Value added tax in Indonesia, known locally as PPN (Pajak Pertambahan Nilai), is charged on most goods and services consumed in the country, and a foreign-owned company that sells, imports or buys services in Indonesia usually has to deal with it. The statutory rate is 12%, but for most non-luxury transactions the amount actually charged is 11%. This guide explains how the rate works, when a company must register as a VAT-collecting entrepreneur (PKP), how foreign digital services are taxed, and the monthly cycle that catches new companies out.
The Rate: 12% on Paper, 11% in Practice
The VAT Law, as amended by Law 7 of 2021 (the Tax Harmonization Law), sets the statutory rate at 12%. Ministry of Finance Regulation 131 of 2024 (PMK 131/2024) states the 12% rate in Articles 2(2) and 3(2). For most taxable goods and services it then uses an “other value” tax base of 11/12 of the selling price, replacement value or import value (Article 3(3)). The result is an effective rate of 11% (12% × 11/12). Article 3 also covers imports and the use of intangible goods and services from outside Indonesia, so the same 11/12 base applies to most imported services.
Luxury goods are the exception. Article 2(3) applies the 12% rate to the full price or import value for taxable goods classed as luxury, meaning motor vehicles and other goods subject to luxury goods sales tax (PPnBM). For sales to final consumers, Article 5 allowed the 11/12 base through 31 January 2025, and the full 12% applies from 1 February 2025. The regulation took effect on 1 January 2025 (Article 6). It does not list the luxury goods itself; the list sits in the PPnBM rules, so check those for a specific item.
Special regimes are carved out. Under Article 4, businesses that already collect VAT on a separate “other value” base or at a fixed percentage under other tax rules are not affected by Articles 2 and 3.
A practical point: invoices, contracts and accounting systems must show the tax base and the rate correctly. Writing “11% VAT” on an invoice for a luxury item, or the reverse, creates a correction problem later.
Explore Our Services Corporate Tax Compliance in Indonesia
Who Must Register as a PKP
A business becomes a PKP (Pengusaha Kena Pajak, a VAT-collecting entrepreneur) in three situations:
Revenue above the threshold
A business whose annual taxable revenue exceeds IDR 4.8 billion must register as a PKP by the end of the month in which the threshold is passed.
Voluntary registration
A business below the threshold can choose to register. This is common for PT PMA that buy a lot from VAT-registered suppliers and want to credit that input VAT.
Foreign permanent establishments (BUT)
A permanent establishment of a foreign company is a taxpayer in its own right. Confirm with a tax adviser whether the IDR 4.8 billion threshold applies to your structure, because we have not found a clear primary-source statement that a BUT is exempt from it.
How Registration Works
Under Article 60 of PMK 81/2024, an entrepreneur making taxable supplies or exports must report the business to be confirmed as a PKP, except small entrepreneurs, whose limit the Minister of Finance sets in a separate regulation. A small entrepreneur can still register voluntarily, and so can a business that intends to make taxable supplies from the start (Article 60(3) and (4)). The IDR 4.8 billion limit comes from that separate rule, not from PMK 81/2024. Registration is made at the tax office where the taxpayer is registered (Article 61). Do not issue VAT invoices before the PKP confirmation is issued.
VAT on Digital Services from Abroad (PMSE)
Foreign companies that sell digital goods or services to Indonesian customers can be designated as VAT collectors under the PMSE (electronic system trade) rules, without setting up a local entity.
Who Gets Designated as a Collector
Director General of Taxes Regulation PER-12/PJ/2025 (22 May 2025, effective on that date) sets the criteria in Article 4. A provider meets them with either of the following, or both:
- transactions with Indonesian users above IDR 600 million in one year or IDR 50 million in one month; and/or
- Indonesian traffic or visitors above 12,000 in one year or 1,000 in one month.
The tax office designates a qualifying provider by decision, effective from the start of the following month (Article 3). A provider below the criteria can also choose to be designated by notifying the tax office (Article 5). A designated provider collects VAT, deposits it by the end of the month after the tax period and before filing, and reports it on the monthly VAT return by the same date (Articles 12 and 13). A foreign provider may deposit in rupiah or in US dollars (Article 12(4)).
When You Are the Buyer
If you are the buyer, a related rule matters: when an Indonesian company pays a foreign vendor that was not designated as a collector, the Indonesian company usually has to self-assess VAT on the imported service. Management fees, software subscriptions, royalties and technical services from a parent company are the usual cases.
A Second Collection Route: SPP-TDLN
Indonesia has also created a payment-level collection system called SPP-TDLN. It rests on Presidential Regulation 68 of 2025 (signed and effective 5 June 2025, which names PT Jalin Pembayaran Nusantara as operator) and Ministry of Finance Regulation 49 of 2026 (PMK 49/2026, signed 14 July 2026 and effective on promulgation). It applies to digital goods and digital services from abroad whose VAT is not already collected by a designated PMSE provider (Article 5). A payment issuer, such as a bank or other payment institution, is designated as the collector. It must send the transaction data to the SPP-TDLN operator for confirmation, and VAT becomes due when the operator confirms that the transaction is taxable (Articles 6 and 8).
How the Collection Works
The collector takes VAT at 11/111 of a price that already includes VAT (Article 7), deposits it within 7 days of the confirmation (Article 12), and issues a document, such as a bill statement, that counts as a tax invoice (Article 10). A VAT-registered buyer can credit that VAT as input VAT if the email address or phone number on the document is registered with the tax office (Article 10(6)). Wrongly collected VAT can be reclaimed through the payment issuer (Article 16). If VAT on a digital service was not collected at payment, it is still due under the general VAT rules (Article 17).
For a foreign-owned company, the practical point is to look for the VAT line on bank or card statements for overseas subscriptions, and not to self-assess the same VAT twice. Collection is rolling out in stages: an issuer can only be designated after a development and stabilization period (Article 4). Press reports give different go-live dates in September 2026, so confirm the current status before advising a client on a specific date.
Exempt and Zero-Rated Supplies
Two categories are often confused.
Zero-Rated Supplies
exports of goods and services are generally charged at 0%. The seller still files VAT and can claim input VAT, which makes refunds possible.
Exempt or Non-VAT Supplies
certain basic necessities, financial, health, education and religious services are not subject to VAT. A seller of exempt supplies cannot credit related input VAT.
Do not rely on a general list for edge cases. Hotel and restaurant sales, for example, are usually subject to regional tax rather than national VAT, which is a different regime again.
Output VAT, Input VAT and the Monthly Cycle
Each month a PKP calculates output VAT (charged on sales) minus creditable input VAT (paid on purchases). The balance is paid, or carried forward or refunded if input exceeds output.
Tax Invoices (e-Faktur)
Under Article 382 of PMK 81/2024, a PKP must issue a tax invoice when goods or services are delivered, when payment is received if it comes first, or when a milestone payment is received. A combined monthly invoice for the same customer is allowed and must be issued by the end of that month (Article 383). An invoice issued more than three months late is not treated as a tax invoice, it counts as no invoice, and the VAT on it cannot be credited (Article 384). An invoice from the e-Faktur system also has to be approved by the tax office. The practical rule is to issue the invoice at the time of supply or payment rather than wait for a monthly cut-off date.
Payment and Return
VAT due for a tax period is paid by the end of the following month and before the monthly VAT return (SPT Masa PPN) is filed (PMK 81/2024, Article 94(3)(e)). The 15th-of-the-month deadline in Article 94(2) applies to income tax withholdings and, among others, to self-assessed VAT on intangible goods and services from abroad (Article 94(2)(i)).
Non-Creditable Input VAT
Input VAT cannot be credited where the invoice is defective or issued to the wrong party, where the purchase is not related to the business, or in other cases the law lists. Check entertainment, personal-use and vehicle purchases before crediting.
Late Filing and Payment
Late filing and payment carry administrative sanctions and interest.
Common Mistakes by Foreign-Owned Companies
- Wrong transaction code or wrong tax base on the e-Faktur.
- Mismatch between VAT return figures and income tax returns, which draws tax-office questions.
- Crediting input VAT that is not creditable.
- Issuing invoices late.
- Missing the self-assessed VAT on imported services such as management fees and royalties.
- Accepting pre-populated Coretax data without checking it against the books.
Coretax and Your VAT Records
Coretax is the Directorate General of Taxes’ core administration system, used for registration, invoices and returns. PMK 81 of 2024 is its main implementing regulation. Pre-populated figures from Coretax can differ from your ledger, so reconcile before filing. When the tax office sends a clarification request (known as SP2DK), the response is time-sensitive, and our guide to SP2DK in Indonesia explains what to expect.
How XPND Helps
XPND supports foreign companies with PKP registration, monthly VAT compliance, and review of imported-service VAT. See our accounting services in Indonesia and bookkeeping requirements for a PT in Indonesia. If you sell digital services into Indonesia, the PSE license guide covers the separate registration that often comes with it.
