Indonesia tax update: the new Job Creation Law and tax relief for electric vehicles
Benjamin Simatupang and Terananda Prastiti of GNV Consulting outline a host of significant tax updates from Indonesia, including an updated Job Creation Law and a VAT incentive for battery-based electric vehicles.
‘New’ Job Creation Law
On December 30, 2022, the Indonesian government issued Government Regulation in Lieu of Law Number 2 of 2022 (Perppu-2), as an amendment to the original Job Creation Law. The issuance of Perppu-2 is triggered by Constitutional Court Decision No. 91/PUU-XVIII/2020 which instructed the Government to amend Law No. 11 (the Job Creation Law). On March 31, 2023, Perppu-2 was passed into Law No. 6 of 2023 (Law No. 6).
Law No. 6 replaces Law No. 11, and therefore it amends the tax laws most recently adjusted by the Law on Harmonization of Tax Regulations. There are no significant changes in the content of the taxation section.
This law became effective on March 31, 2023.
VAT on the transfer of foreclosed assets
On April 11, 2023, the Minister of Finance issued Regulation No. 41 of 2023 (PMK-41) regarding the transfer of foreclosed assets by creditors to collateral buyers. PMK-41 is the implementing regulation of Government Regulation No. 44 (GR-44). In GR-44, the transfer of foreclosed assets by a creditor to a buyer is considered delivery of rights to taxable goods under an agreement, and therefore is subject to VAT.
PMK-41 requires that the VAT is collected at a specific rate, i.e. 10% of the prevailing VAT rate, or an effective rate of 1.1%, on the transfer of foreclosed assets to a buyer. The VAT is collected when the creditor receives payment from the buyer.
Creditors that are firms subject to VAT are obliged to issue VAT invoices and report them in the monthly VAT returns. Input VAT on the acquisition of taxable goods and/or services related to the transfer of foreclosed assets cannot be credited by the creditor. On the other hand, buyers of foreclosed assets that are firms subject to VAT are allowed to credit the input VAT in accordance with the provisions of the tax laws and regulations.
This regulation became effective on May 1, 2023.
Certificates of Origin
Minister of Finance Regulation No. 35 of 2023 (PMK-35) establishes several new provisions that facilitate the import of goods and services through cooperation between Indonesia and various other countries. These provisions were previously scattered across different laws and regulations. Once PMK-35 becomes effective, any procedural matters related to the submission of Certificates of Origin (COO) and/or Declarations of Origin (DAB) and the imposition of import duty tariffs on imported goods based on agreements or international accords must comply with this new regulation.
Among other things, PMK-35 reduces the timeline for submission of COOs and DABs from 30 days to one to five days.
This regulation became effective on April 28, 2023.
VAT incentive for battery based electric vehicles
The Minister of Finance has issued Regulation No. 38 of 2023 (PMK-38) which provides VAT incentives for battery-based electric vehicles. Under PMK-38, a portion of the VAT due on the sale of specified four-wheeled vehicles and buses will be borne by the government. The period covered is from April to December 2023. Deliveries of battery-based electric vehicles can enjoy this benefit provided that the vehicles are newly registered and meet the domestic content requirement.
Any VAT that has is borne by the government must be repaid if the battery-based electric vehicle sold does not meet the requirements.