On March 19, 2021, the Director General of Taxation (“DGT”) issued a Circular letter No.SE-28/PJ/2021 (“SE-28”) for uniformity of the VAT treatment in relation to transfer of land and its VAT credit. Salient confirmations made by SE-28 are as follows:

1. Generally, VAT is payable on transfer of land that was used for business conducted by a VATable Entrepreneur.   However, transfer of land to another VATable Entrepreneur which is undertaken as a result of corporate actions (such as mergers, spin-offs, business takeover and so forth) or for capital participation purposes is not VATable.
2. For a VATable entrepreneur that engages in land/building transfers business, the VAT payable on the transfer of land should be administered in the Tax Office where the land is located. However, for a VATable Entrepreneur that is registered in a Large Taxpayer Office, the Jakarta Special Tax Office, or a Middle/Madya Tax Office (collectively called “KPP BKM”), and the land is located within the working area of such tax office, the VAT administration shall take place therein.
3. Land transfer made by a VATable Entrepreneur to a Government Institution in the context of land acquisition is subject to VAT with a transaction code of 01. Such VAT is not being collected by the Government.
4. The treatment of input VAT credit arising from acquisition of land for a VATable Entrepreneur that is still in pre-production stage will be as follows:
   • Before the enactment of Law Number 11 of 2020 concerning Job Creation (“Omnibus Law”), the land may be considered as Capital Goods and the input VAT related to it may also be credited although the land is not depreciable; and
   • After the enactment of the Omnibus Law, input VAT from land acquisition, either as Capital Goods or Non-capital goods, is creditable.

SE-28 also provides case studies on how the VAT treatment and administration should work. However, please bear in mind that the general VAT administration requirements and the timeframe of pre-production stage set by the VAT Law shall prevail in crediting the input VAT from land acquisition.