What is VAT (Value Added Tax)?

VAT is a consumption tax levied on most goods and services within Indonesia. The standard VAT rate is 10%. However, some goods and services may have different VAT rates, typically ranging between 5% and 15% depending on the specific product or service, in line with Indonesian regulations.

In addition to standard VAT, Indonesia imposes a separate Luxury Goods Tax (LGT) for certain luxury items, with rates ranging from 10% to 50%.

When Does Your Business Need to Register for VAT?

Your business must register for VAT if it meets the following criteria:

• Your business has reached an annual **revenue of IDR 4.8 billion (approximately USD 360,000).
• You plan to sell taxable goods or services subject to VAT.

However, it’s important to note that certain business services are eligible for a 0% VAT rate. Some of these services, effective from 1st April 2019, include:

1. Services related to movable goods used outside Indonesia’s Customs Area, including:

   • Toll manufacturing services
   • Repair and maintenance services
   • Freight forwarding services for export-oriented goods
   • Consultation services for construction projects

2. Services related to immovable goods located outside the Customs Area, including:

   • Information and technology services
   • Interconnection, satellites, and/or data connectivity services
   • Research and development (R&D) services
   • Aircraft and/or ship rentals for international flight and shipping activities
   • Trading services for procuring goods for export purposes
   • Various consultation, accounting, financial audit, and tax services, among others.

Who Needs to Register for VAT?

Businesses that are considered Pengusaha Kena Pajak (PKP), or Taxable Entrepreneurs, must register for VAT. These are businesses that are required to charge VAT on their products or services and report their VAT-related activities regularly. Once VAT registered, businesses must:

• Report VAT-related activities monthly.
• Register each business branch separately with the local Kantor Pelayan Pajak (KPP).

The Benefits of VAT Registration

1. Tax Compliance: Registering for VAT helps ensure your business complies with Indonesian tax laws.
2. Claim Input Tax: VAT-registered businesses can claim back the VAT paid on their own business expenses, helping reduce the overall tax burden.
3. Legal Recognition: VAT registration gives your business formal recognition with tax authorities, showing that your company is compliant and operating within the law.
4. Competitive Advantage: Being VAT-registered can increase your credibility, especially when dealing with larger companies or international businesses that require proper tax documentation.

The VAT Registration Process

The VAT registration process is fairly straightforward, but it requires submitting the necessary documentation to the tax office. Here are the steps involved:

1. Submit the Required VAT Documents:

   • Prepare and submit the necessary documents to the tax office. These typically include details about your business, shareholders, and business activities.

2. Collect Your VAT Certificate:

   • After your submission, you will receive an official VAT Certificate from the tax office.

3. Submit for VAT Account:

   • You will need to submit an application for a VAT account. This will generate your VAT account username and password.

4. Receive VAT Account Details:

   • Once processed, the VAT account credentials (username and password) will be sent to your business email.

Additional Notes:

• Branch Registration: If your business has multiple branches, you are required to register each one with the relevant KPP (Tax Service Office).
• PKP Reporting: Businesses that are PKP must report their VAT-related activities every month, keeping accurate records of all transactions that involve VAT.

If your business reaches the annual revenue threshold or is involved in taxable goods and services, VAT registration is a necessary and mandatory step for your business in Indonesia. It helps your company stay compliant with tax regulations, and provides access to valuable tax benefits, like the ability to claim back VAT on business expenses.

If you’re unsure about whether you need VAT registration, or need assistance with the process, our team is here to guide you through every step and ensure that your business operates smoothly and legally in Indonesia. Feel free to contact us for more information or assistance with VAT registration and other related services!