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Indonesia Corporate - Tax credits and incentives

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Foreign tax credit

Tax paid or payable in foreign countries upon income from abroad received or obtained by a resident taxpayer may be credited against tax payable in Indonesia in the same fiscal year.

The allowable foreign tax credit (FTC) amount is either the actual due/paid amount or the amount calculated based on the FTC rules ('certain amount'), whichever is lower. Under the new tax regulation, there is an additional lower limit based on the applicable tax treaty rate. If the tax treaty stipulates that the taxing right of an income is only in Indonesia, any FTC for such income is not creditable. Therefore, there are now three amounts (i.e. actual FTC amount, certain amount, and tax treaty rate) to be considered when determining the lowest amount to determine the allowable FTC amount.

Revaluation of fixed assets

Certain taxpayers may apply for fixed asset revaluation for tax purposes with approval from the DGT. The excess of the fair market value over the tax book value of the revalued assets is subject to final income tax at a rate of 10%.

Income tax concessions

Tax holiday

The MoF may provide a tax holiday of 100% of the CIT due for 5 to 20 years from the start of commercial production, depending on the investment amount. After the end of the tax holiday, the companies will receive a 50% CIT reduction for two years.

In addition, the MoF also provide a tax holiday of 50% of CIT due for five years from the start of commercial production for the capital investment plan amounted to IDR 100 billion up to less than IDR 500 billion. After the period for which the CIT reduction is granted, the taxpayer will be provided with CIT reduction of 25% of CIT payable for the next two years.

This facility is provided to firms in pioneer industries that have a wide range of connections, provide additional value and high externalities, introduce new technologies, and have strategic value for the national economy. Currently, this facility is available for the business sectors with specific Indonesian Standard Classification of Business Field (Klasifikasi Baku Lapangan Usaha or KBLI) as listed in the regulation. Business sectors outside this list may apply through a separate channel to the MoF.

Generally, an application must be submitted via the Online Single Submission (OSS) system, which will verify the eligibility of the application and pass it on to the MoF. Under the latest regulation, proposals can be submitted to the MoF until 26 November 2023.

Tax allowance

The MoF may provide the following tax concessions to PT companies following their investment in certain designated business areas or in certain designated regions:

  • A reduction in net income of up to 30% of the amount invested, prorated at 5% for six years of the commercial production, provided that the assets invested are not transferred out within six years.
  • Accelerated depreciation and/or amortisation deductions.
  • Extension of tax losses carryforward for up to ten years.
  • A reduction of the WHT rate on dividends paid to non-residents to 10% (or lower if treaty relief is available).

The applicant must meet one of the following high-level criteria to be eligible for the above tax facilities:

  • High investment value or for export purposes.
  • High absorption of manpower.
  • High local content.

Recommendation from the BKPM Chairman must first be obtained, together with the application of the investment approval, before MoF approval for the tax facilities can be sought.

Special Economic Zones (Kawasan Ekonomi Khusus or KEKs)

Taxpayers conducting business in KEKs may enjoy tax facilities. The business should cover the main activities determined for each KEK. The designation of an area as a KEK is set out in a specific government regulation.

CIT reduction facility may be granted for new taxpayers with new capital invested in the production chain of main activities in a KEK, as described below:

Investment plan (IDR, in billions) Reduction period (in years) CIT reduction
Less than 500 5 to 15 MoF discretion
500 up to 1,000 5 to 15 20% to 100%
More than 1,000 10 to 25 20% to 100%

Taxpayers being rejected for the CIT reduction facility and taxpayers carrying out other activities in a KEK may apply for similar inbound investment incentives under the income tax concessions.

On top of the above income tax facilities, taxpayers in a KEK are also entitled to the following tax facilities:

  • Non-collection of VAT and LST on importation of certain goods.
  • Non-collection of Article 22 Income Tax on importation of certain goods.
  • Postponement of import duty on capital goods and equipment, and goods and materials for processing.
  • Exemption of excise on importation of goods to be used to produce non-excisable goods.
  • Non-collection of VAT and LST on the domestic purchases of certain goods.

Integrated Economic Development Zones (Kawasan Pengembangan Ekonomi Terpadu or KAPETs)

Companies conducting business in KAPET may enjoy tax facilities. The designation of an area as a KAPET is set out in a specific Presidential Decree.

An Entrepreneur in Bonded Zone (Pengusaha di Kawasan Berikat or PDKB) in a KAPET may be granted tax facilities in the form of:

  • Income tax facilities similar to inbound investment incentives under the income tax concessions.
  • Non-collection of VAT and LST on importation of certain goods.
  • Exemption of Article 22 Income Tax on importation of certain goods.
  • Postponement of import duty on capital goods and equipment, and goods and materials for processing.
  • Non-collection of VAT and LST on the domestic purchases of certain goods.

Bonded Stockpiling Area

Bonded Stockpiling Area (Tempat Penimbunan Berikat) currently consists of:

  • Bonded Zones.
  • Bonded Warehouse.
  • Bonded Exhibition Place.
  • Duty Free Shop.
  • Bonded Auction Place.
  • Bonded Recycled Area.
  • Bonded Logistic Centre.

We will only highlight three prominent areas in the below sections.

The tax facilities in these areas are as follows:

  • Non-collection of VAT and LST on importation of certain goods.
  • Non-collection of Article 22 Income Tax on importation of certain goods.
  • Postponement of import duty on certain goods.
  • Exemption of excise on importation of certain goods.
  • Non-collection of VAT and LST on the domestic purchases of certain goods.

Bonded Zones

The Bonded Zones (Kawasan Berikat) facility is provided to manufacturing companies with export orientation, import substitution, supporting downstream industry, and certain industries such as aircraft, shipbuilding, railways, and the defence and security industry. There is a domestic sales quota of 50% of the previous year export realisation value and/or sales value to other Bonded Zones/Free Trade Zones/Special Economic Zones/other places within the Customs Area.  

Bonded Warehouse

The Bonded Warehouse (Gudang Berikat) facility is intended to store imported goods that can be processed with one or more simple activities within one year.

Bonded Logistic Centre

The Bonded Logistic Centre (Pusat Logistik Berikat) facility is similar to the Bonded Warehouse facility; however, it is intended to store both imported goods from outside the Customs Area and/or goods from other places within the Indonesia Customs Area that can be processed with one or more simple activities within three years.

Free Trade Zones (FTZs)

Goods entered into and goods delivered amongst companies inside an FTZ (Kawasan Perdagangan Bebas) may enjoy tax facility.

Taxpayers in FTZs are entitled to the following tax facilities:

  • Exemption of VAT and LST on importation of certain goods.
  • Non-collection of Article 22 Income Tax on importation of certain goods.
  • Exemption of import duty on certain goods.
  • Exemption of excise on importation of certain goods.
  • Non-collection of VAT and LST on the domestic purchases of certain goods.
  • Transactions of intangible goods and taxable services are exempted from VAT, except for those delivered to other Indonesia Customs Area and Bonded Stockpiling Area or Special Economic Zones companies.

Industrial Zones (Kawasan Industri or KIs)

The determination and licensing of a KI is as granted by the government. The applicable tax facilities depend on the classification of the Industrial Development Area (IDA) (Wilayah Pengembangan Industri or WPI) of the KI, namely:

  • Advance IDA (WPI Maju or WPIM).
  • Developing IDA (WPI Berkembang or WPIB).
  • Potential I IDA (WPI Potensial I or WPIP I).
  • Potential II IDA (WPI Potensial II or WPIP II).

Below are the available tax facilities for each type of WPI:

Tax and customs facility WPIM* WPIB WPIP I WPIP II
CIT reduction of 10% to 100% of the CIT due for 5 to 15 years from the start of commercial production Yes Yes
Income tax facilities similar to inbound investment incentives under the income tax concessions Yes Yes Yes
VAT exemption on the imports/purchase of machines and equipment (excluding spare parts) that are directly used to produce VATable goods Yes Yes Yes Yes
Import duty exemption on the imports of machines or materials that are used to produce goods/services** Yes Yes Yes Yes

Notes

* WPIM may choose to apply income tax facility in the form of CIT reduction or tax allowance.

** The applicable period of import duty exemption varies depending on the KI classification and the business cycle of the respective taxpayer (e.g. construction or developing stage).

Reinvestment of branch profits

PEs that reinvest their after-tax profits in Indonesia within the same year or no later than the following year are exempt from BPT on these profits. The reinvestment should be one of the following forms:

  • As a founder or a participant founder in a newly established Indonesian company through capital participation.
  • As a shareholder of an established Indonesian company through capital participation.
  • Acquisition of a fixed asset used by the PE to conduct its business or activities in Indonesia.
  • Investment in the form of an intangible asset used by the PE to conduct its business or activities in Indonesia.

Shares in a newly established company shall not be transferred until, at a minimum, two years from the date that the company commences commercial production. With regard to the investment in an established Indonesian company, acquisition of a fixed asset, or investment of an intangible asset, the investment shall not be transferred until, at a minimum, three years after the investment.

Other incentives

The dividends received by a Venture Capital Company (VCC) from capital participation in a micro, small, or medium-sized enterprises of which the shares are not traded at a stock exchange in Indonesia, with certain requirements, are non-taxable.


Last Reviewed - 11 June 2019

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