Reminder: Indonesia Implemented New VAT Regulations with 12% Rate Effective January 1, 2025

On December 31, 2024, the Indonesian Minister of Finance issued Regulation No. 131 of 2024 (PMK-131), which establishes a 12% value-added tax (VAT) effective January 1, 2025, applying to both luxury and non-luxury goods. The regulation outlines the calculation of the tax base, including a transition period allowing for an alternative tax base for deliveries to end consumers until January 31, 2025. Additionally, technical guidance on VAT invoice preparation was released on January 3, 2025, detailing compliance requirements and exemptions for certain services.

On 31 December 2024, the Minister of Finance issued Regulation No. 131 of 2024 (PMK-131) which went into effect on 1 January 2025, and outlines how VAT should be treated in Indonesia. The Director General of Taxation also issued technical guidance on VAT invoice preparation, which went into effect on 3 January 2025.

The Regulation details how VAT will be applied to luxury and non-luxury goods, the calculation of the tax base, and the transition period for implementing these changes.

The main elements of the Regulation are as following:

1. VAT Rate and Tax Base:

• The VAT rate is set at 12% for 2025,
• For luxury goods, VAT is calculated based on the full selling price or import value,
• For non-luxury goods, the tax base will use an "Other Value," which is defined as 11/12 of the selling price or import value.

2. Transition Period:

• From January 1 to January 31, 2025, a transition period allows for the use of the Other Value tax base for deliveries made to end customers,
• After this period, from February 1, 2025, the full selling price will be used as the tax base for all sales.

3. Exemptions:

• Certain services are exempt from VAT, including educational services from accredited institutions and specific financial services.

4. B2B Transactions:

• A reverse charge mechanism applies where VAT-registered businesses in the Philippines are responsible for withholding and reporting VAT on services received from foreign providers.

5. VAT Invoice Requirements:

• Every transaction involving a VAT-registered non-resident DSP must include a digital sales invoice with specific details such as transaction date, consumer identification, and total amount including VAT.

6. Refund Procedures:

• If excess VAT is collected due to incorrect tax base application, the taxed party can request a refund from the seller, who must amend their tax invoice accordingly.

7. Administrative Updates:

• Businesses must update their administrative processes to reflect these changes in invoicing and compliance with new regulations.

While the effective VAT impact for non-luxury goods remains at 11%, businesses must adapt their invoicing practices to comply with PMK-131 and its associated technical guidance issued by the Director General of Taxation.