Self Construction VAT

On February 22, 2010 Minister of Finance has issued regulations governing the limitations and procedures for VAT on self construction activiy. Regulation of the Minister of Finance No. 39/PMK.03/2010 revokes the previous provisions Minister of Finance Decree No. 554/KMK.04/2000, as amended by Decree of the Minister of Finance No. 320/KMK.03/2002.
Important changes made by the this Minister of Finance Regulation No. 39/PMK.03/2010  is changing the building size limitation to be imposed  by VAT. The previous bulding size limits was 200 m2, but now it becomes 300 m2.. This means that from 1 April 2010, the VAT of self construction activity is imposed with an area of at least 300 m2. In other words, self construction bulding that has area under 300 m2  is not imposed VAT.

Self Construction VAT Scope
Self construction VAT levied on construction building that meets following criteria:

1. Owed by individual or corporate doing self construction activity
2. Done not in the frame of business or work
3. Conducted by individuals or corporates
4. The output bulding is used  by itself or other parties
5. Form of one or more construction techniques that are planted or permanently attached to the land and / or waters with criteria : (a) construction mainly consists of wood, concrete, masonry brick or similar material, and / or steel, (b) reserved for the residence or place of business, and  (c) total area of at least 300 m2 (three hundred square meters).

From the scope above we can conclude that there are some construction activities that are not subject to self construction VAT, namely:

1. building construction activities conducted by persons or corporate which indeed in their business activities. This building construction activity is not subject to common mechanism VAT where the seller have to collect VAT from its buyer
2. self construction activities which the bulding area is less than 300 m2, and
3. self construction activities used not for residential or business activities such as places of worship

Tax Rate and Tax Base
Value Added Tax payable is calculated by multiplying the rate of 10% with tax base (DPP). The amount of tax base is 40% of total costs incurred and / or  paid to build a building, not including the cost of land acquisition. Thus, the effective rate is 4% of the total cost incurres or  paid.

Time and Place of Tax Payable
Time of  VAT payable is at the start of construction of the building. Activities  undertaken to build their own gradually considered to constitute a unity of activity during the grace period between the stages that no more than 2 (two) years. Place of VAT payable is the place where the building is constructed.

Payment and Reporting Procedures
Payment of VAT payable every month by 10% multiplied by 40% (or equal to 4%) by the amount of costs incurred and / or paid on a monthly basis. This means that VAT is paid every month and not to wait until the building was completed.
VAT payable shall be paid to the State Treasury through the Post Office or Bank Perception  at no later than 15th day of subsequent month after the end of month tax period.
Individual or corporate engaged in activities to build their own are required to report the payment  of VAT to the tax office whose territory includes the site of the building by using a third sheet of Tax Payment Slip no later than the end of the following month of the tax period.

The Building Used by Other Party
In the case of buildings as a result used by other parties as a residence or place of business, individual or corporate engaged in activities to build their own are required to submit original Tax Payment Slip (SSP) of self construction VAT to others who use the building .
In the case of an individual or corporate who build their own building to use the other party can not show original Tax Payment Slip of self Construction VAT, other parties who use the building jointly and severally liable for payment of VAT payable.