Guide For Foreign Investor - VALUE ADDED TAX (VAT)

What is VAT?
According to Article 4 the Law Number 18 of the year of 2000, VAT is the tax imposed on:
a. a supply of Taxable Goods by a Taxable Person for VAT purposes within the Custom Area of Indonesia;
b. importation of Taxable Goods;
c. rendering of Taxable Service by a Taxable Person for VAT purposes in the Customs Area of Indonesia;
d. utilization of intangible Taxable Goods obtained from outside the Customs Area of Indonesia within the Customs Area;
e. utilization of Taxable Service obtained from outside the Customs Area of Indonesia within the Customs Area; or
f. exportation of Taxable Goods by a Taxable Person for VAT purposes.

What is a Taxable Person for VAT purposes?
Taxable Person for VAT purposes is a firm which supplies Taxable Goods and or renders Taxable Service according to the VAT Law, excluding small firms with a turnover not exceeding a limit determined by the Minister of Finance Decree. However, small firms may choose to be confirmed as Taxable Person for VAT purposes.

What is a firm?
Firm is an individual or an entity, which in the course of business or work, produced goods, imports goods, export goods, engages in trading activities, utilizes intangible goods obtained from outside the Customs Area, provides business service, or utilizes service obtained from outside the Customs Area.

What is an entity?
Entity is a group of individual and or capital as a union, whether or not conducting business activity, including a limited company, partnership, a state owned enterprise or company owned by a regional government in whatever name and form, “firma”, “kongsi”’ “cooperative”*, permanent establishment, foundation or such kind of organisations, institute and other business form.

*types of organizations under Indonesian Laws.

What is a Taxable Goods?
Taxable Goods are goods, which according to their nature and legal status are movable, or immovable, and intangible assets, which are subject to VAT.

Are there any goods which are not subject to VAT?
Types of good which are not subject to VAT are:
a. Products of mining and drilling, taken directly from the source;
b. Daily necessities needed by public;
c. Food and beverages served in hotel, restaurant, and similar places;
d. Money, gold, and valuable documents.

What is a Taxable Service?
Taxable Service are any service activity under a contractual agreement or legal arrangement which makes available for use goods, facilities or rights, including services provided on order or request, for which the material is provided by the customer, which are subject to tax according to the VAT law.

Are there any services which are not subject to VAT?
Types or services which are not subject to VAT are:
a. healthcare;
b. social welfare;
c. postal delivery;
d. banking, insurance and financial leasing;
e. religion;
f. education;
g. culture and entertainment which has been imposed by entertainment tax;
h. broadcasting, excluding advertising;
i. shipping and inland public transportation;
j. manpower;
k. hotels;
l. rendering of service by the government in efforts to run the governance in general.

What is the supply of Taxable Goods?
Supply of Taxable Goods is any business activity of supply taxable goods which are subject to tax according to the law.

What is the tax base for VAT?
Tax base for VAT is the sales price or consideration or import value or export value, or such other value as may be determined by the Minister of Finance Decree, to be used as the basis for calculating tax payable.

What is sales tax on Luxury Goods?
Sales Tax on Luxury Goods shall be imposed on:
a. a supply of Taxable Goods categorized as Luxuries by a firm, which produces the goods within the Customs Area in the course of business or work;
b. the importation of Taxable Goods categorized as Luxuries.

Sales tax on Luxury Goods shall be imposed only once, either at the time of supply of the Taxable Goods categorized as Luxuries by the firm producing them, or at the time of import.

Where do I have to register as a Taxable Person?
Taxpayer should register at its place of residence, domicile or business activities or such other place as may be determined by the Director General of Taxes, where tax shall be payable.
The Director General of Taxes, upon written request, may determine one place or more as the place or place where tax shall be payable.

Is there any exemption for registration?
Small firms with a turnover not exceeding a limit determined by the Minister of Finance Decree are exempted from the obligation to register their business for VAT purpose.

According to Ministerial Decree number 571/KMK.03/2003, small firms are those with the turnover in a book year are not exceeding Rp. 600.000.000 for small firms which supply goods or service.

Is it possible for small firms to choose to register as a Taxable Person for VAT?
Small firms may choose to be confirmed as a Taxable Person for VAT purposes even though their turnover does not exceed the limit describe in the Ministerial decree.
Once the small firms choose to be confirmed as a Taxable Person for VAT purposes, all the obligation of Taxable Person should be fulfilled.
The confirmation as a Taxable Person for VAT purposes may be cancelled upon a written request.

Is there any option to centralize my place of VAT payable?
According to DGT decree number KEP-128/PJ./2003 taxpayer may request one more places to be tax payable place for VAT purpose. If a VAT centralization (i.e. choosing one place) is desired, an application should be submitted not later than three months before the commencing of the centralization.

What shall I do if the goods, which have already imposed by VAT and Sales tax on Luxury Goods, are returned by the buyer?
Value Added Tax and Sales Tax on Luxury Goods paid on the supply of Taxable Goods, which are subsequently returned, may be deducted from Value Added Tax and Sales Tax on Luxury Goods in the Taxable Period in which the aforesaid Taxable Goods are returned, according to procedures determined by the Minister of Finance.

What is the tax rate for VAT and Sales Tax on Luxury Goods?
a. The Value Added Tax rate is 10% (ten percent).
b. The Value Added Tax rate on the export of Taxable Goods is 0% (zero percent)
c. The rates of Sales Tax on Luxury Goods are between 10% (ten percent) and 75% (seventyfive percent) depending on types of goods.
d. On the export of Taxable Goods categorized as Luxuries, the Sales Tax on Luxury Goods is 0% (zero percent)

When do I have to life VAT return?
VAT return should be filed on monthly basis. Due date for filing return is 20th day after the Taxable Period ended (i.e. a month). There is no annual VAT return.
Failure to comply with the filing deadline will be subject to an administrative sanction of Rp 50,000.

What is the mechanism to calculate my VAT?
a. Value Added tax payable shall be calculated by multiplying the tax rate by the Tax Base.
b. Input tax in one Taxable Period is credited against Output Tax for the same Taxable Period.
c. In case there is no Output Tax has in one Taxable Period, input tax may still be credited.
d. In case within a specific Taxable Period, Output Tax is greater than input tax, the difference is Value Added tax, which should be paid by Taxable Person for VAT purposes.
e. In case within a specific Taxable Period, creditable Input Tax exceeds Output Tax, the difference is surplus tax, which may be refunded or credited in the next Taxable Period.
f. In case within a specific Taxable Period, a Taxable Person for VAT purposes conducts both taxable and non-taxable supply, insofar as the part of taxable supply can be identified exactly from the bookkeeping, the amount of creditable input tax shall be the input tax related to the taxable supply.
g. In case within a specific Taxable Period, a Taxable Person for VAT purposes conducts both taxable and non-taxable supply and insofar as the amount of input tax related to the taxable supply can not be identified exactly from the bookkeeping, the amount of input tax which may be credited against taxable supply shall be calculated by using guidelines for crediting input tax determined by the Minister of Finance Decree.
h. The amount of input tax which may be credited by a Taxable Person for VAT purposes who pays Income Tax by using deemed profit governed by law number 7 of 1983 on Income Tax as amended by law number 17 of 2000, may be calculated by using guidelines for crediting input Tax determined by the Minister of Finance.

Is there any condition that input tax cannot be credited?
Input tax may not be credited for costs incurred for:
a. the acquisition of Taxable Goods or Taxable Services before firm is registered as Taxable Person for VAT purposes;
b. the acquisition of Taxable Goods or Taxable Services which do not have direct connection with a firm’s business activities;
c. the acquisition and maintenance of motor vehicles, cars, jeeps, station wagons, vans, and “combi” vehicles, except the vehicles used as merchandised or hired goods;
d. the utilization of intangible Taxable Goods or Taxable Service from outside the Customs Area prior to confirmation as a Taxable Person for VAT purposes;
e. the acquisition of Taxable Goods or Taxable Services of which proof of tax is in form of a simple tax invoice;
f. the acquisition of Taxable Goods or Taxable Services of which tax invoice fails to meet the provision referred to in paragraph (5) or Article 13 of the VAT law;
g. the utilization of intangible Taxable Goods or Taxable Service from outside the Customs Area for which tax invoice fails to meet the provisions referred to in paragraph (6) of Article 13 of the VAT Law;
h. the acquisition of Taxable Goods or Taxable Services of which input tax is collected under the issuance of a assessment;
i.the acquisition of Taxable Goods or Taxable Services of which input tax is not reported in the Value Added tax return, which is found when the return is audited by the tax office;

If I miss the opportunity to credit my input tax for the same taxable period, is there any chance to credit in the other period?
Creditable input tax that has not been credited against output tax for the same taxable period, may be credited in subsequent taxable period, not later than the third month following the end of the Taxable Period concerned, provided it has not been charged as a cost and has not been tax audited.

What is the mechanism of Sales Tax on Luxury Goods?
a. Sales Tax on Luxury Goods payable shall be calculated by multiplying the tax rate by the tax Base;
b. Sales Tax on Luxury Goods, which is paid on the acquisition, or importation of Taxable Goods categorized as Luxuries, may not be credited against either Value Added Tax or Sales tax on Luxury Goods withheld according to the Law.
c. A Taxable Person for VAT purposes who exports Taxable Goods categorized as Luxuries may request refund on the Sales Tax on Luxury Goods paid on the acquisition of the exported Taxable Goods concerned.

When is the VAT payable ?
(1)Tax shall be payable at the time of:
a. supply of Taxable Goods;
b. import of Taxable Goods;
c. rendering of Taxable Services;
d. utilization of intangible Taxable Goods obtained from outside the Customs Area;
e. utilization of Taxable Services obtained from outside the Customs Area; or
f. Export of Taxable Goods.
(2) If payment is received before supply or Taxable Goods, rendering of Taxable Services, the utilization of intangible Taxable Goods or the utilization of Taxable Services obtained from outside the Customs Area, tax shall be payable at the time of payment.

Where is the VAT payable?
(1)For a Taxable Person for VAT purposes which conduct supply, tax is payable at its place of residence, domicile or business activities or such other place as may be determined by the Director General of Taxes Decree.
(2) On a written request by a Taxable Person for VAT purposes, the Director General of Taxes may determine one place or more as the places or places where tax should be payable.
(3) In case of imports, tax shall be payable at the point of entry of the Taxable Goods and shall be withheld through the Directorate General of Customs and Excise.
(4)For an individual or an entity who uses intangible Taxable Goods and or Taxable Services within the Customs Area which are obtained from outside the Custom Area, tax shall be payable at the place of residence, domicile or business activities of the individual the entity.

Please explain about a VAT invoice?
(1) A Taxable Person for VAT purposes is obliged to issue a VAT invoice for each supply of Taxable Goods and for rendering of Taxable Services.
(2)Notwithstanding the provision of paragraph (1), a Taxable Person for VAT purposes my issue a single VAT invoice consisting of all supplies to the same buyer of Taxable Goods or recipient of Taxable Services during one calendar month.
(3) If payment is received before the supply of Taxable Goods the rendering of Taxable Services, the VAT invoice should be issue at the time of payment.
(4)The time of issuance, format, size, availability and procedures for submission and correction of a VAT invoice shall be determined by the Director General of Taxes.
(5) A VAT invoice should include information concerning the supply of Taxable Goods or the rendering of Taxable Services, which at least consist of the following:
a. The name, address, and taxpayer identification number of the Taxable Person for VAT purposes supplying the Taxable Goods or rendering the Taxable Services.
b. The name, address, and taxpayer identification number of the buyer of the Taxable Goods or recipient of the Taxable Services;
c. The type of goods or services, total sales price or consideration, and amount of discount;
d. The Value Added tax charged;
e. The sales tax on Luxury Goods charged;
f. The code, serial number and date of issuance of the VAT invoice; and
g. The name, position, and signature of person authorized to sign the VAT invoice.

Who is prohibited to issue a tax invoice?
An individual or an entity not registered as a Taxable Person for VAT purposes is prohibited from issuing a VAT invoice.
If a VAT invoice has been issued, the individual or entity should deposit the tax amount written in the VAT invoice to the state treasury.

Is there any condition under which output VAT does not need to be charged?
VAT need not be charged in part or in full, either temporarily or permanently, in respect of:
a. activities in specified zones or specified places within the Customs Area;
b. the supply of specified Taxable Goods or rendering of specified Taxable Services;
c. import of specified Taxable Goods;
d. the utilization within the Customs Area of specified intangible Taxable Goods obtained from outside the Customs Area;
e. the utilization within the Customs Area of specified Taxable Services obtained from outside the Customs Area;

Is the input VAT incurred creditable if it relates to the above-mentioned conditions?
Input VAT paid on the acquisition of Taxable Goods and or Taxable Services in connection with the supply for which output VAT is not charged due to the above-mentioned conditions, may still be credited.
Input VAT paid on the acquisition of Taxable Goods and or Taxable Services in connection with the supply, which is exempt from the imposition of output VAT, may not be credited.

Can I file the VAT return using e-filing system?
DGT has launched e-filing system for VAT. To use this system you should contact DGT office for further information.

When do I have to pay VAT?
VAT should be paid not later than 15th day after a Taxable Period (i.e. month) ended.
The method of payment is similar with income tax, i.e. you can pay either manually or on line with E-payment system.

Is there any penalty for late payment of VAT?
Late payment of VAT will be subject to an administrative penalty in the form of 2% (two percent) interest monthly, calculated from the due date of payment up to the date of payment where fraction of the month is treated as a 1 (one) full month shall be imposed.

When can I get my tax refund?
Before the refund is given, tax office will conduct a tax audit for VAT.
According to circular number 1/PJ.7/2002, under normal circumstances, a tax audit should finish not later than 4 weeks if the tax audit is conducted by tax office, and 2 months if the tax audits is conducted by tax audit office starting from the receipt date of formal letter from the tax office. The length of a tax audit period may be extended for 2 weeks to 4 months depending on the complexity of the audit.