Indonesia tax on digital services raises USD114m in first half of 2021

Indonesia's Directorate General of Taxes (DGT) has revealed that USD114 million (1.65 trillion rupiah) has been recouped in the first half of 2021 as a result of the VAT rules that apply to the cross-border supply of digital services.

The figures were released by the DGT on July 12 and show a 125% increase since the second half of 2020. Of course, in the interim, a significant number of additional digital businesses have been nominated as VAT collectors by the DGT.

In this latest communication the DGT also added two more digital businesses — PT Fashion Marketplace Indonesia (Zalora) and Pipedrive OU — as VAT collectors. This brings to 75 the number of non-resident digital businesses that have been nominated as VAT collectors.

In its June 3 publication, the DGT nominated the following digital businesses as VAT collectors in Indonesia: TunnelBear LLC; Xsolla (USA), Inc.; Paddle.com Market Limited; Pluralsight, LLC; Automattic Inc; Woocommerce Inc.; Bright Market LLC, and PT Dua Puluh Empat Jam Online.

Back in January, the DGT published for the first time a complete list of all non-resident digital businesses that had been nominated as VAT collectors in Indonesia. As of June 3, 2021, this list numbered 73 businesses.

The DGT clarified that for marketplaces appointed tax collectors, VAT collection is only carried out on the sales of digital goods and services by foreign sellers that sell through the marketplace.

In late November 2020, the Indonesian authorities revealed that the introduction of these new VAT rules resulted in USD20.9million being collected from nominated non-resident businesses in the first three months (August to October) of their existence.

The DGT has also published a useful series of FAQs relating to the nomination of businesses as VAT collectors in Indonesia.

Previously nominated digital businesses

The DGT first nominated affected non-resident digital businesses on July 7, 2020. The six listed companies were: Amazon Web Services Inc.; Google Asia Pacific Pte. Ltd.; Google Ireland Ltd.; Google LLC.; Netflix International B.V., and Spotify AB. Collection obligations for this first wave of nominated digital businesses commenced on August 1, 2020. 

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. Some of the companies on this third list included: LinkedIn Singapore Ltd; McAfee Ireland Ltd; Skype, Twitter, and Zoom. Obligations for these 12 nominated companies commenced on October 1.

The fourth such list was published on October 9. The eight companies nominated were: Alibaba Cloud (Singapore) Pte Ltd; GitHub, Inc.; Microsoft Corporation; Microsoft Regional Sales Pte. Ltd.; UCWeb Singapore Pte. Ltd.; To The New Pte. Ltd.; Coda Payments Pte. Ltd., and Nexmo Inc. Obligations for these companies started on November 1. 

The fifth list, was published on November 17. The 10 companies nominated were: Cleverbridge AG Corporation; Hewlett-Packard Enterprise USA; Softlayer Dutch Holdings BV (IBM); PT Bukalapak.com; PT Ecart Webportal Indonesia (Lazada); PT Fashion Eservices Indonesia (Zalora); PT Tokopedia; PT Global Digital Niaga (Blibli.com); Valve Corporation (Steam), and beIN Sports Asia Pte Limited. VAT collection obligations commenced for these businesses on December 1. It is important to note that in late December 2020, Zalora's listing was revoked by the DGT as another subsidiary was proposed as a VAT collector.

The sixth such list was published on December 28, 2020, by the DGT. Six additional companies were nominated: Etsy Ireland Unlimited Company; Proxima Beta Pte. Ltd.; Tencent Mobility Limited; Tencent Mobile International Limited; Snap Group Limited, and Netflix Pte. Ltd. VAT collection obligations commenced for these businesses on January 1, 2021.

The seventh list was published on January 29, 2021. Two new digital businesses, eBay eBay Marketplace GmbH and Nordvpn SA, were nominated with VAT collection obligations beginning for these businesses on February 1, 2021. 

The eighth list was published on March 30. This list featured four new digital businesses:  Amazon.com.ca, Inc.; Image Future Investment (HK) Limited; Dropbox International Unlimited Company, and Freepik Company SL. VAT collection obligations for these businesses commenced on April 1, 2021.

The ninth list was published on May 4. This list featured eight new digital businesses: Epic Games International S.à rl, Bertrange, Root Branch; Expedia Lodging Partner Services Sàrl; Hotels.com, LP; BEX Travel Asia Pte Ltd; Travelscape, LLC; TeamViewer Germany GmbH; Scribd, Inc., and Nexway Sasu. VAT collection obligations for these businesses commenced on May 1, 2021.

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 10% VAT on their sales there. The narrow timeframe for affected businesses to comply will, no doubt, be challenging. It should be noted that the Indonesian Government plans to propose an increase of the VAT rate to 12%.

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.

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