IMPLEMENTATION LEVEL

National

AFFECTED FLOW

Inflow

ANNOUNCED AS TEMPORARY

No

NON-TRADE-RELATED RATIONALE

No

ELIGIBLE FIRMS

all

JUMBO

No

TARIFF PEAK

No
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Inception date: 06 May 2015 | Removal date: 12 Jan 2018
Still in force

Tax or social insurance relief

On 6 April 2015, the Indonesian government announced regulation PP 18/2015 extending the accessibility of investment-related tax incentives. The regulation came into effect on 6 May 2015.
 
Motivation & form of the tax incentive
Article 3 of the government regulation 18/2015 describes the motivation underlying this incentive as "taxpayers conducting investment (...) will be awarded income tax facilities as long as they meet the following criteria:

  • have a high investment value or are destined for exports;
  • have a large employment; or
  • have high local content." (own translation)

The tax incentive allows participating companies to subtract a share of their total investment expenditure from their taxable income for a period of up to 10 years. The annual reduction is equal to 5 percent of the company's total investment in the given year. Participating companies may invoke this reduction annually for a period of six years. Under certain conditions, this period may be extended to up to 10 years. 
Furthermore, participating companies receive accelerated amortization and depreciation as well as more generous loss compensation allowances to reduce their taxable income.
Finally, participating companies need only pay a reduced income tax on dividends paid to foreign stockholders.
 
Loosened participation criteria
The amendment of 6 April 2015 removes material participation conditions such as a minimum investment value of about 100 million USD and an investment completion rate of 80% for already established companies.
The only remaining eligibility criterion is that the investment is conducted in one of the listed "sectors of national importance" or a designated region. This represents a loosening of the criteria listed in the previous 2007 regulation as amended in 2011 (cf. Related Measures).
 
Additional possibilities for an extended duration of the tax incentive
The amendment of 6 April 2015 also provides additional tax incentives for the reinvestment of corporate profits in Indonesia. Companies exporting at least 30% of their produce will obtain an extension of the income tax reduction for two more years. This concept of offering tax reductions for export-oriented companies was not mentioned in previous provisions.
Furthermore, companies may now obtain another 2 years of income tax reduction if they hire at least 1000 Indonesian employees for five consecutive years. In the previous provisions, companies were only eligible for a single additional year if they hired more than 500 local workers over five straight years.
Finally, the one-year extension in the case where R&D costs represented at least 5% of the total investment costs was now stretched to 2 years.
 
Amended list of eligible sectors
The final novelty introduced on 6 April 2015 concerns the list of eligible sectors. In the new list of sectors eligible for the scheme, the following sectors were added: inorganic chlor and alkali, computer assembly, car industry, catfish, surimi, liquid milk, sago palm flour, steel rolling rattan and bamboo furniture.
Meanwhile, the construction of public roads was scrapped from the list.
 
Update
On 14 August 2015, the Indonesian Finance Ministry published regulation 159/PMK.010/2015 extending the period of the investment-related income tax exemption from 10 to 15 years, with a potential extension for another 5 years (cf. Related Measures).
 
Update 2
On 21 September 2015, according to media reports, two palm oil and one dairy company received tax allowances for up to 15 years for investments planned in the Riau province and Jakarta, respectively.
 
Update 3
On 22 April 2016, the government published regulation 9/2016 expanding the list of sectors eligible for the programme (cf. Related Measures).

Update 4

On 12 January 2018, the Ministry of Industry published regulation 1/2018 (cf. Related State Acts) largely updating the sector-specific eligibility for the income tax reduction. Hence, this intervention is no longer classified as in force.
 
The GTA includes state guarantees and other financial incentives that are likely to affect the restructuring and performance of firms facing international competition, whether from imports, in export markets, and from foreign subsidiaries.

AFFECTED COUNTRIES

MAP
TABLE
EXPORT

AFFECTED SECTORS AND PRODUCTS

016 Stimulant, spice & aromatic crops
019 Forage; natural rubber; living plants; raw vegetable materials
021 Live animals
029 Other animal products
031 Wood in the rough
032 Non-wood forest products
041 Fish, live, not for human consumption
042 Fish live, fresh or chilled for human consumption
043 Crustaceans, live, fresh or chilled
044 Molluscs live, fresh or chilled
120 Crude petroleum & natural gas
172 Coal gas, water gas, producer gas & similar gases (excl. fuels)
212 Prepared & preserved fish, crustaceans, molluscs
221 Processed liquid milk, cream & whey
222 Other dairy products
236 Cocoa, chocolate & sugar confectionery
239 Food products n.e.c.
261 Natural textile fibres prepared for spinning
262 Man-made textile staple fibres processed for spinning
263 Textile yarn & thread of natural fibres
264 Textile yarn & thread of man-made filaments or staple fibres
265 Woven fabrics of natural non-cotton fibres
266 Woven fabrics (except special fabrics) of cotton
267 Woven fabrics of man-made filaments & staple fibres
268 Special fabrics
271 Made-up textile articles
272 Carpets & other textile floor coverings
273 Twine, cordage, ropes & cables; articles thereof
279 Textiles n.e.c.
281 Knitted or crocheted fabrics
282 Wearing apparel, except fur apparel
291 Tanned or dressed leather; composition leather
292 Luggage & handbags; saddlery & harness; other leather articles
293 Footwear other than sports footwear
294 Sports footwear, except skating boots
295 Other footwear
296 Parts of footwear
311 Wood, sawn or chipped lengthwise, sliced or peeled, of a thickness exceeding 6 mm; railway or tramway sleepers (cross-ties) of wood, not impregnated
313 Wood, rough or treated; railway sleepers; poles
319 Other products of wood, cork or straw
321 Pulp, paper & paperboard
327 Registers, notebooks, diaries & similar articles
332 Tar distilled from coal, lignite or peat; other mineral tars
333 Petroleum oils & oils of bituminous materials, other than crude
334 Petroleum gases & other gaseous hydrocarbons, except natural gas
335 Petroleum jelly, coke or bitumen; paraffin wax & similar products
336 Radioactive elements or residues & prodcuts containing them
337 Fuel elements (cartridges), for or of nuclear reactors
341 Basic organic chemicals
342 Basic inorganic chemicals n.e.c.
343 Tanning or dyeing extracts; tannins; colouring matter n.e.c.
345 Miscellaneous basic chemical products
346 Fertilizers & pesticides
347 Plastics in primary forms
348 Synthetic rubber & mixtures thereof in primary forms

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