Value Added Tax Facilities

Tax facilities

As stated in government regulations, tax facilities are granted to certain taxpayers in the form of non-collection of VAT or VAT exemption. These facilities are covered by the following schemes:

Bonded zones

Bonded Zone (Kawasan Berikat/KB) status is typically granted by MoF at the request of export-oriented manufacturing companies. The aim is to minimize idle investments in input VAT and LST overpayments resulting from the existence of refunds pending approval for export activities. As a result, the KB status brings about a non-collection of VAT and VAT exemption facilities in respect of:

  • Importation or domestic purchases of goods for further processing;
  • Importation of office equipment to be used only by the KB company concerned;
  • Importation of plant equipment and machinery related directly to manufacturing activities to be used only within or by the KB company concerned.

The traffic of goods between KB companies as well as between a KB company and its supporting contractors is also facilitated by means of the same tax facility. As a result, VAT and LST do not need to be collected for the following traffic of goods:

  1. Shipments of products from a KB company to another KB company for further processing;
  2. Shipments of goods and/or materials from a KB company to a non-KB company within the Customs Area in a subcontract arrangement, as well reshipment of goods processed by the non-KB company to the KB company;
  3. The lending of plant, machinery or equipment by a KB company to another KB company or non-KB company within the Customs Area, and the reshipment of the same machinery or equipment to the KB company in a subcontract arrangement.

Foreign-Grant or Foreign-Loan-Funded Governmental Projects VAT, LST and Article 22 income tax on imports are not to be collected on the importation of goods and the use of foreign taxable services and/or foreign intangible goods relating to foreign-grant or foreign-loan-funded government projects by the main contractors, consultants and suppliers.

Strategic Goods

The deliveries and/or import of taxable goods designated as strategic goods are exempt from VAT. The designation of strategic goods is made through a government regulation. Currently, the following goods are included:

  1. Capital goods in the form of machinery and plant and equipment required for the manufacturing of taxable goods;
  2. Agricultural, plantation and forestry products, animal husbandry products, including hunting and trapping, and fishery products, including the capture and cultivation of fish;
  3. Electricity, except household electricity exceeding 6,600 watts;
  4. Clean water distributed through pipes by drinking water companies;
  5. Cattle, poultry and fish feed, and the raw materials for manufacturing these;
  6. Seeds and seedlings for agricultural, plantation, forestry, farm and animal husbandry products.

Other VAT Exemption Schemes

To support the achievement of certain national objectives, VAT is exempt on the import and/or deliveries of the following taxable goods or taxable services:

  1. weapons, ammunition, transportation vehicles and various other appliances for use by the armed forces and the state police;
  2. polio vaccines for use in the National Immunization Programmed;
  3. general education and religious books;
  4. ships and spare parts for use by national commercial shipping companies or national fishing companies;
  5. aircraft and spare parts for use by national commercial airline companies;
  6. trains and spare parts for use by PT Kereta Api Indonesia;
  7. low-cost housing, basic fats and student accommodation;
  8. train maintenance and repair services received by PT Kereta Api Indonesia;
  9. services received by national commercial shipping companies or national fishing companies, including ship rental, seaport services and ship maintenance or docking services;
  10. services received by national commercial airline companies, including aircraft rental and maintenance services;
  11. services rendered for the construction of low-cost housing, basic fats and places of worship; rental of low-cost houses.

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