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
The MoF may provide a tax holiday of 100% of the CIT due for 5 to 20 years from the start of commercial production for a capital investment plan starting at IDR 500 billion, 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 CIT reduction 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 also apply by fulfilling the self-assessed quantitative scoring system to justify their nature as a pioneer industry.
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 8 October 2024.
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 taxable income of 30% of the amount invested in the form of tangible fixed assets (including land), prorated at 5% for six years of the commercial production, provided that the assets invested are not being misused or transferred out within a certain period, except to be replaced with new assets.
- Acceleration of fiscal depreciation and amortisation deductions.
- A reduction of the WHT rate on dividends paid to non-residents to 10% or the applicable reduced tax treaty rate.
- Extension of tax-loss carryforward longer than five years but not more than ten years.
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.
Generally, an application must be submitted via the OSS system and will be approved by the MoF.
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 may be granted for taxpayers conducting main activities in a KEK.
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 postponement/exemption of import duty and excise, and non-collection of import taxes and domestic VAT/LST, such as:
- Non-collection of VAT and LST on importation, utilisation, or delivery of certain taxable goods.
- Non-collection of Article 22 Income Tax on importation of certain goods.
- Exemption or postponement of import duty on importation of certain goods.
- Exemption of excise duty on importation of production supporting or raw material goods to be used to produce non-excisable goods.
Integrated Economic Development Zones (Kawasan Pengembangan Ekonomi Terpadu or KAPETs)
Companies conducting business in KAPET may enjoy tax facilities similar to inbound investment incentives under the income tax concessions. The designation of an area as a KAPET is set out in a specific Presidential Decree.
In addition to the above facility, an Entrepreneur in Bonded Zone (Pengusaha di Kawasan Berikat or PDKB) in a KAPET may be granted tax facilities in the form of:
- 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 or domestic purchase of certain goods.
- Non-collection of Article 22 Income Tax on importation or domestic purchase of certain goods.
- Postponement of import duty on importation or domestic purchase of certain goods.
- Exemption of excise duty on importation or domestic purchase of certain goods.
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.
The Bonded Warehouse (Gudang Berikat) facility is intended to store imported goods that can be processed with one or more simple activities of certain goods to be released in a certain period.
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 since the goods entered the Bonded Logistic Centre.
Free Trade Zones (FTZs)
Goods entered into and goods delivered amongst companies inside an FTZ (Kawasan Perdagangan Bebas) may enjoy tax facility. The designation of an area as an FTZ is set out in a specific Presidential Decree.
Taxpayers in FTZs are entitled to the following tax facilities:
- Exemption or non-collection of VAT and LST on importation or domestic purchase/delivery of certain goods.
- Exemption of Article 22 Income Tax on importation of certain goods.
- Exemption of import duty on importation or domestic purchase/delivery of certain goods.
- Exemption or non-collection of excise duty on importation of certain goods.
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|
* 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
Profits after tax of a PE in Indonesia are exempt from BPT if the PE reinvests the profits within the same year or no later than the following year in certain investment options.
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.