The intricate system of tax regulations in Indonesia includes provisions that offer significant relief to certain international entities and their representatives.
According to the Law of The Republic of Indonesia Number 7 of 1983 regarding Income Tax, as amended by Law Number 7 of 2021 regarding Harmonization of Tax Regulations, four groups exempted from income tax are as follows:
- Representative offices of foreign countries;
- Officials of diplomatic and consular missions, or any other foreign officials and any individuals who work for and stay with them, provided that they are not Indonesian citizens, and their income is solely derived from their official duties in Indonesia, and the aforementioned country grants reciprocal treatment;
- International organizations, provided that: 1). Indonesia is a member of the aforementioned organization; and, 2.) they do not engage in income-generating activities in Indonesia, except for government loans.
- Representatives of international organizations as referred to in point c, provided that they are not Indonesian citizens and do not engage in income-generating activities in Indonesia.
These exemptions are rooted in the principle of reciprocity, ensuring that Indonesian diplomats and officials receive similar treatment abroad. The Indonesian government extends tax exemptions to officials of diplomatic and consular missions from partner countries, mirroring the tax-exempt status granted to Indonesian diplomats and consular officials in those countries.
However, regarding value-added tax (VAT) and sales tax on luxury goods (Pajak Penjualan atas Barang Mewah / PPnBM), the law does not explicitly exempt these same entities. This means that, theoretically, they could be liable for VAT and PPnBM when importing or purchasing taxable goods (Barang Kena Pajak / BKP) or services (Jasa Kena Pajak / JKP) within Indonesia.
According to international norms and agreements, diplomatic and consular representatives of partner countries, and international organizations along with their officials, are given exemptions from VAT or PPnBM.
Therefore, Government Regulation (Peraturan Pemerintah / PP) Number 47 of 2013 regarding the Granting of Exemption from VAT or VAT and PPnBM to Representatives of Foreign Countries, International Organizations, and their Officials, as amended by PP 47 of 2020, formalizes these exemptions, ensuring that BKP imports by these entities are free from VAT and PPnBM. This regulation also extends to taxable entrepreneurs who carry out BKP and JKP deliveries to these entities.
The basis for these exemptions is the principle of reciprocity, international agreements, or customary international law. Exemption due to the principle of reciprocity is granted to foreign country representatives and their officials. In addition, the provisions regulate exemptions based on reciprocity are granted up to the minimum purchase limit set by the foreign country or the Indonesian Minister of Foreign Affairs.
In cases where Indonesia does not have a representative office in a specific country, exemptions can still be granted based on reciprocity, as if such an office were present.
On the other hand, the exemption from VAT and/or PPnBM granted due to an agreement is granted to international organizations and their officials whose agreement contains provisions governing the granting of VAT and/or PPnBM exemption. For international organizations and their officials, exemptions are contingent upon agreements that explicitly provide for VAT and PPnBM relief. In the absence of such agreements, exemptions are granted under customary international law.
Obtaining VAT and PPnBM Exemptions Procedures
To qualify for VAT and PPnBM exemptions on taxable goods, foreign representatives, officials, and international organizations must secure a recommendation letter from the ministry in charge of state secretariat affairs. This letter is then submitted to the Ministry of Finance through the tax office to obtain an exemption certificate.
The procedures for granting exemptions from VAT and/or PPnBM on the acquisition of BKP by representatives of foreign countries, officials, and international organizations are detailed in the Minister of Finance Regulation (MoFR) Number 59 of 2024 regarding Procedures for the Granting of Exemption from VAT or VAT and PPnBM to Representatives of Foreign Countries, International Organizations, and their Officials.
Transfer of BKP
Article 9 of PP 47 of 2020 mandates that if BKP exempted from VAT and PPnBM are transferred within four years of import or acquisition, the exempted taxes must be repaid within one month of the transfer.
This also applies to JKP, which has received similar exemptions. This means that if representatives of foreign countries, officials, and international organizations transfer JKP whose acquisition has been granted VAT and/or PPnBM facilities, then the VAT and/or PPnBM that has been exempted must be deposited into the state treasury within one month from the time the JKP is transferred.
However, if the BKP or JKP are transferred to other foreign representatives, officials, or international organizations eligible for exemption facilities, the exempted VAT and PPnBM do not need to be repaid.
Related Provisions
- Law of the Republic of Indonesia Number 8 of 1983 regarding Value Added Tax and Sales Tax on Luxury Goods as amended by Law of the Republic of Indonesia Number 7 of 2021 regarding Harmonization of Tax Regulations.
- Government Regulation Number 47 of 2013 regarding the Granting of Exemption from VAT or VAT and PPnBM to Representatives of Foreign Countries, International Organizations, and their Officials as amended by PP 47 of 2020.
- Minister of Finance Regulation Number 59 of 2024 regarding Procedures for the Granting of Exemption from VAT or VAT and PPnBM to Representatives of Foreign Countries, International Organizations, and their Officials.
