Use of Imported Digital Products and Services Will Be Subject to Value Added Tax

The Minister of Finance (the “Minister”) enacted Minister Regulation No. 48/PMK.03/2020 of 2020 dated May 5, 2020 on the Procedures to Appoint Collectors, Collection as well as Reporting of Value-Added Tax (“VAT”) on Utilization of Taxable Non-Tangible Products and/or Services from Outside the Custom Area through Electronic System Trading within the Custom Area (the “Regulation”). The Regulation is an implementing regulation of Article 6(13) of Government Regulation in Lieu of Law No. 1 of 2020 dated March 31, 2020 (“Perppu 1/2020”) which was promulgated to improve the social, economic, and community welfare implications of the Covid-19 pandemic.

Due to the large-scale social restrictions policy in various places in Indonesia, the utilization of video and music streaming as well as video conference transmissions provided by digital companies from outside Indonesia has increased significantly. Now, based on Perppu 1/2020 and the Regulation, VAT will be imposed towards the utilization of digital products and/or services imported from outside Indonesia effective as of July 1, 2020.

This Newsflash discusses the following salient provisions of the Regulation: (i) the appointment of VAT collectors, (ii) VAT collection, and (iii) VAT payment and reporting.

  • Appointment of VAT Collectors

VAT shall be collected, paid, and reported by an Electronic System Trading (Perdagangan Melalui Sistem Elektronik – the “PMSE”) Business Actor appointed by the Minister (a “PMSE VAT Collector”). The Regulation provides that a PMSE Business Actor includes an offshore trader, an offshore service provider, an offshore PMSE provider, and/or an offshore PMSE provider. In order to be appointed as a PMSE VAT Collector, a PMSE Business Actor must satisfy certain the following criteria:

  1. The transaction value of a PMSE VAT Collector with product purchasers and/or service recipients in Indonesia exceeds a certain amount within 12 (twelve) months; and/or
  2. The volume of the traffic or the number of parties that access the services exceeds a certain volume within 12 (twelve) months.

The foregoing criteria will be further clarified by Director General of Taxation in a regulation.  We understand that the Director General of Taxation is preparing the detailed criteria of PMSE VAT Collectors and the procedures of the appointment. In any event, the regulation should be issued before July 1, 2020 (i.e., the effective date of the Regulation).

  • VAT Collection

Payable VAT over the utilization of digital products and/or service from overseas in Indonesia resulting from  a transaction between a foreign trader or a service provider with a product purchaser and/or a service recipient shall be directly collected, paid, and reported by such foreign trader or service provider. Further, in case the foreign trader or the service provider conducts the transaction with a product purchaser and/or a service recipient through an offshore PMSE provider or an onshore PMSE provider, then the payable VAT may be collected, paid, and reported the foreign trader or the service provider, the offshore PMSE provider or the onshore PMSE provider who is appointed as a PMSE VAT Collector.

The VAT that must be collected by a PMSE VAT Collector is at 10% times the tax basis and must be collected during the payment by a product purchaser and/or a service recipient. A PMSE VAT Collector must further prepare a proof of the VAT collection which states the VAT collection and the payment of the VAT.

  • VAT Payment and Payment Reporting

A PMSE VAT Collector must pay the collected tax for each tax period by no later than the following month after the end of the tax period. The VAT payment shall be conducted electronically through the State Treasury’s account. The VAT may be paid in (i) Rupiah, (ii) US Dollars, or (iii) any other foreign currencies stipulated by the Director General of Taxation.

Further, VAT payment reports must be made quarterly and submitted through an application or system determined by the Director General of Taxation.

  • Possible Sanctions

The Regulation does not stipulate any sanctions for non-compliance.  However, pursuant to Article 7 of Perppu 1/2020, any PMSE VAT Collector that does not satisfy the VAT collection provisions may be subject to administrative sanctions and/or termination of access in Indonesia. At this stage, we are uncertain how the Government will implement the sanctions. We anticipate that this will be dealt with or clarified in the regulation of the Director General of Taxation.

 

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May 20, 2020

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