Tax Allowances

After much anticipation and delay, in December 2011 the Indonesian government through the Indonesia investment body BKPM released Government Regulation PP 52/2011 as a revised version of PP 62/2008. This lays out a set of new tax allowances for investors in a range of some 129 different sectors which is a marked increase from the 38 sectors covered under the previous decree. The revised regulation covers areas such as plantations, pharmaceuticals and electronics with strategic focus on promoting interest in the country’s downstream sector to reduce reliance on imports.

Note that tax allowances are different to that of tax holidays that are authorised by the Ministry of Finance which focus on large scale projects in fields such as energy with investments from 100 million USD and up.

Summary of PP 52/2011

• Total net taxable income is reduced to 30% of the total investment value over the course of six years at 5% percent tax payable each year.
• Accelerated depreciation and amortization of assets.
• For dividends paid to offshore taxpayers an income tax rate of 10% or lower.
• Ability to carry forward losses by at least 5 years and up to 10 years depending on certain conditions:
• Further one year if the investment is located in a bonded industry zone
• Further one year if the investment employs at least 500 Indonesian national workers for five consecutive years
• Further one year if the investment requires at least 10 billion RP in spending on economic and social infrastructure for its relevant business area
• Further one year if at least 5% of the investment value is spent on research and development in Indonesia to develop products and promote efficiency in the production process over 5 years
• Further one year should the investment procure at least 50% of its raw materials and/or output components from Indonesia’s domestic market.

Tax Holidays

In August 2011, the Ministry of Finance of Indonesia introduced Regulation No. 130/PMK.011/2011 which comes under Government Regulation No. 94/2010 regarding tax holidays for large scale investments for 5 to 10 years. Such exemptions are granted for FDI projects of at least 1 trillion RP or 117 million USD in areas such as petrochemical refineries and renewable energy projects. The regulation will also apply to those businesses set up one year prior to the announcement of the tax holiday.

The Minister of Finance, Agus Martowardojo stressed when introducing the measures that such incentives are applicable to those that are ‘pioneers’ in the industries that they wish to set up in Indonesia. Applications for such projects must meet the specified criteria and are to be submitted to the Ministry of Industry which will deem whether the investment is eligible for the tax break.

Summary of Ministry of Finance Regulation No. 130/PMK.011/2011

Should the company meet the following criteria:

• The company was established as an Indonesian business entity after 15th August 2010
• The capital investment must be greater than 1 trillion RP with a minimum of 10% of the investment held as a deposit on a bank account in Indonesia until commercial production begins
• Be involved in ‘pioneer industries’ such as petrochemical refineries, infrastructure, renewable energy, telecommunication equipment and base metals production.

Then it is eligible for the following incentives:

• An exemption from corporate income tax for a period from 5 and up to 10 years, beginning from the first date of commercial production
• After the initial ‘tax holiday’ period expires, an additional incentive of a 50% reduction in the amount of corporate income tax payable may be made available for an additional two year period.

Global Business Guide Indonesia - 2012

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)

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