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Low risk taxpayer status: the tax facility which speeds up the VAT restitution process
Normally a company which is engaged in the export business (subject to 0% VAT) will have an excess payment of VAT (10% of purchases and/or assets). These companies may apply for restitution of the excess VAT which will be transferred back to them within 12 months, from the application date after processing the tax audit. Provided there is no tax correction to be made the money will be transferred no later than 1 month from the issuance of the tax assessment letter.
The first facility for VAT restitution is an obedient taxpayer. An obedient taxpayer owes preliminary tax for corporate tax and value added tax. The consequences if there is an underpayment of tax is a100% penalty.
The second facility of VAT restitution is a low risk taxpayer which is the same as an obedient taxpayer except there is a different requirement in the application and the penalty (if any) is 2% per month with a maximum of 24 months. Based on the Finance Ministry Regulation No. PMK-71/PMK.03/2010 and PMK-72/PMK.03/2010, the Director General of Taxation’s (DGT) decision of preliminary restitution of VAT shall be issued no later than 1 month from the VAT refund claim through the monthly VAT return.
A taxable entrepreneur that may be granted preliminary restitution of tax overpayments needs to fulfil the following requirements:
- Conducting activities of:
- Export of taxable tangible goods
- Delivery of taxable goods and/or delivery of taxable services to VAT collector
- Delivery of taxable goods and/or delivery of taxable services for which the VAT has not been collected
- Export of intangible taxable goods
- Export of taxable service
- Already stipulated as a low risk taxable entrepreneur
To be stipulated as a low risk taxable entrepreneur the following criteria must be met:
- Taxable entrepreneur is a publicly listed company with at least 40% of its total paid-up shares traded in the stock exchange in Indonesia
- Taxable entrepreneur is a company whose majority shares are directly owned by the Central Government and/or the Regional Government
- The taxable entrepreneur, if the above 2 points aren’t applicable, fulfils the following requirements:
- On time in delivering periodic VAT returns for the last 12 months
- Value of taxable goods sold in the previous year is at least 75% of its own production
- Financial statement for the previous 2 fiscal years as audited by a public accountant with an unqualified opinion or qualified opinion that has never been subject to initial proof audit and/or investigation within the last 24 months
Based on the audit result and if the DGT issues a tax underpayment assessment letter, the amount of tax underpayment should be paid plus an administrative sanction in the form of interest of 2% per month for a maximum of 24 months.
The documents required to process a VAT restitution are:
- Tax invoice out, in, export and import
- Commercial invoice
- Delivery order or goods receipt
- Payment voucher
The differences between the obedient taxpayer, low risk taxpayer and tax audit on VAT restitution are:
|Type||Procedure||Time period of decision or tax assessment letter||Penalty|
|Obediant taxpayer||Examination||1 month||100%|
|Low risk taxpayer||Examination||1 month||2% per month and max 24 months|
|Other taxpayer||Audit||12 months||2% per month and max 24 months|
T. +62 31 531 9598
If a multinational wants to expand into Indonesia they don’t need to worry about claiming excess VAT as the Government has issued the aforementioned 2010 tax regulation to speed up the VAT restitution process.
By applying for low risk taxpayer a multinational will have many advantages such as:
- No tax audit process so the result of an examination will be issued quickly
- The decision of preliminary VAT will be issued within 1 month of their application
- The cash down will be transferred at the latest 1 month post the issuance of the preliminary VAT decision
- The tax penalty is 2% per month with a maximum 24 months which is less than a 100% penalty on the obedient taxpayer process
- Only need to submit 1 tax invoice as all documents are attached on the application
Therefore the most appropriate VAT facility for a multinational is low risk taxpayer status. The cost is less but there are great benefits when compared with bonded zone, obedient taxpayer and other taxpayer. Aside from the low cost of employees and transportation multinationals must consider the VAT facility if they wish to operate in Indonesia.
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