VAT (Value Added Tax)
Starting a business in Indonesia requires a deep understanding of various regulations, including taxes and VAT (Value Added Tax) obligations. One of the main concerns for new entrepreneurs is ensuring compliance with the correct operating standards, especially when it comes to tax payments and VAT.
What is VAT and Who is Affected ?
Value Added Tax (VAT) is a tax levied on most goods and services in Indonesia. The standard VAT rate is 10%; however, according to applicable regulations, certain goods and services may be subject to different rates ranging from 5% to 15%. Additionally, the sale of luxury goods in Indonesia is subject to a separate VAT, varying between 10% and 50%.
Many new business owners wonder if they need to register for VAT. The answer depends on several factors, including your company’s annual revenue. If your company generates annual revenue of Rp 4.8 billion or more (approximately USD 360,000), you are required to register as a Taxable Entrepreneur (PKP) and collect VAT.
Commercial Services Exempt from VAT
In addition to varying rates, it’s important to know that some commercial services are exempt from VAT. As of April 1, 2019, the following services are exempt:
- Services related to movable goods used outside the Customs Area, including:
- Manufacturing services for a specific fee
- Repair and maintenance services
- Freight forwarding services for export-oriented goods
- Services related to movable goods located outside the Customs Area, such as construction consultancy services
- Other services where the results are used outside the Customs Area at the request of an international recipient, including:
- Information and technology services
- Interconnection, satellite, and/or data connectivity services
- Research and development (R&D) services
- International flight leasing for aircraft and/or ships for sailing purposes
- Trade services that assist in finding domestic vendors for the procurement of goods for export
- Consultancy services, accounting services, financial audit services, and tax services
Obligations of Taxable Entrepreneurs (PKP)
If your business is classified as a Taxable Entrepreneur (PKP), you are required to record and report VAT-related activities every month. Each branch of the company must also be registered with the local Tax Service Office (KPP).
Entrust Your VAT Registration and Management to Harmony
Managing and complying with VAT obligations can be a challenging task for many businesses. Harmony is here to assist you through every step of this process, from VAT registration to monthly reporting, ensuring that all administrative and legal requirements are met efficiently. With extensive experience in this field, Harmony will ensure that your business runs smoothly and complies with the prevailing tax regulations in Indonesia.
