Value added tax (VAT) is the tax consumption imposed on each production stage of both products and services until the final sale of Product. The VAT rate in Indonesia is 10% and is levied on most goods and services in Indonesia. Business owners in Indonesia must be fully aware of the VAT system as it affects their business activities all over the country. Hence VAT compliance is compulsory.
The due date for submitting the monthly VAT returns is the end of the following tax period. The VAT payable must be settled before the submission deadline of the monthly VAT returns. VAT payments must be paid in Indonesian rupiah.
Electronic Tax Filing:
The taxable businesses can also file the VAT return electronically through one of several Application Service Providers (ASP) appointed by the DGT. The ASP must comply with the following requirements,
- must be an entity which is legal
- Must also have a license to be an ASP for processing business.
- must have a processing Tax ID Number and already be imposed as a taxable business.
- Need to sign an agreement with the DGT
Free Trade Zones in Indonesia
The government of Indonesia has considered Free Trade and Free Port Zones on Batam, Bintan, and Karimun Islands which authorizes companies not to register as VAT establishments. The import of taxable services and goods in a Free Trade Zone will be exempted from the levy of VAT or luxury goods sales tax.
VAT refunds can also be declared in Indonesia. It is the only responsibility of the Directorate of General Taxes to make VAT refund decisions. These decisions usually depend on the VAT audit which is usually conducted within 12 months of receipt of refund applications. If there are no decisions made by DGT applications may also be approved. After the application, The companies are then required to submit supporting documents within a month to the Directorate of General Taxes after receipt of the refund application. However, companies have the right to submit their refund applications at the end of a financial year.
Goods and Services exempted by Value Added Tax in Indonesia
Many goods and services that are exempted from VAT in Indonesia.
- Exempted goods include securities, copper ore, geothermal energy, crude oil, gold bars, natural gas, silver ore, tin ore, coal, gold ore, iron ore, sand, rice, soybeans, salt, corn, sago, and food and beverages served in hotels and restaurants.
- Services that are exempt from VAT in Indonesia includes public transportation services, religious services, mail services, art and entertainment services, insurance services, manpower services, educational services, medical and health services, broadcasting services irrelevant to advertising, food and catering services, and public telephone services.
VAT invoices and credit notes
Those who are engaged in retail businesses or are the end-users of the goods, a standard VAT invoice for all taxable supplies made must be provided by Indonesian taxable entrepreneurs.
The VAT invoice number is set by the Directorate General of Taxation (DGT). Indonesian entrepreneurs who are taxable before issuing the VAT invoices, are required to request the VAT invoice number from the DGT.
On the late payment of VAT a penalty is charged at the rate of 2% per month. For tax audit, the maximum period is 24 months. An additional penalty of IDR500,000 is imposed for each VAT return submitted late.
2% of the sales value is imposed as a penalty charge rate for the failure to issue a VAT invoice or for the allocation of a VAT invoice that is considered defective which includes a VAT invoice that is issued late.
For frauds made, criminal penalties will be imposed. Two criminal offenses that may be charged with respect to VAT are mentioned below:
- Criminal offenses related to general tax administration excluding the issue related to a tax invoice
- Criminal offenses related to the issuance of a tax invoice.