The Indonesian Minister of Finance ("MOF") has issued a regulation that imposes 0% Value Added Tax ("VAT") on the export of certain domestically produced services in Indonesia, including legal consultation services.
MOF Regulation No. 32/PMK.010/2019 regarding the Limitation of Activities and Types of Taxable Services for Export Subject to Value Added Tax ("MOF Reg 32") was enacted on March 29, 2019.
MOF Reg 32 revokes MOF Regulation No. 70/PMK.03/2010 regarding the Limitation of Activities and Types of Taxable Services for Export Subject to Value Added Tax dated March 31, 2010, as amended by MOF Regulation No. 30/PMK.03/2011 dated February 28, 2011 ("MOF Reg 70").
Applicability and Requirements
MOF Reg 32 defines "export" as a service activity carried out within Indonesia's Customs Area resulting in the goods, facilities, conveniences or rights being available for use outside the Customs Area. Under this new regulation, the export of certain services from Indonesia by a taxable business to a client that utilizes such services abroad ("Foreign Client") will be imposed with 0% VAT.
To qualify for the 0% VAT the following requirements must be fulfilled:
- There must be a written agreement between the taxable business and the Foreign Client that contains the following:
- type of the exported service;
- a description of the service provided by the taxable business that will be utilized overseas by the Foreign Client; and
- the price of the service.
- Payment from the Foreign Client to the taxable business for its service, evidenced by a valid proof of payment.
Any export of services that does not fulfil the above requirements will be considered a domestic delivery of services and shall be imposed with 10% VAT. Note that services that are both produced and utilized abroad shall not be imposed with VAT.
Types of Exported Services Subject to 0% VAT
MOF Reg 32 provides that the export of the following services produced in Indonesia is subject to 0% VAT:
- Services connected to movable goods utilized outside the Customs Area, which consist of:
- toll manufacturing services;
- repair and maintenance services; and
- freight forwarding services on export-oriented goods, which was not previously provided in MOF Reg 70.
- Services connected to immovable goods located outside the Customs Area in the form of consultation services for construction.
- Other services where the output is utilized outside of the Customs Area based on a request from an overseas recipient through either:
- direct or indirect transmission (i.e. via postal services or electronic channels); or
- the provision of access outside the Customs Area.
These "other services," which were not previously covered in MOF Reg 70, consist of:
a.information and technology services;
b. research and development services;
c. rental of aircraft and/or ships for international flights or shipping activities;
d. consultation services in the form of:
- management and business consultation services
- legal consultation services
- interior and architectural design consultation services
- human resource consultation services
- engineering consultation services
- accounting consultation services
- financial audit consultation services
- tax consultation services
e. "trading services" in the form of services that assist in finding domestic sellers of goods for export purposes; and
f. interconnection, satellite operations and/or communication/data connectivity services.
It is interesting to note the services grouped under "other services" in MOF Reg 32 that were not included in the previous regulation, among others management and business consultation services and legal consultation services.
Method of Imposition
The method of the 0% VAT imposition provided for in MOF Reg 32 does not differ from general taxation principles in Indonesia. In other words, the taxable business, as a VATable Entrepreneur, or Pengusaha Kena Pajak, shall prepare a VAT invoice (i.e. Export Declaration of Services or Pemberitahuan Ekspor Jasa Kena Pajak) along with a sales invoice. The taxable business should report the export of its services in its monthly VAT returns as per usual practice. The input VAT relating to the exported services should be creditable to the taxable business.
We have been advised that there will be an implementing regulation for MOF Reg 32, but it has not been issued as of this writing. It will be necessary to monitor the development of MOF Reg 32 and how it is implemented in practice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.