Import and Export Duties In Indonesia: The Full Guide

When you’re starting an international business in Indonesia, you need to have an intimate knowledge of import and export duties. This is how much tax you’re going to pay the local government for your business, whether you’re exporting or importing goods.

But duties can often be complicated to learn, which is why we’re going to give you an in-depth run-down in this article.

Indonesia’s Import and Export Duties Explained

Import and export duties are taxes imposed by the Indonesian government on goods entering or leaving the country. 

These fees are imposed for one of three reasons: 

• As income for the local government: The duties you or your customers pay serve as tax or income for the government.
  
• To promote local products: Because of this taxation, local products have a competitive advantage over larger, international ones. This regulates trades.
  
• As a form of sanction: Although uncommon, heavy import-export duties are imposed on countries whose policies might not align with the local government.

Import and export duties play a crucial role in Indonesia’s trade policy. You might think it only affects big companies, but these fees affect all sorts of businesses.

That’s why it’s important to learn, even if you’re just on your way to starting your small business. If you plan for your business to involve physical products that cross boundaries, like e-commerce, you’ll need to know how to deal with import and export duties. More on that below. 

The Basics of Import and Export Regulations

Many business types rely on either importing or exporting products from Indonesia. If you don’t know the intricacies of import or export, you might find yourself in hot legal waters, or forget to factor in the cost of customs on your goods.

This is especially true for businesses that deal internationally, such as retail, manufacturing, international e-commerce, and bulk import/export businesses.

Thus, the next section will discuss everything you need to learn about Indonesia’s international trade fees.

Customs Duty Rates 

Customs duty rates refer to the taxes imposed by the Indonesian government on imported goods entering the country’s customs territory. 

For example, you’re a small business in Indonesia that imports electronic gadgets from China. You buy your products wholesale from factories and manufacturers, then have them shipped to Indonesia.

When it enters Indonesia, you now have to pay customs duty for those products.

The customs duty rate for these goods is determined based on different factors, such as the classification and origin of the product. All of this is detailed on a list called the HS Code, or the Harmonized Commodity Description and Coding System Code.

Indonesia’s international policies like trade agreements, tariff schedules, and political climate will also play a role in determining. There are even instances that you can be exempted from paying customs, though exemption qualifications tend to be rare and highly specific.

It’s important to know the customs duty rates of your products so that you can factor them into your prices, or else you’ll operate at a loss.

Tariff Classification System

The tariff classification system is the list that contains all the customs duty rates for all products coming into the country. The system encompasses a wide variety of goods, from raw materials to finished garments.

This system is called the Harmonized Commodity Description and Coding System Code, or the HS Code for short.

The HS Code was developed and is maintained by the World Customs Organization (WCO). It consists of six digits. Every code represents a category of goods.

The first two digits of the HS code represent the chapter, which broadly categorizes goods into sections such as “Live animals” or “Vegetable products.” The next digits further refine the classification, providing more specific descriptions of the goods.

However, when trading with ASEAN countries, Indonesia uses the AHTN Codes.

This stands for ASEAN Harmonised Tariff Nomenclature Codes, an eight-digit classification system used in Indonesia and other ASEAN countries for the classification of goods traded within the ASEAN community.

Unlike the HS Codes, the AHTN Codes have eight digits for a more thorough assessment of duties, taxes, and trade regulations within the ASEAN region.

The Import and Export Payment Process

The entire customs process is often difficult for businesses to comprehend, especially if you’re just standing out. And you need to be savvy because the consequences of non-compliance can be severe.

To make sure you’re compliant with the import/export regulations, we’ll discuss what it’s like to pay customs duty rates in Indonesia.

Export Payment Process in Indonesia

Exporting is when you’re shipping goods out of the country. Typically, a small business would not shoulder the customs process when exporting goods, as it is the importer that will pay.

There are instances of export taxes being collected by local governments for certain goods, but Indonesia doesn’t collect an export tax.

There are rare cases, though, when you might have an arrangement to pay the customs fees instead of the importer. 

In that case, here’s a step-by-step guide to understanding and paying customs duties:

1. Complete all export files. Ensure all necessary documents are filled out accurately and completely. Required documents include the following:
   1. Customs Export Declaration;
   2. Packing List;
   3. Export Declaration of Goods (PEB);
   4. Insurance Certificate;
   5. Export Permit;
   6. Certificate of Origin.
      
2. Decide your payment method. Decide on the payment method with parties in Indonesia.
   
3. Choose a transport agent. Select a reliable transportation or shipping agent to take you to your customs office.
   
4. Complete customs requirements. Submit all mandatory documents to the customs office.
   
5. Calculate customs duties. Use the Harmonized System (HS) for correct tariff categorization., then conduct customs assessment. Customs valuation methods are typically calculated based on a combination of these factors:
   1. Value;
   2. Quantity;
   3. Weight.
      
6. Payment compliance. Pay any required fees based on regulations. Use online calculators or consult with a customs broker for estimating taxes and duties.
   
7. Contact a trusted local third party. If necessary, seek professional guidance from a local third party familiar with export regulations and procedures.

Take note that the regulations often change. If you want to be an exporter, you should check the latest updates from the Indonesian Ministry of Trade or consult with a customs broker to ensure compliance measures with current export duty requirements.

Import Payment Process in Indonesia

Importing is when you’re bringing in goods to Indonesia. If you’re a business that sells products from outside of the country or uses imported raw materials to manufacture other products, then you need to be aware of the importation process.

Importers are often the one that pays a customs tax for whatever goods they bring into the country.

This is often complex and varies depending on your business and the goods being imported. 

Thus, here are some key steps for the importing payment process in Indonesia:

1. Obtain an import license. Apply for an import license via the Online Single Submission (OSS) system. Businesses now only need a Business Identification Number (NIB) to start importing.
   
2. Prepare mandatory documents. Gather essential documents such as:
   1. Invoice;
   2. Commercial Invoice;
   3. Certificate of Origin
   4. Bill of Lading;
   5. Packing List;
   6. Insurance Certificate;
   7. HS Code;
   8. Material Safety Data Sheet.

Not all documents may be required simultaneously, but it’s crucial to have them prepared.

3. Classify the HS Code. Use the Indonesian Harmonization System (HS) code to classify items and determine tax and customs rates. Some items may need additional permits or registrations.
   
4. Choose a freight forwarder. Partner with a shipping expert familiar with Indonesian regulations.
   
5. Submit your cargo manifest. Ensure visibility of transport schedules for easy cargo manifest submission.
   
6. Comply with licenses and permits. Confirm that all licenses and permits align with the received goods.
   
7. Determine buyer-seller responsibilities. Clarify incoterms to define responsibilities and calculate duties and taxes.
   
8. Undergo customs clearance. Clear goods for import into Indonesia by paying necessary duties and taxes.
   
9. Deliver to the proper place. Once cleared, deliver goods to their final destination within Indonesia.

Keep in mind that importers in Indonesia are required to have an Importer Identification Number (API) and a Business Identification Number (NIB).

The API is mandatory proof of identification for importers, and it is valid as long as their business activities continue to operate in Indonesia. The NIB is a company certificate of registration that includes the Importer Identification Number (API) if the business intends to import goods.

Stay updated with the latest regulations, as a snag in the process can cost you a lot of time and money. For the most accurate and detailed information about complex importation processes, consult with a professional broker.

International Trade Agreements: Indonesia’s Global Connections

Customs duties are affected by whatever international trade agreements or policies that Indonesia is a part of. If you are a business owner looking for the best import/export customs fees prices and the smoothest transactions, it’s best to take advantage of these global connections.

Indonesia is part of several international trade agreements that offer significant benefits to small business owners. 

These trade agreements include the following:

• ASEAN Free Trade Area (AFTA). Indonesia is a member of the Association of Southeast Asian Nations (ASEAN) Free Trade Area, which promotes trade liberalization among ASEAN member countries, leading to reduced tariffs and trade barriers within the region.
  
• ASEAN Preferential Trade Agreements. Indonesia, as an ASEAN member, benefits from preferential trade agreements with countries like Australia, China, Hong Kong, India, Japan, Korea, and New Zealand. These agreements provide improved market access for goods and services, fostering economic growth and trade opportunities.
  
• Regional Comprehensive Economic Partnership (RCEP). The RCEP is a significant trade agreement involving ASEAN countries and key trading partners like China, Japan, South Korea, Australia, and New Zealand. Small business owners can benefit from expanded market access and reduced trade barriers under the RCEP.
  
• Bilateral Free Trade Agreements (FTAs). Indonesia has signed bilateral FTAs with countries like Australia, Chile, Mozambique, Iceland, Liechtenstein, Norway, and Switzerland. These agreements aim to enhance trade relations, reduce tariffs, and facilitate smoother trade flows between Indonesia and its FTA partners.

Indonesia’s participation in various international trade agreements offers small business owners plenty of advantages.

If your business belongs to those covered by the agreement, you can enjoy reduced tariffs, enhanced market access, and competitive advantages. You’ll have more opportunities for business expansion, making your business competitive in the global market.

How To Ensure Compliance: Measures for Smooth Operations

The import/export process is critical for your business to ensure smooth operations, avoid penalties, and maintain a good reputation. However, it’s a lengthy and complex undertaking. There are many possibilities for oversight and human error.

One key action you can take to improve compliance is to invest in education and training.

Providing comprehensive education and training to employees involved in import/export activities brings the most return of investment. Having on-site staff that knows all the intricacies of procurement, logistics, and finance will ensure compliance and minimize reliance on outside parties.

Alternatively, you can hire a position just for this, or even contract third parties for trade policy analysis and processing, depending on your need.

Penalties and Tariff Code Classification

Tariff code classification can be tricky, even for seasoned importers or exporters.

It needs a broad understanding and experience. Not everyone knows this well, and getting it wrong can lead to penalties, fines, seizure or destruction of goods, or overpayment of duty and tax.

You need to have your product classification right and ask experts for help if unsure.

Overcoming Trade Barriers: Assessing Tariff Rate Quotas

Tariff-rate quotas (TRQs) are a system combining import quotas and tariffs. They allow for lower tariffs on imports up to a certain amount and higher tariffs on imports exceeding that amount.

TRQs regulate import quantities while still promoting some free trade. The Indonesian government sets the quota size periodically, often annually.

You can find information on TRQ administration in global databases like the WTO’s (World Trade Organization) Tariff Profiles, the ITC’s (International Trade Centre) Market Access Map, and the EU’s Tariff Quota Consultation portal.

How the import rights within the quota are distributed affects trade volume, distribution, and rents. 

Documentation, Disputes, and Enforcement in Import-Export Regulations

Documentation is crucial for import-export rules. Countries need documents to check product safety, quality, and conformity, whether you’re importing or exporting. Rules vary by country, so you need to be aware of Indonesian policies to comply.

Disputes can happen over several factors, one of the most common is rule interpretation. You or your importer/exporter might miss some details of the policies and unknowingly violate the law.

In any case, you can resolve these with negotiation, mediation, arbitration, litigation, or refunds. Whatever the avenue for resolution, all parties are required to present documentation.

The relevant government agencies enforce regulations and arbitrate in case of disputes. In Indonesia, the agency responsible for enforcing import/export regulations is the Ministry of Trade (MoT) and the Ministry of Finance (MoF) through its Directorate General of Customs and Excise (DGCE).

Final Thoughts

Indonesia has vast potential for businesses that want to make people’s lives better through trade.

If you want to take advantage of such an opportunity-rich environment and start a business, then you’ll likely need to understand import and export duties in Indonesia. But it can be difficult and complex, which is why we created this guide.

Use this article as a reference for growing your business internationally!