Indonesia VAT Guide (Value Added Tax or Pajak Pertambahan Nilai – PPN)

Pajak Pertambahan Nilai – PPN is usually imposed on the sale of goods or services that occurs on consumption by the individual, corporate, and government taxpayers.

Overview of Value-added Tax (Pajak Pertambahan Nilai – PPN)

Indonesia still used the ex-colonial tax system since the pre-independence era before 1951. To eliminate the remnants of colonialism in Indonesia, the Emergency Law of 1951 issued a Sales Tax, commonly known as Value-Added Tax (VAT or Pajak Pertambahan Nilai – PPN).

The imposition of PPN in Indonesia only lasted until 1983 due to the double taxation of VAT. Many elements of taxation were replaced and added to the Tax Reform. One of which was changing the imposition of Sales Tax to Value-Added Tax (Pajak Pertambahan Nilai – PPN).

The term PPN comes from the English word  Value Added Tax. In Indonesian Bahasa, it is called Pajak Pertambahan Nilai (PPN). Originally this term comes from the French Taxe Sur la Valuer Ajoutée (TVA).

What Is Value-added Tax (Pajak Pertambahan Nilai – PPN) in Indonesia?

Pajak Pertambahan Nilai – PPN is usually imposed on the sale of goods or services that occurs on consumption by the individual, corporate, and government taxpayers. However, entities or individuals of these products and services do not need to pay directly to the state, but the obligation to pay falls on the withholding tax.

This Value Added Tax (PPN) is imposed and paid directly by the Taxable Entrepreneur(PKP), but the charge is given to the end consumer. Every PKP is required to charge, deposit, and report VAT payable.

What Is Law Regulating VAT?

To the Value-added Tax (Pajak Pertambahan Nilai – PPN) Law in Indonesia, there have been three changes. Due to differences in tax collection laws and models and regulations, these changes occur so that they can be simpler and more equitable for the community.

Below mentioned are the changes to the VAT Law in Indonesia

What Are VAT (Pajak Pertambahan Nilai – PPN) Objects?

Below mentioned are the Value Added Tax (PPN) for Goods or Services,

What Is The Basis for Imposing VAT Tax?

To calculate Value Added Tax(PPN), the value used as the Tax Imposition Base (DPP) consists of:

1. Selling Price:  Selling Price is the value in the form of money, that includes all costs due to the delivery of Taxable Goods requested by the seller
2. Replacement: This is a value in the form of money, including all costs, which should be requested by entrepreneurs due to the delivery of Taxable Services, the export of Taxable Services, or the trading of Intangible Taxable Goods.
3. Import Value: Import Value is the money used as the basis for calculating Import Duty plus levies based on the provisions in the statutory regulations concerning customs and excise for the import of Taxable Goods.
4. Export Value: Export value is the money or cost demanded by the exporter.
5. Other Value: This is the value which is regulated by the Minister of Finance in the form of money, stipulated as Tax Imposition Base.
   

What Are The Types of Value-added Taxes (Pajak Pertambahan Nilai – PPN) and Rates

There are 3 types of PPN taxes:

1. Standard Type: 10%
2. Zero Rated - 0%
3. Exempted - 0%

1. 10% Standard Type- ( All other taxable goods and services- general Rate For domestic delivery)

• The goods which are delivered by taxable organizations.
• Providing taxable services to the accounts of taxable goods
• Usage of intangible taxable goods delivered from outside Indonesia
• Utilization of foreign taxable services.
• The distribution of export services and fixed assets an organization.
  

2. 0% Zero-rated - ( Exports of goods and services)

Freight forwarding related to exported goods, outside the Customs Area manufacturing, maintenance, repair, and movable goods, building plans outside the Customs Area, Building construction consulting, research and development services, and technology and information.

• Rental services on transportation in the form of rental of aircraft and shipping activities
• Management and business consulting services, legal consulting services, interior/Architecture design, human resources services, engineering services, marketing services, accounting services, financial audit, and Tax related services.
  

3. Exempted : 0% (Non Taxable)

Non Taxable means here VAT not collected (deliveries of goods to a bonded zone; and deliveries of goods and services to a free trade zone).

VAT Free means where certain goods and services that are not subject to VAT. E.g., products are taken directly from their sources like crude oil, natural gas, coal, financial services like banking, insurance, and finance leasing. Hotels, restaurants, and entertainment are not subject to Value Added Tax— instead, they are subject to local taxes, which is not a creditable tax.

How to Calculate VAT?

The Value Added Tax(PPN) payable is calculated by multiplying the tax rate with the Tax Imposition Base (DPP).

Formula: VAT = VAT Rate x Tax Imposition Base (DPP)

To understand the Value Added Tax in Indonesia clearly, below mentioned is an example of how to calculate the Tax:

A Taxable Entrepreneur(PKP), named Shabby sells taxable goods in cash at a selling price of IDR 25,000,000.

Value Added Tax payable = 10% x IDR 25,000,000 = IDR 2,500,000

The VAT amounting to Rp2,500,000 is the Output Tax collected by the Shabby Taxable Entrepreneur.

Nomor Pendaftaran Wajib Pajak (NPWP) Number

What Is Nomor Pendaftaran Wajib Pajak (NPWP) Number?

Nomor Pendaftaran Wajib Pajak (NPWP) is a 15 digit Identification Tax Number given by the Tax Office to be possessed by all mandatory taxes who receive income in Indonesia, following the provisions of the legislation taxation.

NPWP must be owned by Indonesian citizens, both individuals and business entities. This NPWP is used as a means of tax administration or a reference for paying taxes, as well as a requirement for several public services, such as applying for credit, making passports, and so on.

.Also, this regulation includes ex-pats. As per the tax office, all ex-pats living in Indonesia need to register with the tax authorities to get their own separate NPWP tax number. NPWP number is required to pay monthly income taxes, file annual taxes, and pay taxes on the income earned outside Indonesia.

Different Types of NPWP

Personal NPWP: This number is owned by every individual or everyone who has income in Indonesia.

Agency NPWP: This number is owned by every entity or company that has income in Indonesia.

You only have a Personal NPWP if you are an employee. However, you must have both a Personal NPWP that belongs to you, and a Corporate NPWP that belongs to your company if you are a business owner, entrepreneur, or investor.

What Is NPWP Number Structure?

Each NPWP contains 15 digit numbers. The first nine digits represent the taxpayer code, while the next six digits represent the administrative code.

• In the first 2 digits, 01 to 03 means a corporate taxpayer, 04 and 06 means an employer taxpayer, 05 means an employee taxpayer, 07 to 09 means a personal taxpayer.
• The next 6 digits are the registration or serial number provided by the Head Office of the Directorate General of Taxes to the Tax Service Office.
• The next 1 digit is a security tool to avoid forgery or errors in the NPWP
• The next 3 digits are the code for the Tax Service Office
• The last 3 digits represent the taxpayer status

Who Is Required to Register for the NPWP Tax Number?

• Employed individuals who earn more than the non-taxable income,
• Individuals who are employed and earn income outside of their gross salary,
• Individuals who receive income from self-employment, business activities.
• Individual taxpayers who receive income from capital
• Ex-pats who stay or are present in Indonesia for more than 183 days within a single period of 12 months or are already present in Indonesia have the intention to live in Indonesia.
• You may not be eligible to pay the Indonesian income tax if you have stayed less than 183 days.
• In the husband's tax number dependent spouses are included, and are not provided with different tax numbers.
  

Where to Register for NPWP?

All individuals residing in Indonesia should have their own personal tax numbers, or NPWP as per the Indonesian tax office((Direktorat Jenderal Pajak). All taxpayers must register at the Tax Service Office in the city of your residence.

Ex-pats are required to register with the Tax Office for Foreign Bodies and Expatriates (KPP BADORA), who are staying in Jakarta and obtain their NPWP number. It helps them pay their monthly income taxes, file annual tax returns, and pay taxes on their less Tax paid in other jurisdictions on the additional overseas income earned outside Indonesia.

What Are the Documents Required for NPWP Registration?

Following are the documents required for registration

• Completely filled registration form
• Passport first page Xerox and KITAS stamp on it
• Photocopy of work permit(IMTA)
• Domicile certificate of you and your employer
• Photograph of employer NPWP
• Authorization letter for authorizing your representative to handle and register all your tax matters.
  
  After the registration, you will receive your tax number (NPWP) within five working days. You will need this number later for the yearly tax report.
  

What is The Penalty for not Registering for NPWP Failure to Register?

As per the regulations, failure to register an NPWP number could lead to jail for a maximum of 6 years and a maximum fine of 4 times to the total amount of tax due.

NPWP Number Under Deskera Books

Using Deskera Books all the business entity owners have an option to define their company's NPWP tax registration number, which is required for paying taxes to the Indonesian Government.

Indonesia Value Added Tax (Pajak Pertambahan Nilai – PPN) Registration

One of the biggest business concerns is when they set up a company in Indonesia, and is ensuring that they adhere to the correct working practices. That means paying the proper taxes and VAT.

In Indonesia, VAT (Pajak Pertambahan Nilai – PPN) is a tax on the sale of specific goods and services, paid to the Indonesian tax authorities. When discussing company registration in Indonesia, as a business owner, you need to consider the benefits you might gain and the responsibilities you will have for registering your company with VAT liabilities.

When Should You Register for VAT Liabilities in Indonesia?

In Indonesia you need to register your company as VAT-liable if you have yearly revenue of IDR 4.8 billion (US$360,000), especially when the majority of your annual revenue comes from other organizations.

For companies whose annual  revenue is not more than IDR 4.8 billion,  can choose to register as a VAT-liable company.

Generally, within Indonesia, Value-added Tax (Pajak Pertambahan Nilai – PPN) is a tax imposed on most goods and services. 10% is the standard rate; however, under the Indonesian Regulations, some goods and services are charged at different rates ranging from 5 – 15%.

When Is VAT Implemented?

You will need to pay Value-added Tax (Pajak Pertambahan Nilai – PPN) for below items if your company is registered as VAT-liable

• Importing taxable goods
• Delivering taxable goods and services
• Utilizing intangible goods from abroad
• Exporting tangible and intangible goods and services
  
  

Which Are the Goods and Services Exempt from VAT in Indonesia?

In Indonesia some products and services can have VAT exemption with the incentives provided by the government

• Financial Services
• Medical Services
• Food/drinks catering and services at hotels, restaurants, cafes, and others
• Insurance products and services
• Educational services
• Hotel and recreational services
• Workforce and human resource services
• Social services
• Gold

If you sell all goods and services that are exempted, your business is exempt, and you cannot register for Value Added Tax(Pajak Pertambahan Nilai – PPN) in Indonesia. Hence, you cannot reclaim VAT on your business purchases or expenses.

What Is the Process to Register a Company with VAT Liabilities in Indonesia?

In Indonesia, if your business conducts a relatively large amount of transactions regularly, with VAT liabilities it will be helpful for you to register your company.

To register as a VAT-liable company in Indonesia does not take much time; however, the process is not very straightforward. This process depends on the assessment by authorities, and it is subject to their approval. For example, a field check is one of the requirements.

What Are the Steps for Registration?

Step 1: Application Submission

• Prepare complete copies of your company documents.
• Once one of the directors apply for the work and stay permit KITAS, then only s/he can proceed to obtain the Tax number or NPWP (Nomor Pokok Wajib Pajak) in Indonesia. Another option is by appointing an Indonesian director.
• Your company must already be operating. At this point you will also prove by paying withholding taxes on the office rental payments. Keep in mind that an application showing that you are registered into a virtual office is allowed as long as: The tax authority in that area allows it, and you can show an alternative operational office.
  

Step 2: Site Verification

• A tax officer will visit your company at any time between 7 and 12 days to verify the information submitted after your application is submitted and processed.
• Make sure you need to have someone to meet the officer when s/he comes by. Failure to meet the tax officer will result in an unsuccessful application.
  

Step 3: Approval or Declining of Application submitted

• After the officer has visited your company, The final decision is made the latest after five working days.
• You will receive a confirmation decree if approved, that you are now a VAT-registered company. To utilize the online Value Added Tax (Pajak Pertambahan Nilai – PPN) system, you can now make use of this access code on the decree.
• You will receive a rejection letter if your application is rejected.
  

Step 4: Visit the Tax Office by the Director's

• You, as a director, are obliged to physically pay a visit to the tax office once you have received the approval decree.
• You will create your VAT login username and password during the visit.
  
  

Value Added Tax (Pajak Pertambahan Nilai – PPN- e-filing)

For any business owner or business as a taxpayer (WP), are indeed obliged to pay taxes to the state. However, apart from being obliged to pay taxes, they should also report the taxes that they have paid. The instrument used for your business tax reporting is a tax return or commonly abbreviated as SPT.

As per the Minister of Finance Regulation number 243 / PMK.03 / 2014, SPT Masa is SPT for a Monthly/ period tax. Meanwhile, the Annual SPT is the  SPT for a tax year or part of a tax year. The SPT form has a standard format. The format of the forms is different for the Annual SPT and Periodic SPT and is adjusted to their respective functions.

How to Report Periodic/Monthly SPT (e-Filing PPN)?

In Indonesia, Periodic/Monthly Value-added Tax (Pajak Pertambahan Nilai – PPN) SPT, which is a Value Added Tax report form that is completed and reported by a Taxable Entrepreneur (PKP). This report is usually submitted every month(Monthly report).

To report the calculation of the amount of tax both for reporting Pajak Pertambahan Nilai – PPN (VAT) and luxury sales tax (PPnBM) payable, SPT Masa VAT is a form that is used by corporate taxpayers.

The function of the Periodic VAT SPT is in addition to reporting tax payments or settlements. Still, it can also be used to report assets and liabilities as well as tax payments from cutters or collectors.

What Are the Steps to Report Periodic SPT e-filing?

Taxable Entrepreneur (PKP) is obliged to report the accumulative VAT collection to the Directorate General of Taxes (DJP).

PKP must fill out a Monthly SPT or Periodic VAT SPT in reporting to the DGT, namely a Tax Return to report Value Added Tax (Pajak Pertambahan Nilai – PPN) withheld or collected every month. With the e-filing application, this SPT can be reported online via the DGT Online page.

Below are the steps to know more about how to report SPT Periodic

Which Is the Master Form and Attachment for Periodic VAT SPT?

For return filing, the form currently used is SPT Masa VAT 1111, which consists of 1 main form and six other attachment forms. The periodic Value Added Tax (Pajak Pertambahan Nilai – PPN) SPT can be found in the OnlinePajak application.

What Are The Penalties for Delay in Submitting SPT?

If the Tax Return (SPT) is not submitted within the specific time period, it will be subject to administrative penalties as below,

What Is an Annual Tax Return?

Annual Tax Return is an instrument that has a similar function to a periodic tax return. However, the difference is that the Annual Tax Return must be reported annually, or at the end of the tax year. There are two categories of Annual SPT, namely, Individual Annual Tax Return (OP) and Corporate Annual Tax Return.

The Annual Corporate Tax Return uses only one type of form, namely the 1771 Annual SPT, and the Individual Annual SPT is divided into three types of forms, Annual SPT 1770, SPT 1770 S, and SPT 1770 SS.

Below are the differences between these three types of forms,

What Is the Time Limit for Submitting Annual Tax Return

The time limit for reporting of the Annual Personal Tax Return is 3 months after the end of the temporary Tax Period. The reporting of the Annual Corporate Tax Return is a maximum of 4 months after the end of the Tax Period.

What Is Input VAT and Output VAT Reports?

There are 2 types of Value Added Tax that you should know about, namely Input VAT and Output VAT. Input VAT is charged when PKP purchases, obtains, or manufactures products. Conversely, Output VAT is charged when PKP sells products.

What Is The Input VAT?

The tax that has been collected by PKP at the time of Purchasing Taxable Goods / Services (BKP / JKP) within a specific tax period is known as Input VAT.

To calculate the remaining tax payable Input Tax can be used as a Tax Credit. Input VAT can also be referred to in English as VAT in (Value Added Tax In).

In short, for business owners as PKP purchases goods, then the goods have an element of VAT, then for the business owners it becomes Input Tax for the business owner.

What Is the Output VAT?

When PKP sells taxable goods/services within a particular tax period, the Output VAT is a tax that will be collected. For every business owner who has become a PKP is required to impose a tax on the goods/services it sells. Output tax is also often referred to as VAT Out (Value Added Tax Out).

PKP must calculate the amount of VAT Output which is then paid to the Tax Office at the end of the year. Within the same tax period, if PKP has an Input Tax balance, the balance can be credited (deducted) from the amount of output VAT.

Payable VAT = Output VAT - Input VAT

If the value of Output VAT is greater than Input VAT, it is called Underpayment, and the amount must be deposited and reported to the Tax Office.

Using Deskera Books You Can File Following Two VAT Reports

1. PPN Masukan (VAT In)
2. PPN Keluaran (VAT Out)

Any VAT registered business, has to submit VAT In & Out report to the Onlinepajak of Indonesia by each month to declare the sale of goods and services to the customers and Purchases from a Value Added Taxregistered or Unregistered businesses. The VAT collected and VAT has to be filed for the relevant accounting period.

1. PPN Masukan (VAT In) Reports

You can view the Total DPP Amount, Total PPM Amount,, PPBN Amount,Tax creditable amount if applicable. The amount reflected is based on Purchase invoices you have created in the Buy Tab.

Export Report: You can export the VAT IN report in Excel format required for further submitting to Onlinepajak Indonesia.

2. PPN Keluaran (VAT Out)

This report is divided into two sections LT and OF

• Under the LT section, all Tax registration related details of your company will be displayed like NPWP number, Address, Customer Name and other information as filled in while creating a new customer sales order.
  
• Under OF Section details related to Product will be displayed like product name, total quantity, the price per unit, Total Price of the Product, Discount, the amount before Tax, VAT amount. The amount reflected is based on selling invoices you have created in the sell Tab.
  

Export Report: You can export the VAT OUT report in Excel format required for further submitting to Onlinepajak Indonesia

What Is Withholding Tax in Indonesia?

There are different types of taxes applicable to various types of income in Indonesia. Through a system of withholding taxes, The Indonesian tax is mainly collected. The payer is usually held responsible for withholding or collection of the tax where a particular item of income is based to withholding tax.

In Indonesia, using the relevant Article of the Income Tax (Pajak Penghasilan/PPh) Law, these withholding taxes are commonly referred to various types of withholding tax(PPh) applied as mentioned below.

Withholding Tax Article 21

From the salaries payable to the employees and pay the tax to the State Treasury on their behalf employers are required to withhold PPh 21. The tax is applicable to other payments to non-employee individuals with the same withholding tax (e.g., fees payable to service providers or individual consultants). Without an NPWP, the resident individuals are subject to a surcharge of 20% in addition to the standard withholding tax.

Withholding Tax Article 22

On certain business entities which carry out export, import and re-import trading activities, these taxes are imposed, both Government and private which will be charged at the end of the year. And this instalment will be calculated as a tax credit of corporate income tax and personal income tax.

Below are the transactions that are subject to PPh 22 are as follows:

1. Import of customer goods
2. Purchase of good by the Government
3. Purchase of goods by State-owned enterprises
4. Purchase of oil fuel
5. Purchase of the paper product
6. Purchase of steel products
7. The purchase of automotive products
8. Purchase of pharmaceutical products
   

Withholding Tax Article 24

The PPh 23 are subject to certain types of income paid or payable to resident taxpayers at a rate of 2% or 15% of the gross amount,

A) Below are the Withholding tax 23 due at a rate of 15% of the gross amounts,

1. Dividends
2. Interest, including discounts, premiums & loan fees guarantee
3. Royalties
4. Awards and Prizes

B) Below are the withholding tax 23 is due at a rate of 2% of the gross amounts on the fees,

1. Assets rental other than land and buildings;
2. Compensation concerning management services, consultation services, technical services, and other services, as referred to Article 21, except those who have been withheld from Income Tax.
   

Withholding Tax Article 26

Organizations, representatives of foreign companies and resident taxpayers are required to withhold 20% tax rate to non-residents from below payments,

A) On gross amount:

1. Dividends, interest, including discounts, fees guarantee and premiums,
2. Payments for the use of assets, royalties and rents
3. Activities, work and fees for services
4. Awards and Prizes
5. Any other periodic payments and pensions
6. Other hedging transactions and swap premiums
7. Debt write-offs Gains
   

B) Being specified of the gross amount percentage of certain types of payments on Estimated Net Income (ENI)

The withholding tax rates may be exempted or reduced where the recipient is resident in Indonesia which has a tax treaty.

What Are the Withholding Tax Types and Rates?

Below mentioned are the Indonesia Withhold tax rates for Resident & Non-resident recipients as per Article 23 (PPH23).

Below is the Withholding Tax Rates for Indonesia for Resident taxpayers

Foreign companies, organizations and appointed individuals are required to withhold final Tax from the following gross payments to resident taxpayers and PEs:

What Is the Excise Policy in Indonesia?

Excise policy in Indonesia is mandatorily imposed on certain goods that have certain aspects, such as cigarettes, e-cigarettes, alcohol, and other tobacco and alcohol-related products. The Ministry of Finance is responsible for the collection of these excise in Indonesia, Directorate General of Customs and Excise.

How To Map Excise Tax Using Deskera Books:

Using Deskera Books, you are able to map excise tax for goods and services with ease while creating a New Product, Sales Invoice and Purchase Invoice.

Below mentioned are the modules where Excise Tax is applicable under Deskera Books

Products:

Sales Invoice / Purchase Invoice

• With Deskera Books While creating a sales invoice/ quote, the excise rate will be captured from the Product you have created. The Excise tax will be calculated before VAT is calculated on the Product, and this excise amount will be credited to the sales invoice.
• Similarly, if orders of excisable goods are created then also calculate Excise tax in Order will be calculated.
• While creating a Purchase Invoice for any type of goods for manufacturing from overseas Vendors, the system will capture the Rate of Excise from Selected product master. The excise tax will be calculated before the VAT calculation. This Excise amount will get debited in the purchase invoice.

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