Update 14th January 2020: Indonesia will be revising its de minimis value down to US$3 from an earlier US$ 75 on a confirmed start date of 30th January 2020 by Indonesia’s Directorate General of Customs and Excise, Ministry of Finance.1 We’ll be updating this article to reflect the upcoming changes, but if you’d like to know more about them, you can head over to our latest announcement on the de minimis update.
With all the eCommerce opportunity that Indonesia presents, like a projected value of US$ 40 billion by 2022, getting your products to the hands of these customers means you’ll need to understand a crucial process in cross-border shipping – customs clearance.
We have previously given a general overview of what happens in customs clearance in another article. While the general steps for customs clearance are similar for all countries, there are some specific challenges posed when bringing your goods into Indonesia.
When the eCommerce industry was at its infancy in Indonesia, there was a lack of clear laws and transparency when it came to clearing goods for import into the country. This led to a lot of uncertainty during the early years of Indonesian eCommerce.
This changed for the better with the introduction of the eCommerce trade law (Article 65 – 66)2, and with the eCommerce tax3 enforced since June 2017, it has since made the collection of import duties and taxes standardised for B2C shipments. As an eCommerce merchant, it’s important to understand the requirements of clearing customs for your shipments, be they to your own local warehouse in the area or straight to the doorstep of your customers.
But what does this all mean for eCommerce merchants? Let’s take a closer look at how customs clearance is done in Indonesia.
After your goods land at an international airport like Soekarno-Hatta International Airport in Jakarta (CGK), your goods are first unloaded from the plane into the customs warehouse. The customs officers stationed there will first check for prohibited or controlled goods before segmenting them further into different customs clearance channels.
In Indonesia, there are three customs lanes for shipments: the red channel, yellow channel, and green channel. The red channel is where all of the goods are taken out to be physically inspected. In the yellow channel, only 20% of goods are physically inspected, and the green channel means that the goods don’t require any physical inspection, and the customs officer will only check the customs documentation.
Once the goods are discharged from the inspection channels, the import duties and taxes will be calculated based on whether it is a B2C or a B2B shipment. If the declared value of the goods are below the de minimis rates, the goods can be released without paying for additional duties and taxes.
If the shipment value is over Indonesia’s de minimis rate of US$ 3, B2C eCommerce shipments are taxed with import duties that range from 7.5% upwards depending on the type of product category, VAT at 10%, and income tax at a range between 7.5% and 10%. The recent 2020 de minimis change will impact tax rates across a lot of product categories, particularly bags, shoes and garments. To find out more, check out our article on Indonesia’s 2020 de minimis changes.
On the other hand, the import duties and taxes calculated for B2B shipments are based on the item’s Harmonised Systems Code (HS Code).
To get your goods cleared from customs, you could opt for either one of these steps:
Even so, clearing customs in Indonesia presents its own set of challenges.
Setting up your own local entity to clear Indonesian customs is one of the ways to get your goods into your Indonesian fulfilment centre. While this method could offer cost-savings in the long run and a lot of control over the process, it comes with its own set of complications.
To clear customs in Indonesia for B2B shipments, you will have to register a company in Indonesia and apply for the specific licenses to import goods of your product type. For instance, if you are importing cosmetics and/or processed foods, you will need to register for a license with Indonesia’s National Agency of Drug and Food Control (BPOM) for that type of product.
Additionally, all new entities in Indonesia will have all imported goods physically inspected in the red channel. Your Indonesian entity has to be in operation for 5 years before getting upgraded to the yellow channel and another 3 more years before it gets upgraded to the green channel. For many eCommerce merchants, this would be too much of a hassle, and getting stuck for 5 years in the slower red channel can cost you sales if your competition is able to clear customs and subsequently delivers their goods faster than you.
On top of that, not knowing the different item categorisation and declarations in Indonesia can make paying for duties and taxes challenging. The import duties and taxes imposed on imported goods depend on the declared HS code. For a general list, you may check out this website4 that shows the rates for each item category. However, trouble would arise if you don’t know which HS code to declare your items with, since these codes can classify goods at a granular level.
For instance, green tea and black tea have different HS codes. Green tea has an import tax of 5%, but black tea is hit with a 20% import tax rate. Knowing these classifications and changes on the go is a time-consuming process that requires you to be in the know about legislative changes all the time so that you can minimise costs. However, this process will incur an opportunity cost when running your eCommerce business.
Thus, the latter option of engaging an external party would be more cost-effective for eCommerce merchants looking to dip their toes into Indonesia’s market. However, getting the right third party to clear customs is another challenge altogether.
Getting an external party to clear Indonesian customs can take a load off your shoulders in terms of needing to familiarise yourself with Indonesian customs. There are many localised companies that have a trading house to ensure your goods can clear customs smoothly, including logistics shipping partners that do cross-border shipping. However, it will benefit you to do a background check on the company’s licenses and whether they need you to meet a minimum order volume.
In Indonesia’s case, it helps to know whether or not your customs partner is in the green channel. This factor helps to reduce the chances of an item getting stuck in Indonesian customs.
Furthermore, some companies are able to expedite customs clearance by making arrangements like DDP and taking on the risk of pre-paying duties and taxes on your behalf. This localised knowledge to the country’s legislative changes on the go can help to protect your business from unexpected costs. To find out more about the difference between DDU and DDP, you can check out our previous article on these incoterms.
If you are a smaller scale eCommerce merchant, it helps to check if a company has a minimum order quantity to fulfil. One potential barrier to entry when finding a customs partner is meeting their minimum order quantity, especially if you are just starting to deliver into Indonesia.
For instance, you could find a customs broker that processes parcels at a cheaper rate than another, but the cheaper customs broker will have a higher demand in processing volume. There’s also no guarantee that the cheaper broker won’t prioritise bigger customers over your volume.
Thus, it would help to know of a customs broker that doesn’t impose a minimum order quantity, which is great if you’re testing out the Indonesian market for the first time.
The Southeast Asian customs environment is dynamic and constantly evolving. Take a deep dive into the customs clearance process and learn about the best practices with Janio’s guide to clearing Southeast Asian customs!
If you’re working with a cross-border shipping company to send your B2C shipments, it helps to ensure that the addressee is a person’s name and not a business’s name. This is because B2B shipments typically require more licenses to import these goods as opposed to B2C shipments for a customer’s personal consumption.
If a B2C shipment was addressed to a company instead of a person, the parcel can be held up in customs until the required documentation from the recipient is presented. Not only will this cost you in time and money, but this could also anger your customers who weren’t expecting this complication.
Now that you know the steps required to tackle Indonesian customs, you will be more prepared to expand your eCommerce business into Indonesia. If you liked what you read, you may find out more information about Indonesia on our eCommerce Guide to Shipping to Indonesia.
Sign up for our newsletter to get our latest scoop and insights to Southeast Asian e-commerce and the latest logistics tips.
Janio also provides customised shipping solutions into Indonesia and other Southeast Asian countries, including expedited customs clearance. Reach out to us at firstname.lastname@example.org to find out more!
Interested in eCommerce in Indonesia? Find out more about Indonesian eCommerce scene here:
Air freight is the fastest way to ship from Indonesia to Singapore, but did you know there are times it can be cheaper than sea freight? Find out here!
The Philippines' economic potential has been noticed by Singapore businesses, but when should you use air freight over sea freight? Find out here!
Shipping with Air Freight from Singapore to Malaysia Singapore’s a prime locale due to it being close by to its Southeast Asian neighbours. With the country sharing ocean borders with hot, up-and-coming markets like M ...
Can sea freight compete in speed and price with air freight? In some cases for sea freight from Indonesia to Singapore, yes! Find out why here
Getting accurate data on the shipping label is crucial in the cross-border shipping process. Find out how you can ensure data integrity for a smooth eCommerce delivery.
With different import duty and tax rates for every country and every type of item, customs payments may appear daunting. Read on to find out how customs clearance can be made smoother with delivered-duties paid (DDP) so that you can expand into the Southeast Asian market with a peace of mind!