On April 11, 2023, the Minister of Finance issued Regulation No. 41 of 2023 (“PMK-41”) regarding 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 Value Added Tax (VAT).

PMK-41 governs 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 VATable firms 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 VATable firms 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.