Indonesia to tax digital services supplied by non-residents from August

After years of debate, Indonesia's Ministry of Finance has revealed the plan to impose VAT on foreign-supplied digital services.

Jun 23, 2020

Indonesia's plan to impose VAT at a rate of 10% on digital services supplied by non-residents will now go live on August 1, 2020. The original implementation date was July 1, 2020, but it has been delayed by one month to August 1. 

The Indonesian Government now plans to nominate affected non-resident digital businesses in July with obligations beginning for those nominated from August.

Indonesia’s plan to tax non-resident digital businesses – with a “significant economic presence” in Indonesia – had officially come into effect back in March 31, 2020, as part of its omnibus tax law announced back in February. However, this law could not go live until the issuance of key implementing regulations by the government. These regulations (or PMK-48) officially became available on May 15.

Non-resident digital businesses with B2C sales to consumers based in Indonesia now have an obligation to register, collect, and remit VAT on their sales there. The narrow timeframe for affected businesses to comply will, no doubt, be challenging.

The payment of the VAT (possible to do so in USD) collected from consumers must be done no later than the end of the following month, while reporting is done quarterly no later than the next month after the quarterly period ends.

The concept of “significant economic presence” may indicate the introduction of a sales threshold to remove small businesses from the scope of these new rules. To comply there is also the likely need to use a local tax agent. This blog will be updated shortly to confirm these points.

The introduction of these rules ended years of background work in Indonesia. This VAT rule change in Indonesia again shows the level of movement in South-East Asia when it comes to the taxation of digital sales by non-resident companies.

In January 2020 new rules in Singapore and Malaysia came into effect while other tax jurisdictions such as Thailand, Vietnam, and the Philippines are also exploring approaches to similar rules taxing the digital economy.

You can discover more about what is happening in South East Asia here.

‘Fair taxes in the digital economy’

Indonesia has been trying to introduce such rules on non-resident digital suppliers for quite some time. Here we provide some background information.

Back in September 2019 Indonesia’s Finance Minister Sri Mulyani Indrawati was quoted in this Reuters article that Indonesia was preparing a bill to make tech firms pay VAT in Indonesia.

The quotes in this article were not Sri Mulyani ’s first comments on the topic. At a March 2018 G-20 gathering in Buenos Aires, Argentina, she urged international cooperation in attempts to tax digital giants such as Google, Facebook, Twitter, Amazon, Uber, Lazada and Grab.

She also raised the issue of unfair competition between digital companies, particularly in e-commerce, and conventional ones, particularly in terms of tax treatment.

“All finance ministers face similar technical issues on how to collect {…} fair taxes in the digital economy,” she said.

Then, in April 2018 a month after the Finance Minister’s aforementioned comments at the G-20, Indonesia’s then Minister of Trade Enggartiasto Lukita - speaking at the 32nd ASEAN Summit in Singapore - proposed a tax on goods and services offered through electronic commerce. According to Antara News, the goods and services mentioned will include (among others) “e-books, digital music, accounting services, and architecture services.”

As usual, we will keep you up-to-date on developments in Indonesia.

Acknowledgement: Thanks to Yoan Putra Muda, of GNV Consulting | Moore Stephens, and to Vincent Cellier, Cekindo, for their help in researching this article.

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