Oil and Gas Vendor Tax Compliance

The classification depends on the contract scope. Drilling services that include rig mobilization and installation are generally classified as construction services subject to final income tax at 1.75-4% under PP 9/2022, depending on the contractor's qualification level. Engineering and technical services without installation are generally subject to 2% PPh 23 withholding. Each contract must be reviewed individually based on its specific scope of work.

PSC contractors (KKKS) holding approved VAT facility letters from the DGT can purchase goods and services with VAT not collected (invoice code 07). The vendor does not collect 11% VAT on the invoice, but must still issue a tax invoice with code 07 and reference the KKKS's facility letter. Crucially, the vendor's input VAT on related expenses remains fully creditable because sales with code 07 are treated as taxable supplies.

Significant differences exist. Foreign service companies with a permanent establishment (BUT) are subject to PPh 26 at 20% on certain payments, 22% corporate tax on net income, and branch profit tax at 20% after corporate tax. Local vendors are subject to PPh 23 at 2% or final construction tax at 1.75-4%. Foreign vendors must register for a BUT NPWP and may claim treaty benefits to reduce PPh 26 rates with valid DGT forms.

Yes, as PKP-registered businesses, oilfield service companies must file monthly VAT returns (SPT Masa PPN) reporting output VAT on services provided and input VAT on business expenses. Given the use of code 07 invoices for sales to PSC contractors and standard codes for other clients, the VAT return must accurately categorize transactions by invoice code. Incorrect reporting of code 07 transactions is a common audit finding.

Reimbursable expenses (mob/demob costs, material costs, third-party services) in oilfield service contracts may or may not be subject to withholding depending on the contract structure. If reimbursements are included in the service fee subject to withholding, the full contract value is the withholding base. If they are pure pass-through with third-party invoices, they may be excluded. Each contract should specify the treatment of reimbursable items clearly to avoid disputes.

Your tax work is handled by Arunika's tax consultants. We confirm the scope, deadlines and price before work starts.

Contact us early. We help analyze the risk, prepare supporting documents, draft the response, and assist discussions with the tax office.

We review your structure, transactions and available incentives so tax is calculated under the rules, without crossing into tax evasion. The outcome depends on your facts, so we do not promise a savings figure.