Transitional Guidelines on VAT rules for 2025

To provide legal certainty and clear technical guidelines for issuing Tax Invoices (Faktur Pajak) in accordance with Minister of Finance Regulation No. 131/2024, the Directorate General of Taxes (DGT) has issued PER-1/PJ/2025. This regulation offers guidance for Taxable Entrepreneurs (Pengusaha Kena Pajak/PKP) regarding the implementation of the new VAT rate of 12%.

VAT Invoices Issued During the Transition Period (1 January–31 March 2025)

In principle, VAT Invoices and certain documents equivalent to VAT Invoices (hereinafter collectively referred to as “VAT Invoices”) must be created by the VATable Entrepreneur (PKP) correctly, completely, and clearly.

Under PMK-131, for most goods and services, the 12% VAT rate is applied on a Tax Base (Dasar Pengenaan Pajak/DPP) in the form of the Other Value (“DPP Nilai Lain”), which is set at 11/12 of the import value, selling price, or compensation, rendering the “effective” VAT rate to be 11%. However, due to the sudden implementation of the new rule, the DGT provides a grace period for VAT Invoices under this category that are issued between 1 January and 31 March 2025, where:

a. VAT Invoices using a 12% rate on a full/normal tax base; or
b. VAT Invoices using an 11% rate on a full/normal tax base

are considered valid as long as they include all other required information under the VAT Law. Certain documents equivalent to a VAT Invoice that have not stated the DPP Nilai Lain amount are also considered valid.

If VAT has been collected using a 12% rate as per point (a) above, the party from which it was collected (buyer) may request a refund from the seller for the excess VAT collected. Based on this request, the seller shall make an amendment or replacement of the relevant VAT Invoice.

VAT Invoices Issued by Retailers to End Customers for Luxury Goods

Under PMK-131, luxury taxable goods currently subject to Luxury Goods Sales Tax (“LST”) are subject to the 12% VAT rate, with a transitional rule for domestic deliveries to end consumers in January 2025. During this period, the 12% VAT rate is applied on a DPP Nilai Lain set at 11/12 of the selling price, rendering the “effective” VAT rate to be 11%. The specific VAT rules during the transition period and thereafter are as follows:

a. Transitional Period (1–31 January 2025): VAT is calculated using a 12% rate, applied to 11/12 of the selling price as the Tax Base.
b. Effective from 1 February 2025: VAT is fully applied at 12% of the actual selling price.

However, PER-1/PJ/2025 stipulates that the above transitional rule does not apply to deliveries by retailers for:

• Land transportation in the form of motor vehicles;
• Water transportation in the form of cruise ships, excursion ships, ferries, and/or yachts;
• Air transportation in the form of airplanes, helicopters, and/or hot air balloons;
• Land and/or buildings; and
• Firearms and/or firearm bullets.

Impact of the New VAT Regulation on Businesses

The introduction of the 12% VAT rate requires businesses to adjust their invoicing processes to ensure compliance. Businesses must ensure that all VAT Invoices are properly issued, reflecting the correct VAT rate, to avoid complications in tax reporting and compliance audits. PKPs are advised to:

1. Review their invoicing systems to ensure the correct VAT rate is applied to transactions.
2. Train finance and accounting teams to handle VAT Invoices correctly under the new regulation.
3. Communicate with buyers and suppliers regarding any necessary adjustments in VAT calculations and invoices.
4. Monitor updates from the DGT to ensure continued compliance with evolving VAT policies.

Ensuring a Smooth Transition to the 12% VAT Rate

This regulation aims to facilitate the smooth transition to the new VAT rate while ensuring compliance with tax laws. Businesses must be proactive in implementing these changes to prevent tax disputes and ensure proper documentation. The Directorate General of Taxes recommends using digital invoicing solutions to automate VAT calculations and prevent errors in tax reporting.

By adopting best practices and ensuring compliance with VAT regulations, businesses can mitigate risks associated with incorrect invoicing. The increased VAT rate underscores the importance of efficient tax management strategies to maintain profitability and regulatory compliance.

Implementation Date

This regulation becomes effective on 3 January 2025. Businesses are urged to take immediate steps to align their tax practices with the new VAT requirements.

The adjustment to the 12% VAT rate represents a significant shift in Indonesia’s taxation landscape. Adhering to these guidelines will ensure businesses remain compliant, avoid penalties, and continue smooth operations within the new regulatory framework.