Ever since the famous case between the Indonesian government and an international leading search engine company back in 2016, the government has been planning to issue an underlying regulation as a basis to tax trading of goods and services via online platform. This was initially planned to be accommodated in a Bill on the Taxation Provisions and Facilities for Strengthening the Economy or commonly known as the Taxation Omnibus Bill. Nevertheless, the implementation on the taxation to tax trading of goods and services is expedited due to the Covid-19 situation. The Minister of Finance stipulates that the Covid-19 situation increases demand for online trading and therefore, it is necessary to accelerate the implementation of this regulation for the State’s interest. The Government has issued the Law and several implementing regulations to be used for the basis of taxing the trading of goods and services via online platform, among others:
- Law Number 2 of 2020 on the Stipulation of Government Regulation In Lieu of Law Number 1 of 2020 on State Financial and the Stability of the Financial System Policies for the Mitigation of Coronavirus Disease 2019 (Covid-19) Pandemic and/or to Deal with Threats that are Potentially Harmful to the National Economy and/or the Stability of the Financial System (Law 2);
- Minister of Finance Regulation Number 48/PMK.03/2020 of 2020 on Procedures for Appointment of Collectors, Collection and Deposit, and Reporting of Value Added Tax in the Utilization of Intangible Taxable Goods and/or Taxable Services from Outside of Customs Area in the Customs Area through Electronic System Trading (PMK 48), which comes into force as of 1 July 2020;
- Directorate General of Taxation Regulation Number PER-12/PJ/2020 of 2020 on Certain Criteria of Collector and Appointment of Collector, the Collection, Deposit and Report of VAT in the Utilization of Intangible Taxable Goods and/or Taxable Services from Outside of Customs Area in the Customs Area through Electronic System Trading (PER 12); and
- Circular Letter of Directorate General of Taxation Number SE-44/PJ/2020 of 2020 on Guidelines on the Implementation and Appointment of VAT Collector for the Utilization of Intangible Taxable Goods and/or Taxable Services from Outside of Customs Area in the Customs Area through Electronic System Trading (SE 44).
The next section will provide general overview on the taxation regulation for Electronic System Trading (EST) under Indonesian laws.
What is Taxable for the EST Transactions?
Pursuant to Law 2, the EST Transactions can be taxed for:
- Value Added Tax (VAT) in the Utilization of Intangible Taxable Goods and/or Taxable Services from Outside of Customs Area in the Customs Area through the EST; and
PMK 84 regulates that the rates to be imposed in the Utilization of Intangible Taxable Goods and/or Taxable Services from Outside of Customs Area in the Customs Area through the EST is 10% of the purchase price (pre-VAT amount), which shall be collected on the payment of the transaction by the customers.
- Income Tax or Electronic Transaction Tax for the EST transactions which are conducted by foreign tax subjects who fulfil the criteria of significant economic presence, i.e.:
- having certain amount of consolidated gross circulation of a business group;
- having sales in Indonesia for certain amount;
- having active users of digital media in Indonesia for certain amount.
Both the income tax and electronic transaction tax will be calculated against the amount received by the foreign tax subject for the goods/services sold through the EST. The difference between them is that the electronic transaction tax will be imposed to foreign tax subjects which country of origin has tax treaty with Indonesian government that prohibits the Indonesian government to stipulate the foreign tax subjects as a permanent establishment in Indonesia. Hence, the electronic transaction tax will only be imposed to the foreign tax subjects if they cannot be stipulated as a permanent establishment due to tax treaty – otherwise, the income tax will be imposed.
Law 2 stipulates that further regulation on among others the rates and calculation of the income tax and electronic transaction tax will be further governed in a government regulation. Up to the date of this article, the Government has not enacted any government regulation yet for the guidelines on the imposition of income tax or electronic transaction tax for the EST transactions. Therefore, this article will focus more on the imposition of VAT for EST transactions.
Who (or what) is the Subject of the Taxable EST Transactions?
Law 2 stipulates that the Value Added Tax (VAT) will be imposed to the utilization of the intangible taxable goods and/or services in the Customs Area (Indonesia) through the EST transactions. The regulation under this Law is an extension of the imposition of value added taxes as previously regulated under the VAT and Luxury Good Tax Laws (VAT Law).
On the other hand, the Income Tax or the Electronic Transaction Tax for the EST transactions will be imposed to foreign (i) merchants, (ii) services providers, and/or (iii) EST providers who fulfil the criteria of significant economic presence in Indonesia, based on the income that they generate from the EST transactions.
Who is Obliged to Collect the VAT for the EST Transactions?
PMK 48 regulates that the VAT for the EST transactions must be collected by either (i) foreign merchants, (ii) foreign services providers, (iii) foreign EST providers and/or (iv) domestic EST providers who are appointed by the Directorate General of Taxation (the VAT Collector). PER 12 further stipulates that in order to be appointed as a VAT Collector (or voluntarily register themselves as VAT Collector to the Directorate General), they must fulfill the following criteria:
- having transaction value with Indonesian customer for over IDR 600 million in a year or IDR 50 million in a month; and/or
- having Indonesian traffic or Indonesian party who accesses the electronic system for over 12,000 in a year or 1,000 in a month.
Based on the information on the website of Directorate General of Taxation, the Directorate General has appointed 28 companies as a VAT Collector, among others: Google LLC, Linkedin Singapore Pte. Ltd, Zoom Video Communications, Inc., PT Shopee International Indonesia and Skype Communications SARL. Upon the appointment, the VAT Collector will be given a VAT Collector identity number and it must activate and update its information on the System provided by the Directorate General for VAT Collector (VAT Portal).
On the case where either the (i) foreign merchants, (ii) foreign services providers, (iii) foreign EST providers and/or (iv) domestic EST providers where the EST transactions occur has not been appointed as the VAT Collector, PMK 48 stipulates that the VAT is still outstanding and shall be collected, deposited and reported by the Indonesian consumers, as regulated under the VAT Law. Indonesian customers are customers who:
- domicile in Indonesia;
- pay the transaction by using debit, card, and/or other payment facilities issued by Indonesian institution; and/or
- conduct the transaction by using Indonesian internet protocol address or using Indonesian phone number.
What are the Obligations of VAT Collector?
Once appointed (or voluntarily register) as a VAT Collector, it will have the following obligations:
- it must collect the VAT payment upon payment of the transaction;
- it must create a VAT collection evidence, in the form of commercial invoice, billing, order receipt or similar documents stipulating the collection of the VAT;
- it must deposit the collected VAT for each tax period by the next month of the ending of the tax period at the latest;
the deposit must be made electronically (or by other means as regulated by the Directorate General) by using (i) Indonesian Rupiah – calculated by the foreign exchange rates stipulated in the applicable Minister of Finance Regulation for the deposit period; (ii) United States Dollar; or (iii) other currencies as stipulated by the Directorate General;
- it must report the collected and deposited VAT quarterly by at least the end of the quarter period;
the report must be submitted electronically in the appointed or provided system by the Directorate General (please also refer to the Is there any Other Thing to Note section below) and must at least contain the following information (i) the amount of the customers; (ii) the amount of payment; (iii) the total collected VAT; (iv) the total deposited VAT for each tax period;
other than the mandatory report as stipulated above, the Directorate General may request the VAT Collector to submit details of the collected VAT transactions for one calendar year;
- it must update its data (either through the VAT Portal or by email) if there is any change.
Is there any Other Thing to Note?
In order to increase the service to the taxpayer and considering the development of information technology, the Directorate General issues Directorate General of Taxation Regulation Number PER-11/PJ/2019 of 2019 on Taxation Application Service Providers (as lastly amended by Directorate General Regulation Number PER-10/PJ/2020 of 2020), which enables the Directorate General to conduct a partnership with application service providers in providing taxation services. After appointed by the Directorate General, the application service providers must provide application which performs the following services:
- issuance of taxpayer identification number;
- creating and distributing evidence on electronic withholding;
- providing host to host electronic invoice;
- providing access to create billing identification number;
- providing application for tax return in electronic documents;
- distributing the tax return in electronic documents;
- providing services for validation of taxpayer status; and
- providing other services as may be agreed by the Directorate General.
*Ali Budiardjo, Nugroho, Reksodiputro, Counsellors at Law in Jakarta
Freddy Karyadi, Partner
M +62 818 103 949
T +62 81910103949
Professional qualifications. Indonesia, Solicitor; Law, University of Indonesia, 1998; LLM in International Tax, Leiden University, 2002
Anastasia Irawati, Senior Associate
Professional qualifications. Indonesia, Solicitor; Law, Parahyangan Catholic University, 2011; LLM in Corporations Law, New York University (NYU) School of Law, 2016