Indonesia continues to enhance its tax policies to attract foreign and domestic investment, offering businesses lucrative growth opportunities. The latest updates on the tax holiday regulations introduce more competitive benefits, providing significant tax reductions and extended durations for qualifying investors.
These changes aim to boost economic activity in key sectors and regions, including Special Economic Zones (SEZs) and the new capital city, Nusantara (IKN). Understanding these updates is crucial for businesses looking to optimize their investments and gain a competitive edge in the Indonesian market.
Indonesia announces tax holiday extension to counter global minimum tax
The Indonesian government announced extending its tax holiday program until December 31, 2025, to encourage more foreign investment. Investment Minister Rosan Roeslani explained that this decision was made in response to several countries’ global implementation of a 15% minimum tax rate.
Roeslani stated that tax holidays were crucial, accounting for over 25% of incoming investments, and added that the global implementation of the Global Minimum Tax (GMT) at a 15% rate in many countries was a significant factor in extending the tax holiday program.
GMT was an internationally agreed-upon minimum tax rate that large corporations were required to pay on their profits. The proposed rate was 15%, and 137 countries, including Indonesia, supported it.
This proposal, introduced by the Organization for Economic Cooperation and Development (OECD), was approved at the October 2021 summit in Rome and was set to take effect in 2024.
What is the purpose of a tax holiday in Indonesia?
A tax holiday refers to tax incentives designed to help companies in a country attract investors. Developing countries often need help attracting investment.
This is primarily due to the unstable economic, social, and political conditions in many developing countries. In other words, investors are generally reluctant to take the risk of investing in businesses based in these regions.
Offering a tax holiday or other tax incentives benefits investors and is intended to encourage more investment in Indonesia. Naturally, the government has thoroughly evaluated these incentives to ensure they do not negatively impact the nation’s economy.
Who is eligible for a tax holiday in Indonesia?
Indonesia promotes investment in specific sectors by offering tax holidays. Tax holidays foster growth and mitigate financial risks for companies entering the market.
- Pharmaceutical raw materials
- The creative digital economy
- Waste management
- Electric vehicle production
- Solar panel manufacturing
- Battery production
Read more: Claiming your tax refund in Indonesia: Tips and procedures
What are the benefits of the Indonesian tax holiday?
According to Finance Minister Regulation (PMK) No. 130/2020, Indonesia’s tax holiday scheme offers two levels of corporate income tax reductions: 100% and 50%.
- Corporate taxpayers with new investment plans valued at a minimum of IDR 500 billion can receive a 100% reduction.
- A 50% reduction applies to those investing between IDR 100 billion and IDR 500 billion.
The length of the tax holiday in Indonesia ranges from 5 to 20 years, depending on the investment size and industry.
Moreover, investors in Special Economic Zones (KEK) and the new capital city project, Nusantara (IKN), are also eligible for the tax holiday. IKN, a national strategic project, is expected to become Indonesia’s government, business, and innovation hub.
The tax holiday in IKN is longer than in other regions. Infrastructure and public services investments of a minimum of IDR 10 billion can benefit from a tax holiday lasting up to 30 years.
What are the other incentives for doing business in Indonesia?
Indonesia has improved its incentives to attract both foreign and domestic investments. These changes include simplifying business regulations and reducing bureaucratic obstacles. Apart from the tax holiday, businesses can benefit from other incentives, such as:
Tax incentives in priority sectors
Companies investing in one of the 246 priority sectors can receive tax reductions. These include a 50% tax reduction for investments between IDR 100 billion and IDR 500 billion for 5 years and a 100% reduction for investments over IDR 500 billion for 5-20 years. Additional benefits include tax allowances and special withholding tax rates.
Tax incentives in specific sectors and regions
Tax incentives are available for businesses investing in specific sectors and regions, such as IT, energy, and marine industries. These include tax deductions, accelerated depreciation, and extended fiscal loss compensation.
Tax incentives for labor-intensive industries, training, and R&D
Companies can receive a 60% reduction in net income for labor-intensive industries for tangible investments. Companies involved in Research and Development (R&D) can benefit from a 300% reduction in income. Training programs that develop industry-specific competencies are also eligible for up to a 200% income reduction.
Incentives in Special Economic Zones (SEZs)
SEZs in Indonesia provide a range of benefits, such as exemptions from corporate income tax (CIT) for investments over IDR 100 billion. SEZ businesses also enjoy exemptions from VAT, excise duties, import taxes, favorable land use rights, and business licenses.
Incentives for the New Capital City Project (IKN Nusantara)
The Indonesian government offers various incentives for businesses investing in the new capital city, Nusantara, including up to 100% CIT exemption for 10-30 years.
With extended residency permits, foreign workers can be employed for up to 10 years, and land use rights can extend up to 190 years. Additionally, businesses benefit from customs exemptions for goods imported for development.
Guide to Doing Business in Jakarta
Maximize your tax benefits with InCorp
Navigating Indonesia’s tax incentives, including tax holidays and allowances, can be complex. Partnering with InCorp ensures your business remains compliant while optimizing these opportunities:
Here’s how our tax advisory services can support your business:
- Tax compliance assistance: Navigate Indonesia’s tax regulations effortlessly.
- Incentive optimization: Leverage government tax schemes to reduce costs and maximize returns.
- Tailored payroll management: Streamline payroll processes to align with tax obligations.
- Comprehensive financial support: Access a full suite of services for your business needs.
Click the button below to streamline your tax strategies and focus on growth.
Daris Salam
COO Indonesia at InCorp Indonesia
With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.
Frequently Asked Questions
- Entities gathering funds from the public (e.g., banks, insurance companies)
- Entities issuing debt instruments
- Publicly listed companies
- State-owned enterprises
- Companies with assets and/or turnover exceeding IDR 50 billion
- Entities mandated by legislation
The government will check the minimum paid-up capital, IDR 10,000,000,000. Fulfilling this requirement is a must.
It is advisable to make a minimum paid-up capital deposit after the company completes its establishment process. Another option is after the company receives the Articles of Association and Deed of Establishment.
Yes, in a foreign-owned (PT PMA) company, a foreigner can be a director or a commissioner
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