax is levied and paid directly by the Taxable Entrepreneur (PKP), but the cost is passed on to the end consumer. Every PKP must charge, deposit, and report the VAT due.
Legal Framework
The Value-Added Tax (PPN) in Indonesia is governed by legislation that allows the government to adjust the VAT rate within a range of 5% to 15%. As of April 1, 2022, the standard VAT rate is set at 11%, with some specific exceptions:
- Exported Goods and Services: Exports are subject to a 0% VAT rate.
- Imported Goods: Imports are subject to an 11% VAT rate.
- Certain Exported Services: A 0% VAT rate applies, provided they meet the Ministry of Finance (Kemenkeu) criteria.
Also read: PMA (Foreign Company) Taxation in Indonesia: Complete Guide
Expanded Scope of 0% VAT Services (Effective April 1, 2019)
The scope of services eligible for the 0% VAT rate has been broadened to include:
- Services related to movable goods utilized outside the Customs Area:
- Toll manufacturing services
- Repair and maintenance services
- Shipping services for export-oriented goods
- Services related to immovable goods located outside the Customs Area:
- Construction consulting services
- Other services utilized outside the Customs Area upon request from foreign recipients:
- Information and technology services
- Interconnection, satellite, and/or data connectivity services
- Research and development (R&D) services
- Aircraft and/or ship leasing for international flights and maritime activities
- Trading services aiding in finding domestic sellers for export purposes
- Specific consulting, accounting, financial audit, and tax services
Regular VAT Rates for Local Services (Effective April 1, 2022)
Services performed within the Customs Area for customers outside the Customs Area are considered local and are subject to the standard VAT rate of 11%.
VAT on Digital and E-commerce Services
The use or consumption of foreign services or intangible goods provided through electronic commerce to users within the Indonesian Customs Area is subject to an 11% VAT rate from April 1, 2022.
Non-Taxable and Special Exemptions
Certain transfers, such as consignments or contributions of taxable goods as capital in exchange for shares, are considered non-taxable.
Starting April 1, 2022, the Law on Harmonization of Tax Regulations (UU HPP) has revised the status of some non-taxable VAT objects, creating specific conditions and exceptions.
Also read: What is LKPM Reporting in Indonesia: Essential Guide
Accrual Basis for VAT Collection
VAT is generally collected on an accrual basis, meaning it is due at the time of the taxable supply. “Supply” refers to when the risk and ownership of goods transfer or when revenue from services can be reliably estimated. This is often marked by the issuance of a commercial invoice, which serves as the source document for VAT recognition.
Monthly Reporting
VAT returns must be filed monthly, with payment and reporting due by the end of the month following the taxable supply.
Also read: What is SPT (Tax Return) in Indonesia?
VAT Calculation
The amount of VAT owed is determined by multiplying the tax rate by the Tax Imposition Base (DPP). The DPP includes:
- Selling Price: Total money value requested by the seller, including all associated costs.
- Replacement: Total money value requested by the entrepreneur for taxable services, exports, or intangible goods.
- Import Value: Basis for calculating Import Duty plus statutory levies for imported goods.
- Export Value: Money value requested by the exporter.
- Other Values: Regulated by the Minister of Finance.
VAT Rates
- Standard Rate: 11% for most domestic goods and services.
- Zero-Rated: 0% for exports of goods and specific services.
- Exempted: Certain goods and services not subject to VAT, such as crude oil, natural gas, financial services, and goods/services in bonded or free trade zones.
Example Calculation
A Taxable Entrepreneur (PKP) named Shabby sells taxable goods for IDR 25,000,000.
VAT payable = 11% x IDR 25,000,000 = IDR 2,750,000
This IDR 2,750,000 is the output tax collected by Shabby, the PKP.
VAT Registration in Indonesia
Businesses must register for VAT when their annual revenue reaches IDR 4.8 billion. Meanwhile, businesses with less than IDR 4.8 billion in revenue can choose to voluntarily register for VAT.
The registration of VAT taxpayer in Indonesia can be time consuming. For make it simpler and hasle-free, you can rely on InvestinAsia’s Indonesia tax consultant and compliance services. Our experienced team of professionals is ready to assist you in every tax matter, such as:
- Accounting and tax reporting services in Indonesia
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Upcoming VAT Rate Changes for 2025
As of April 1, 2022, the applicable VAT rate in Indonesia is 11%. This rate applies to most goods and services provided within the country. However, there are exceptions such as exports, which are taxed at 0%, and imports, which incur the standard 11% VAT.
In 2025, the Indonesian government plans to increase the VAT rate to 12%, as part of the Tax Regulation Harmonization Law promulgated in 2022. This phased increase aims to align Indonesia’s tax system with international standards and boost state income, which is estimated to rise by 350-375 trillion rupiah (US$21.5 billion – US$23.1 billion).
Implications for Businesses
The proposed hike in the VAT rate will significantly impact businesses in Indonesia. Here are some key considerations:
- Increased Costs: Businesses will face higher costs for goods and services, which may need to be passed on to consumers. This could potentially reduce consumer spending, particularly on non-essential items, impacting overall sales volumes.
- Compliance and Administrative Burden: Adapting to the new VAT rate will necessitate updates to accounting systems, invoicing processes, and compliance protocols. Accurate VAT calculations and timely payments are essential to avoid penalties.
- Competitive Pressure: Companies may face increased competition while managing higher costs, which might require exploring cost-saving initiatives or enhancing efficiency.
Preparation Strategies
Businesses can mitigate the potential negative impacts of the VAT increase by proactively planning and implementing strategic adjustments:
- Financial Planning: Conduct thorough financial analyses to understand the impact of the VAT increase on cost structure and profitability. Adjust budgets and forecasts to account for the higher tax rate.
- Price Strategy: Reassess pricing strategies to determine whether increased costs can be absorbed or need to be passed on to consumers. Communicating price changes clearly to customers will help maintain transparency and build trust.
- Efficiency Improvements: Identify areas where operational efficiencies can be improved to offset some of the increased costs. This might involve streamlining processes, renegotiating supplier contracts, or investing in technology to enhance productivity.
The forthcoming VAT increase in 2025 presents both challenges and opportunities for Indonesian businesses. By planning ahead and making strategic adjustments, businesses can lessen potential negative effects and position themselves for growth. Effective financial planning, revised pricing strategies, and improved operational efficiencies will be crucial for successfully navigating this change. As the implementation date approaches, staying informed and adaptable will be crucial for businesses to thrive in the evolving economic landscape.
FAQs about PPN in Indonesia
Is there VAT or GST in Indonesia?
Yes, Indonesia has a VAT system, known locally as Pajak Pertambahan Nilai (PPN). There is no Goods and Services Tax (GST) in Indonesia.
Is the VAT increase in Indonesia to 12%?
Yes, the VAT rate in Indonesia is set to increase from 11% to 12% by January 1, 2025, as part of the Tax Regulation Harmonization Law.
Is VAT claimable in Indonesia?
Yes, VAT is claimable in Indonesia. Businesses can claim input VAT on their purchases, which can be offset against their output VAT liabilities.
Is VAT refundable in Indonesia?
Yes, VAT is refundable in Indonesia under certain conditions. Businesses can apply for VAT refunds if they have paid more input VAT than the output VAT they have collected.
What is VAT exempt in Indonesia?
Certain goods and services are exempt from VAT in Indonesia. These include the extraction of natural resources such as natural gas, crude oil, coal, and certain financial services like banking, insurance, and finance leasing. Additionally, goods and services related to bonded zones and free trade zones may also be exempt from VAT.
What is the VAT for foreign companies in Indonesia?
Foreign companies providing goods or services to Indonesia are generally subject to the same VAT regulations as domestic companies. They must charge VAT on their sales to Indonesian customers and may be required to register for VAT if they exceed certain thresholds. Exports by foreign companies to Indonesia are taxed at 0%, while imports incur the standard VAT rate of 11% (12% from 2025).
Article reviewed by:
Tax Consultant of InvestinAsia
