Provision on VAT Payment in Free Trade Zones is Amended

The basis for the imposition of Value Added Tax (VAT) on the transfer or release of taxable goods and taxable services in free trade zones may use other values ??in addition to the selling price. Previously, the basis for the imposition of VAT was only based on the selling price or market price. 
 
This provision is contained in the Minister of Finance Regulation (PMK) Number 173/PMK.03/2021, revoking the previous provision, namely PMK Number 171/PMK.03/2017, which is an amendment to PMK Number 62/PMK.03/2021. 
 
In detail, the regulation stipulates the provisions on the transfer or entry of tangible or intangible taxable goods and taxable services from other places within the customs territory, bonded storage (TPB), and special economic zones (SEZ), or vice versa. 
 
1. Entry of tangible goods to the free zones 

Similar to the previous rule, every transfer or entry of tangible goods into free zones will not be subject to VAT. Except for the transfer of goods the VAT for which has been paid and the subsidized fuel. 
 
This facility is provided if the goods are entered through the designated port and the goods actually enter the free zone. An endorsement or statement from the Directorate General of Taxes (DGT) is required to prove this. 
 
The endorsements can be obtained by applying the electronic system provided. Another requirement is a document of Entry or Release Declaration of Taxable Goods or Taxable Services (PPBJ) made before the goods are entered. 
 
The existence of PPBJ is also the basis for entrepreneurs in other places in the customs territory, TPB, and SEZ in making tax invoices on the transfer of goods to entrepreneurs in free zones that are not subject to VAT. 

Without PPBJ, the delivery of tangible taxable goods will be subject to VAT or Sales Tax on Luxury Goods (STLG). 

2. Entry of intangible goods and services to free trade zones 

No VAT is imposed on every transfer of intangible taxable goods to free zones. For services provided by entrepreneurs in other places within the customs territory to entrepreneurs in free zones, some are subject to VAT, while the others are not. 

Taxable services that are subject to VAT are those produced and transferred by entrepreneurs in other places within the customs territory to free zones. 

Meanwhile, the transfer of taxable services that are not subject to VAT includes certain services or services produced in the free trade zones but provided by entrepreneurs in other places within the customs territory. Moreover, it also includes certain services provided by entrepreneurs at TPB or SEZ. (see table) 
 

Description	Location of Transferring Entrepreneurs	Location of Receiving Entrepreneurs	Tax Provisions
Intangible Taxable Goods	Other places in the customs territory	Free Trade Zones/Free Ports	Not Subject to VAT
Taxable Services	Other places in the customs territory	Free Trade Zones/Free Ports	Subject to VAT
Certain Taxable Services	Other places in the customs territory	Free Trade Zones/Free Ports	Not Subject to VAT
Taxable services produced in free trade zones	Other places in the customs territory	Free Trade Zones/Free Ports	Not Subject to VAT
Certain Taxable Services	bonded storage providers or Special Economic Zones	Free Trade Zones/Free Ports	Not Subject to VAT
Intangible Taxable Goods and Taxable Services	Free Trade Zones/Free Ports	Free Trade Zones/Free Ports	VAT Free

3. Release of Tangible Goods from Free Zones 

Any tangible taxable goods transferred or released by entrepreneurs in the free trade zones to other places within the customs territory is subject to VAT and/or STLG. (see table) 

Description	Location of Transferring Entrepreneurs	Location of Receiving Entrepreneurs	Tax Provisions
Tangible Taxable Goods	Free Trade Zones/Free Ports	Other places within the customs territory	Subject to VAT
Luxury Tangible Taxable Goods	Free Trade Zones/Free Ports	Other places within the customs territory	Subject to VAT and STLG
Tangible Taxable Goods from outside the customs territory	Free Trade Zones/Free Ports	Other places within the customs territory	Subject to VAT and STLG

The imposition of VAT and STLG does not apply to tangible taxable goods with the facility of VAT or STLG exemption, non-tangible taxable goods, and goods the VAT or STLG of which has been paid. The following criteria are not included in the submission of tangible taxable goods: 

•  Release of tangible taxable goods from outside customs territory for certain purposes and in the certain period from free zones to other places within the customs territory 
• Release of tangible taxable goods from outside customs territory for certain purposes and in the certain period from free zones to TPB, SEZ, and other free zones 
• Release of tangible taxable goods from other than outside customs territory released for certain purposes and in the certain period from free zones to other places within the customs territory 
• Re-release of tangible taxable goods from other places within customs territory, TPB, SEZ, by entrepreneurs inside the free zones 
• Release of tangible taxable goods for upstream oil and gas and geothermal exploration activities that receive the facility of non-collected VAT or the VAT is borne by the government. As long as it is not for the transfer of rights. 
• Release of tangible taxable goods is in the form of repeatedly-used packaging. 

All entrepreneurs in free zones or free ports that release tangible taxable goods must make a PPJB, no later than the time of the release. Meanwhile, for re-release activities, the PPJB must be made no later than the time of the entry of goods into the free zone. 

4. Release/Transfer of Intangible Taxable Goods and Taxable Services from Free Zones 
 
All intangible taxable goods and taxable services received and used by entrepreneurs in other places within customs territory from entrepreneurs in free zones and free ports are subject to VAT. Except for intangible taxable goods with the facilities of VAT exemption or non-collected VAT. 
 
The transfer of taxable services by entrepreneurs in free zones to entrepreneurs in SEZs to be used thereon is not subject to VAT, except for the transfer of certain taxable services which is further regulated in the taxation laws and regulations.