Trade Compliance: Exporting to Indonesia

Expanding your business to Indonesia market.

Expanding your business to new international market requires good understanding on various aspects related to the target country. Populations, socio-culture, local market trend, political conditions and local business regulations are among important information you should have known before realizing your export. Even for companies who are already active in selling their products overseas, obtaining and keeping update to those information remains necessary, especially before introducing new products to the market or same products but to different part of the country.

In term of trade compliance, there are at least 4 critical aspects you need to understand thoroughly before shipping your products:

Product Classification

As an exporter, certainly you have known the classification or Harmonized System (HS) code of your products to trade. But there may be some related questions you need to have the answers, such as, Do you know how your product is classified in your trade partner’s country? or, Do they use same digits code in their HS Nomenclature?

Every products all around the world should have the same classification and HS code, yet there is still a possibility for a single product to classified differently between countries. The variation could because of certain characteristic of o product potentially lead to multiple interpretation. There are various product aspects to analyze before classifying an imported product, product description, function(s), material composition and how it is packed and shipped. Most of the case, differences exist beyond the first six-digit of HS Code, on the last 2 or 4 digits.

For classification of goods, some countries use up to 10-digits HS code, while others use only up to 8-digits. Indonesia has just amended their HS Code from 10-digits, in its previous HS version 2012 to 8-digits in the HS version 2017. The latest HS book is locally known as Buku Tarif Kepabeanan Indonesia (BTKI) 2017.

Your product HS Code is the primary key for the next information of applicable tariffs, tax levies and trade requirements or licenses. Some of the requirements may have to be arranged in the exporter country before shipping the products and provide them to the importer. So, having confirmed your correct product classification (HS code) in the importing country is also critical for trade compliance. You can explore BTKI 2017 to find out your product HS code in the Indonesia National Single Window (INSW) portal.

Duties and Tax Levies

The next information is related to what and how much import levies applies to your products in the importing country. You may need to know them for calculation of best prices for your customers, local agents or distributors. When using Delivery Duty Paid (DDP) Incoterm, knowing how much import duty to pay is necessary.

In regard with Indonesia, there are 3 groups of import levies applies (local names in Italic):

1.Import Duties or Bea Masuk (BM)
a. Normal Duties
  • General Most Favored Nations (MFN) tariffs
  • Preferential Free Trade Agreement (FTA) tariffs
b. Additional Duties
  • Anti-Dumping Import Duties (BMAD)
  • Countervailing Import Duties (BMI)
  • Trade Safeguard Import Duties (BMTP)
  • Reciprocal Duties (BMP)
2.Excises or Cukai, applies only to:
  • Tobacco Products
  • Alcoholic Drinks
3.Import Taxes or Pajak Dalam Rangka Impor (PDRI)
  • Value Added Tax or Pajak Pertambahan Nilai (PPN)
  • Income Tax on Import or Pajak Penghasilan (PPh) 22 Impor
  • Sales Tax on Luxury Goods or Pajak Penjualan Barang Mewah (PPn BM)

Import VAT is normally 10% for all kinds of imported goods. In contrast, import income tax (PPh ps 22) has four different rates; 2.5%, 5.0%, 7.5 and 10%. Which rate applies depends on goods category and whether importer has a license of Importer Identification Number (API) or not.  Finally, Sales Tax on Luxury Goods (PPnBM) tariffs also vary based on luxury products categorization.Based on product HS code you can easily find tariff of import duty (MFN & FTA) and if any additional duties (BMT) in the BTKI 2017 that you can access through INSW portal. Excise for tobacco products and alcoholic drinks are specifically regulated. The tariffs vary for each products group based on certain criteria.

What we’re explaining above is the normal condition. There are some exceptions where exemption or relief to those import levies are granted, either to certain products or to the importer. For this matter, we will refer to what it’s called Customs Facilitation. On the other hand, there are also unusual situation where fines or penalties are imposed as a result of procedural mistake made or inacurate information provided by the importer.

Trade Restrictions and Prohibitions

Some commodities are restricted or prohibited to import into or export from Indonesia. They are non-tariff barriers to trade and locally known as LARTAS (Stand for: Larangan dan Pembatasan). With HS code, you can find out if your product is subject to any restrictions or prohibitions. If it is prohibited, you can do nothing about it. But if restricted, you may be able to export it into Indonesia. Restriction is related to the product quantity (quotas), type or specification, who can import/export and the exporting countries.

Goods is subject to Lartas if they have any negative influences on one or more of following:

  • National security and defense
  • Human health
  • Living environment
  • Intelectual property right
  • Industry, trade and monetary
  • Culture and Heritage

If you want to know which export and import commodities are restricted or prohibited, you may have a look at this Lartas article.

Restricted commodities requires special import licences and requirements. Most of the them should be prepared by the importers, but some of the requirements need to be arranged by exporter in their country before shipping the products. Those requirements must be presented on import clearance process (on-border) or before entering the local market (post-border).  Specific regulation of each restricted products tells on which point requirements should be provided.

Your customer as the importer (consignee) need to present special import requirements or licenses of your product on clearance process in the border, except for some products that included in post border control or for importer with certain customs facilitation. So, does it have something to do with you as the exporter (shipper)? Well, some of requirements have to be arranged and provided by the shipper from the origin country.

In addition to HS code, for some product you need also its technical specification information to determine what the special requirements and licenses, because they only apply not to the whole range of products within a single HS Code. You can find those requirements in Indonesia National Single Window (INSW) portal or you may ask your local customer or consultant

Business Transaction

Last but not least, what kind of business transaction takes place between you as an exporter and your customer as the importer. Do you actually sell your products to them? Is it consignment to your local agent or distributor? Are you just renting your product for specified period of time? Is your export for exhibition purpose? Is there any royalty or copyright agreement? As an exporter, answering those questions will allow you to find out further how your products should be imported and handled by your trade partner. Which appropriate import procedures should be taken, what documentations and requirements needed and how customs valuation of your product should be calculated.

For example, if you actually sell your products to your customer, most of the case, you don’t need to concern with how your product will be imported by your trade partner, they will be using normal import procedure, end of story. But if you export for consignment, rent or exhibition for certain period of time, you need to have confirmed how they will be importing your products. Because there is a possibility or responsibility to re-export your product in the future. In this case, they should be declaring as temporary import so that duties can be refund upon re-export. Or, if you have copyright or royalty agreement with your customers, they need to declare estimated royalty or copyright portion as part of the customs value associated with the imported products.

Understanding your export transaction with your customer and its corresponding issues on the importing country could allow you to identify any implications or impacts on your business so that you can minimize risks and avoid potential dispute.

I hope this short article could give you some knowledge about what to consider before exporting your product to Indonesia. If you need more information or advices on customs and international trade compliance, especially in relation to Indonesia, please send your query through this E-Consulting link or simply email us at [email protected]

You may also request us to arrange a training on a particular topic of customs and international trade through this Request link or email us at [email protected]

This Post Has 2 Comments
  1. I’m glad you mentioned that proper understanding of export transactions helps our business my minimizing risks, implications, and disputes. Last week we had a meeting at my workplace about expanding our product sales globally. Thanks for sharing this article and helping me see why understanding global trade compliance would be beneficial before moving forward.

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