Understanding VAT Obligations for Joint Operations (KSO) in Indonesia

Joint Operations (Kerja Sama Operasi / KSO) are a common business structure in Indonesia, particularly in large-scale projects requiring collaboration between multiple companies. While KSOs are not considered corporate entities for income tax purposes, they are still subject to VAT obligations and tax compliance regulations.

Understanding how VAT applies to KSOs is crucial for businesses operating in Indonesia. This guide explains the tax implications, VAT requirements, and compliance obligations for both Administrative and Non-Administrative Joint Operations.

Key Takeaways

1. A Joint Operation (KSO) is a temporary collaboration between entities to complete a project.
2. KSOs are subject to VAT obligations, including NPWP registration and tax invoice issuance.
3. Administrative JO requires NPWP and VAT reporting, while Non-Administrative JO does not.
4. VAT registration is mandatory if the KSO delivers Taxable Goods (BKP) or Taxable Services (JKP).
5. Failure to comply with VAT regulations can result in penalties, fines, and tax audits.

Joint Operations (KSO) and Taxpayer Obligations

According to the Income Tax Law (UU PPh), tax subjects in Indonesia include:

• Individuals
• Undivided inheritance as an entity
• Corporate entities (companies, limited liability companies, etc.)
• Permanent Establishments (BUT)

A Joint Operation (KSO), however, is not classified as a corporate taxpayer. Instead, corporate income tax (PPh Badan) applies to each participating entity based on their share of revenue or work completed.

While KSOs do not pay corporate tax directly, they are still subject to VAT regulations, requiring compliance with NPWP (Taxpayer Identification Number) registration, tax reporting, and VAT collection under specific conditions.

VAT Registration Requirements for Joint Operations

Under Directorate General of Taxes Regulation PER-04/PJ/2020, KSOs must comply with tax obligations, including:

• Registering for an NPWP (Taxpayer Identification Number)
• Obtaining Confirmation of Taxable Entrepreneur (PKP) status (if required)
• Issuing Tax Invoices for VAT transactions
• Filing periodic VAT returns and payments

The VAT obligations for KSOs depend on their classification:

Joint Operation Type	NPWP Requirement	VAT Obligations
Administrative JO	Required	Must issue tax invoices, report VAT, and file monthly VAT returns
Non-Administrative JO	Not Required	VAT compliance is handled by each participating entity

With the upcoming VAT tax base adjustments in 2025, businesses, including KSOs, need to be aware of how the new VAT calculation methods affect their transactions. Read more about the VAT tax base adjustment for 2025 here.

Understanding Administrative vs. Non-Administrative Joint Operations

KSOs are classified into two types based on their contract structure and tax treatment:

A. Administrative Joint Operation (JO)

• Operates as a separate legal entity.
• Requires an NPWP (Taxpayer Identification Number).
• Issues tax invoices for VAT transactions.Responsible for VAT collection, reporting, and compliance.

Advantages:

• Can issue tax invoices, making it attractive to business partners.
• Recognized as a professional, VAT-registered taxpayer.
• Can claim VAT refunds if input VAT exceeds output VAT.

Disadvantages:

• Must file monthly VAT returns; failure to report can result in penalties.
• Strict tax compliance is required, with potential audits.

B. Non-Administrative Joint Operation (JO)

• Functions as a coordination tool, not a separate entity.
• Does not require NPWP or separate tax records.
• Each participating entity manages its own VAT obligations.

Advantages:

• No need for VAT collection, reporting, or monthly tax returns.
• Avoids the risk of tax audits.

Disadvantages:

• Cannot issue tax invoices, making it harder to secure business contracts.
• Reputation may be less competitive compared to VAT-registered entities.
• Difficulties in sales and purchases, as many business partners prefer working with VAT-registered companies.

VAT Collection and Compliance for KSOs

For Administrative JO, VAT obligations include:

• Issuing tax invoices for transactions.
• Collecting and remitting VAT on taxable goods/services.
• Filing VAT returns every month.
• Paying corporate income tax (PPh Badan) if applicable.

For Non-Administrative JO, VAT obligations are managed individually by each participating entity. This means:

• VAT is not collected or reported at the JO level.
• Each company issues tax invoices separately for its share of the work.
• Business transactions may require additional tax documentation to split VAT obligations fairly.

The Indonesian government has recently implemented key VAT policy updates, including adjustments in VAT rates, reporting obligations, and compliance rules. Businesses engaged in KSOs should stay informed on Indonesia’s latest VAT policy updates to ensure compliance.

Implications of Non-Compliance

Failing to comply with VAT regulations can result in:

• Fines and penalties for late VAT reporting.
• Automatic tax assessments if VAT returns are not submitted.
• Revocation of PKP status if a VAT-registered KSO fails to file VAT returns for three consecutive months.
• Legal risks for businesses engaging in transactions without proper VAT documentation.

Conclusion

Understanding VAT obligations for Joint Operations (KSO) is crucial for businesses involved in large-scale projects and collaborative ventures. While Administrative JOs must comply with VAT registration and reporting, Non-Administrative JOs are structured to minimize tax burdens but face limitations in business flexibility.

Ensuring compliance with VAT regulations and tax reporting can be complex. If your business needs assistance with tax registration, VAT reporting, or regulatory compliance, fill in the form below to get expert support from Permitindo.

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