In business activities, it is common to give away goods free of charge as a form of promotion or gift at various events. Free gifts are taxable goods that are given without any compensation to the giver of the taxable goods. However, these taxable goods gifts are still subject to VAT. In practice, gifts without compensation are often categorized as gifts that are subject to VAT as stipulated in the explanation of Article 4 paragraph 1 of the Value Added Tax Law.
VAT on gifts of goods
Often, for promotional purposes, companies give away goods free of charge to consumers or potential buyers. Free gifts under Article 1A of the VAT Law constitute a transfer of taxable goods. The confirmation of free gifts as a supply of taxable goods is stated in Government Regulation Number 44 of 2022, Article 6, Paragraph 1. Therefore, taxable entrepreneurs are required to collect VAT on free gifts at a rate of 11% and a different tax base.
In addition to being subject to an 11% rate and other tax bases, taxable entrepreneurs are also required to issue tax invoices for free gifts in accordance with the provisions of Minister of Finance Regulation Number 11 of 2025 as amended by Minister of Finance Regulation Number 53 of 2025, with invoice code 04 because it is a transfer that uses other values as the tax base. If free goods are delivered to end consumers, taxable entrepreneurs may use consolidated tax invoices.
The provision of taxable goods free of charge is generally permitted; however, the VAT liability attached to such goods must still be collected, and a tax invoice must be issued.
By Olina Rizki Arizal – Partner
TBrights is a tax consultant in Indonesia that is currently an Integrated Business Service in Indonesia that can provide comprehensive tax and business services.
Reference:
- Government Regulation Number 44 of 2022 concerning the Application of Value Added Tax on Goods and Services and Sales Tax on Luxury Goods.
- The Minister of Finance Regulation Number 11 of 2025 concerning Provisions on Other Values as the Basis for Tax Imposition and Specific Amounts of Value Added Tax.
- The Minister of Finance Regulation No. 53 of 2025 concerning Amendments to Minister of Finance Regulation No. 11 of 2025 concerning Provisions on Other Values as the Basis for Tax Imposition and Specific Amounts of Value Added Tax.
