Indonesia Implements a New VAT Collection Mechanism on Transactions of Digital Goods/Services (2020 Update)

Suryo Utomo

The government has implemented a new Value Added Tax (VAT) collection mechanism on cross-border transactions of digital goods or services under Government Regulation in Lieu of Act (Perppu) No. 1 of 2020.

Perppu No. 1 of 2020 is mainly intended to secure national economy and maintain stability in financial system under the current situation of COVID-19 pandemic. To reach these purposes, some policies on national finance and financial system stability are introduced, among of which is e-commerce taxation. Finance Minister Sri Mulyani Indrawati said that COVID-19 pandemic has increased electronic transactions because people are no longer much engaged in physical mobility.1

Under the regulation, VAT from cross-border transactions of digital goods or services is collected by nonresident suppliers or nonresident e-commerce intermediaries. The new mechanism is in line with OECD VAT/GST Guidelines 2017 which proposes to register nonresident suppliers and designate them as VAT Collectors in order to minimize VAT losses from such transactions.4 Previously, Indonesia only applies reverse charge mechanism (that is, VAT collection rests with resident buyers),2 which has proved ineffective especially in business to consumer transactions.3

The New VAT Collection Mechanism

The mechanism may apply where a nonresident (“supplier”) delivers Intangible Taxable Goods (including Digital Goods, such as softwares, multimedia and electronic data)5 or provide Taxable Services (including Digital Services, such as software-based services)6 through E-Commerce to a buyer to be consumed in Indonesia. In this case, the supplier is required to:

  • charge the buyer ten percent VAT on the payment made in the transaction;
  • pass on the VAT amounts to the government by the end of the next month; and
  • file a quarterly report by the end of the next month of the quarterly period.7

See Notes.8

The VAT obligations apply where these thresholds are satisfied:

Firstly, activity threshold. Such transactions have generated yearly gross revenue in Indonesia or yearly traffic over a certain limit (soon will be determined by the government).9

Secondly, designation threshold. Nonresident suppliers have been designated by Director General of Tax as VAT Collectors.10 Where a nonresident supplier have reached other thresholds but has not been designated as VAT Collectors, it can notify tax office to be designated as VAT Collectors.

Thirdly, location of consumption threshold. Intangible Taxable Goods or Taxable Services are consumed in Indonesia. This is satisfied if at least one of three conditions applies.11 First, buyers are domiciled in Indonesia, either correspondence/billing address is located in Indonesia or registration country in the e-commerce system is Indonesia. Second, payments are made through Indonesian service providers. Third, buyers use Indonesian IP addresses or telephone numbers to complete e-commerce transactions.



2 VAT Act No. 42 of 2009, Art 3A(3).


4 Ibid.

5 Finance Minister Regulation No. 48/PMK.03/2020, Art 3 para (2).

6 Ibid, Art 3 para (3).

7 Ibid, Arts 6-9.

8 Notes:

  • Where an E-Commerce Intermediary acts as an intermediary between supplier and buyer, VAT can be charged, passed on and filed by the E-Commerce Intermediary (Ibid, Art 2 para (4)).
  • Nonresident suppliers or nonresident E-Commerce Intermediary can designate a representative in Indonesia to perform such obligations. (Perpu No. 1 of 2020, Art 6 para (11)).

9 Finance Minister Regulation No. 48/PMK.03/2020, Art 4 para (2).

10 Ibid, Art 4 paras (5)-(8).

11 Ibid, Art 5 paras (1)-(2).

Credit: (Image is taken from

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