Tax Incentives for Corporate Investment in Indonesia

Indonesia utilizes tax incentives as a central element of its economic strategy to attract foreign and domestic corporate investment. These measures aim to foster sustainable economic growth and enhance global competitiveness. By offering fiscal benefits, the government steers capital towards strategic industries and specific geographic locations to stimulate job creation, promote technological advancement, and develop infrastructure.

Primary Investment Incentives for Corporations

Indonesia offers two main corporate income tax incentives for investment in targeted sectors: the Tax Holiday and the Tax Allowance. The Tax Holiday provides a large reduction in corporate income tax for companies in “Pioneer Industries,” which are sectors with broad economic influence, new technologies, or high strategic value. Examples include upstream metals, oil and gas refining, renewable energy, and electric vehicle battery manufacturing.

The Tax Holiday is structured in tiers based on the capital invested. A 100% corporate income tax exemption is available for five to twenty years for investments starting at 500 billion rupiah (approximately US$30.5 million). After the full exemption period expires, companies may receive a 50% reduction in their corporate income tax for an additional two years.

The Tax Allowance is available for companies investing in “Priority Industries” or specific regions. This incentive provides a reduction in net income for tax purposes, equal to 30% of the investment value in fixed assets, which is spread over six years at 5% annually. This effectively lowers the company’s taxable income base. Additional benefits include:

• Accelerated depreciation and amortization for tangible and intangible assets.
• The ability to carry forward a tax loss for up to ten years.
• A reduced withholding tax rate of 10% on dividends paid to non-resident shareholders, or a lower rate if stipulated by a tax treaty.

Super Deduction Incentives

Indonesia also provides “super deduction” incentives for specific activities, allowing companies to subtract more than their actual expenditure from their gross income. This significantly lowers their taxable income. The government offers enhanced benefits for these activities when conducted in the new capital city, Nusantara (IKN).

For research and development (R&D), companies can be granted a gross income deduction of up to 300% of the costs incurred, which increases to 350% for R&D in IKN. To qualify, the activities must be aimed at generating new inventions, innovations, or mastering new technology to enhance industrial products and processes. The research must be conducted within Indonesia, and collaboration with foreign R&D institutions is permissible under certain conditions.

A super deduction is also offered for vocational training and internship programs. Companies can receive a gross income deduction of up to 200% of qualifying costs, which increases to 250% for programs in IKN. To be eligible, companies must cooperate with recognized educational institutions on competency-based programs. These deductions can be claimed by companies that also receive a Tax Holiday or Tax Allowance.

Benefits within Special Economic Zones

Indonesia has established Special Economic Zones (KEK) that serve as hubs for industrial activity. Businesses operating within these zones are eligible for a package of fiscal and non-fiscal incentives. The main benefit is a corporate income tax reduction tied to operating within an SEZ.

For businesses investing at least 100 billion rupiah (approximately US$6.1 million) in an SEZ, a 100% corporate income tax exemption is available for 10 years. After this period, companies are eligible for a 50% reduction in corporate income tax for the next two years.

The incentive package in SEZs also includes exemptions or suspensions of Value Added Tax (VAT) and Sales Tax on Luxury Goods (PPnBM) for the import and local acquisition of capital goods and materials needed for production. This directly reduces the upfront and ongoing operational expenses for manufacturing firms. Companies in SEZs also benefit from exemptions from import duties and other import-related taxes on these goods.

Operating in an SEZ also provides administrative advantages, such as simplified licensing and streamlined customs clearance. These zones often provide dedicated infrastructure and support services. The specific benefits can vary by SEZ, as each may be tailored to support particular industries.

Required Information and Documentation for Application

Applying for Indonesia’s tax incentives requires specific information and documents. A detailed business plan is needed, outlining the proposed activities, production capacity, market analysis, and financial forecasts that state the total planned investment. The government uses this to evaluate the project’s viability and strategic importance.

Applicants must identify the correct Indonesian Standard Business Field Classification (KBLI) code for their business activities. This five-digit code classifies economic activities and is fundamental to the application, as eligibility is tied to specific business sectors. Incorrect classification can lead to delays or rejection.

A set of legal and corporate documents is also mandatory. This includes the company’s Business Identification Number (NIB), which is its primary identity in the business registry, and its Taxpayer Identification Number (NPWP). The company’s articles of association, with any amendments, must also be included.

Navigating the Online Single Submission Process

Incentive applications must be submitted through Indonesia’s Online Single Submission (OSS) system. After logging into the company’s OSS account, the user navigates to the incentive application module.

The process involves filling out the online application form and uploading the previously mentioned documents, such as the business plan and corporate legal forms. The system provides prompts for uploading each file before the final submission.

After submission, the OSS system routes the application to the relevant government authorities for review, such as the Indonesia Investment Coordinating Board (BKPM) and the Ministry of Finance. These agencies assess the application against the eligibility criteria, verifying the investment value, business sector, and documentation.

Processing timelines can vary depending on the investment’s complexity. Applicants can monitor the application status through the OSS portal. The final decision, whether an approval, rejection, or request for more information, is communicated through the OSS system.