Understanding the Term VAT-Registered Business (PKP) in Indonesia

VAT-Registered Business (PKP) is an important status within Indonesia’s taxation system, particularly in the collection and reporting of Value Added Tax (VAT). This status determines whether a business entity must collect, remit, and report VAT.

Several new regulations strengthen PKP rules by refining the definition and increasing administrative obligations. These include Law No. 7 of 2021 on the Harmonization of Tax Regulations (HPP) and the SDSN Law. Both regulations reaffirm the boundaries, procedures, and legal certainty regarding the registration and revocation of PKP status.

Definition of VAT-Registered Business (PKP)

According to the SDSN Law:

“A VAT-Registered Business (PKP) is an entrepreneur who delivers Taxable Goods and/or Taxable Services that are subject to tax under this Law.”

Thus, any entrepreneur who delivers taxable goods or services is generally considered a VAT subject. However, those categorized as small businesses may choose not to register as PKP as long as they meet certain turnover criteria. Conversely, entrepreneurs who exceed the turnover threshold or meet other stipulated requirements must register themselves as PKP with the Directorate General of Taxes (DGT).

The SDSN Law further emphasizes that PKP refers to entrepreneurs delivering taxable goods/services within the customs area and meeting specific thresholds. PMK 164/2023 states that businesses with an annual gross turnover exceeding IDR 4.8 billion must report their business for PKP registration. This registration must be completed no later than the end of the fiscal year when turnover surpasses the limit.

Rights and Obligations

Once registered, a VAT-Registered Business (PKP) must comply with several administrative and tax obligations. PKP must collect VAT on every delivery of taxable goods or services and remit the collected VAT to the state treasury according to the applicable schedule. PKP must issue tax invoices in accordance with regulations, maintain proper bookkeeping to support VAT administration, and submit the monthly VAT Return (Form 1111).

On the other hand, PKP also gains the right to credit Input VAT as long as it meets formal and substantive requirements. This ensures that VAT paid on purchases of taxable goods or services can be offset against Output VAT so that the tax burden is imposed only on the value added.

Risks of Late PKP Registration

Failing to timely report for PKP registration carries significant fiscal consequences. The DGT may assign PKP status ex officio when the taxpayer’s turnover has exceeded the threshold.

When the tax authorities conduct ex officio registration, they treat all deliveries of taxable goods or services as if the business applied VAT from the moment it should have registered. This requires the business to remit output VAT for past transactions, even if it did not charge VAT to customers at the time. In many cases, the business must bear this VAT as an expense because it cannot recover it from customers.

Furthermore, the taxpayer may be subject to administrative sanctions, including fines and interest under the General Tax Provisions and Procedures Law (KUP Law) for underpaid VAT. Because output VAT is applied retroactively, Input VAT from the same period is generally non-creditable, increasing the total tax payable.

Thus, late PKP registration not only results in additional liabilities for past transactions but also creates a potentially significant tax burden. Entrepreneurs should actively monitor their turnover and immediately report themselves before the fiscal year ends, as mandated by PMK 164/2023.

Procedures for PKP Registration

The process begins with preparing identification and business legality documents. For individuals, the required documents include a national ID (KTP) or passport and a Taxpayer Identification Number (NPWP), along with proof of domicile or a business rental agreement. For legal entities, required documents include the deed of establishment, Ministry of Law and Human Rights approval, corporate NPWP, and other documents proving business operations.

Once the business prepares the documents, it can submit the registration application through Coretax or deliver it directly to the local Tax Office (KPP). At this stage, entrepreneurs complete the registration form and upload the necessary documents.

The next stage is verification through a site survey. The tax officer will verify the actual existence of the business, the business premises, and the readiness of administrative requirements for PKP registration.

If all requirements are met, the Tax Office will issue the PKP Registration Certificate (SPPKP). The entrepreneur will then gain access to VAT-related features on Coretax. At this point, the business officially holds PKP status and must comply with all applicable administrative obligations.

Read also: 4 Major Tax Changes Coming August 2025 Under PMK 50–53/2025

Implications for Businesses

Obtaining PKP status brings strategic consequences for business operations. PKP status can enhance credibility in the eyes of business partners, signaling compliance with prevailing tax regulations.

However, PKP status also increases administrative workload. Businesses must manage electronic tax invoices properly, perform accurate reconciliation of input and output VAT, and comply with stricter reporting requirements.

The SDSN Law emphasizes transparency in tax administration. As the system becomes increasingly digitalized, entrepreneurs must adopt modern and precise tax governance. They must document every process thoroughly to meet current standards. Contact Us for further consultation.