Indonesia tax on digital services supplied by non-residents

A number of non-resident digital businesses have been nominated to act as VAT collectors by Indonesia's Directorate General of Taxes (DGT)

Sep 9, 2020

Indonesia's Directorate General of Taxes (DGT) has nominated 12 new businesses – including Twitter, Zoom, LinkedIn, and McAfee — to act as VAT collectors under its new VAT rules concerning the supply of digital services to Indonesia-based consumers.

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

The Indonesian Government is now nominating affected non-resident digital businesses with obligations for those nominated in the first wave on August 1. The first six companies were revealed by the DGT on July 7. These were: Amazon Web Services Inc., Google Asia Pacific Pte. Ltd., Google Ireland Ltd., Google LLC., Netflix International B.V., and Spotify AB.

One month later, on August 7, a second wave of ten companies – including Facebook (three units), Walt Disney Company (SE Asia), additional Amazon subsidiaries, Apple Distribution International Ltd, and TikTok – were added to the list of nominated VAT collectors by Indonesia's DGT. Obligations for the second wave of companies began on September 1. 

The third wave of companies nominated on September 8 is available here. Obligations for this third wave of nominated companies begin on October 1. The latest additions brings to 28 the number of businesses appointed by Indonesia's DGT since July 7. 

Indonesia tax office communication

Indonesia's DGT continues to communicate with other foreign businesses to establish whether they are ready to be appointed VAT collectors. For this reason, it is expected that the number of businesses appointed to collect VAT on digital services will continue to grow.

A registration threshold level has also been revealed. If transaction values in a 12-month period exceed 600m Indonesian Rupiah (IDR) – or if a monthly IDR50m threshold is breached – then non-resident businesses exceeding the threshold can voluntarily register for VAT purposes in Indonesia.

A second threshold level relates to traffic levels and is used in conjunction with the monetary threshold. The threshold is breached if the amount of traffic or access in Indonesia exceeds 12,000 users annually or 1,000 users monthly.

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.

Obligations to register, collect & remit VAT

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 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.

Taxamo content is created for guidance only, please consult your local tax advisor.