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Accelerated Refund Facilities Available for New Investors
Prior to recent changes to Indonesia's VAT Law, the crediting of input tax paid by an enterprise could be effected by the time at which the enterprise was registered. New enterprises that had yet to enter into production and had paid excess tax could seek a refund at the end of the tax period. Taxand Indonesia discusses the changes impacting new investors.
The fourth amendment to the VAT Law, which entered into effect on 1 April 2010, makes various changes, including a mechanism for crediting input tax. These changes are as follows:
- Input tax may only be credited against output tax if the taxable enterprise has entered into production and has delivered products that are liable to tax.
- Refunds in respect of excess tax payments will only be made at the end of the fiscal year.
This change in the timing of rebates will clearly have an impact on an enterprise's liquidity. Consequently, the VAT Law provides that particular enterprises may be entitled to receive earlier refunds. These enterprises are:
(a) classified as being low-risk enterprises, such as:
exporters of tangible goods, intangible goods and services;
enterprises that make deliveries to a Value Added Tax collector; and
enterprises whose deliveries are not subject to the collection of Value Added Tax; and
(b) new investors, e.g. enterprises that are still at the pre-production stage and which have yet to make deliveries of their products.
In such cases, the request for a refund may be submitted after the end of the tax period (a period of one month).
The provisions governing the extension of prior refund facilities in respect of excess payments of input tax for new investors are set out in Minister of Finance Regulation No. 81/PMK.03/2010. The criteria for the granting of refunds are as follows:
a. the input tax must have been paid on acquisitions of capital goods that have useful lives of more than one year and that are not intended to be sold to third parties; and
b. the enterprise must enter into production within a period of not more than three years.
Risk of Failure to Commence Production
If after the expiry of the three year period the enterprise had failed to commence the production of goods or services, the investor must repay the refunded tax to the tax authority and will be charged interest at a rate of 2% per month.
The previous refund facility had the potential to help the liquidity of new investments that had yet to commence the production of goods and services on which VAT is payable. New investors should consider this before starting production.
Your Taxand contacts for further queries are:
T. +62 21 8399 919
T. +62 21 8399 919
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