Investment Incentives
Indonesia offers a wealth of opportunities for investors, thanks to its large market, rich natural resources, and strategic location. To further entice investment, particularly in sectors aligned with its developmental goals, Indonesia provides various incentives and facilities.
Types of Incentives and Facilities
The Indonesian government offers incentives including:
Tax holidays: Reduction or exemption from corporate income tax for 5 to 20 years.
Tax allowances: Reduction of net income up to 30% of total investment, along with other fiscal benefits.
Investment allowances:Deduction of gross income by 5% of the total investment for 6 years.
Import duty and excise exemptions: For specific production-related goods.Simplified immigration process: For foreign investors and workers.
Eligibility Criteria
Eligibility for these incentives typically requires employing local workforce, environmental sustainability, and alignment with pioneering industries.
Examples of Priority Business Sectors and Their Incentives
Priority sectors, including textile, pharmaceuticals, digital economy, and others, are offered various fiscal incentives like tax holidays and allowances.
Other Incentives
A. Import Duty Facilities
2 years exemption, extendable to 4 years for companies using 30% locally-produced machines.Industries like tourism, public transportation, health services, mining, construction, telecommunication, and ports are included.
B. Tax Allowance
30% of investment value, as per Government Regulation No. 78 of 2019.Applicable to 183 business fields, with requirements like investment value, export orientation, manpower absorption, local content, and project location.
C. Tax Holiday
Corporate Income Tax reduction for 5-20 years for strategic projects.Includes 18 pioneer industries like upstream basic metal, oil and gas refinery, and digital economy.How to Apply for Incentives and Facilities
Businesses can apply by submitting necessary documents to authorities like the Investment Coordinating Board (BKPM) or the Ministry of Finance.
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Illustration for the investment incentive
A. Import Duty Facilities
Two (2) years import duty exemption; or directly apply for 4 years for companies using locally-produced machines (min. 30%).
For industries which produces goods and/or services, including:
1. Tourism and culture
2. Public transportation
3. Public health services
4. Mining
5. Construction
6. Telecommunication
7. Port
Requirements:
- Imported machine, goods and raw material are:
- Not yet being locally produced.
- If the local machines are available, yet unable to fulfill criteria of required machines.
- If the local machines are available, yet unable to fulfill the total required machines.
B. Tax Allowance
- 30% of investment value
The Government of Indonesia has issued an updated Tax Allowance policy through Government Regulation No. 78 of 2019 on 12 November 2019. 183 business fields are eligible for tax allowance, expanded from 145 segments in the previous regulation.
Under certain requirements among others: investment value or export orientation, manpower absorption, local content, and project location (especially outside Java island). Deduction of net corporate income which amount 30% from total investment, carried over 6 years period (equal to 5% deduction per year).
Tax Allowance Calculation Illustration: PT ABC
Total Investment: US$ 10,000,000
Deduction per year: 5% x US$ 10,000,000 = US$ 500,000
Deduction for 6 years: 6 x US$ 500,000 = US$ 3,000,000
C. Tax Holiday
The Minister of Finance (MoF) has issued an updated Tax Holiday policy through Regulation No. 150/PMK.010/2018 on 27 November 2018.
The Corporate Income Tax reduction can be given for 5 - 20 fiscal years, based on investment value and eligible for projects that considered strategic for the Indonesian economy.
The 18 eligible pioneer industries are:
- Upstream basic metal
- Oil and gas refinery
- Petrochemicals from oil, gas, or coal
- Organic basic chemicals from agriculture, plantation, or forestry products
- Inorganic basic chemicals
- Pharmaceutical raw materials
- Irradiation, electromedical, or electrotherapy equipment
- Main components of electronics or telematics equipment, such as semiconductor wafer, backlight for LCD, electrical driver, or display
- Machinery and main components of machinery
- Robotics components that support the creation of manufacturing machinery
- Main components of power plant machinery
- Motor vehicles and main components of motor vehicles
- Main components of vessels
- Main components of trains
- Main components of aircraft and activities supporting the aerospace industry
- Agricultural, plantation, or forestry-based processing that produce pulp
- Economic infrastructure
- Digital economy which includes data processing, hosting, and related activities
