The government has issued a new regulation on incentives and facilities for investment in Indonesia’s regions (provinces, cities, regencies) in an effort to boost economic growth across the country.

Government Regulation No. 24/2019 on incentives and facilities for investment in regions was issued on April 2, kontan.co.id reported Monday. The new regulation provides more details than the previous one, Government Regulation No. 45/2008.

The incentives could be in the form of a regional levy reduction or even exemption. The new regulation also offers incentives in the form of a soft loan for research and development or vocational training for micro, small and medium enterprises and cooperatives.

Article 6 of the updated regulation includes 13 points on facilities for investment, providing much more information than the previous regulation, which only included five points.

Under the new regulation, for example, investors can access data and information about investments, infrastructure, land acquisition assistance, technical assistance, license arrangements, market access, promotions, strategic areas, certifications, standardization processes, raw materials and human resources.

The regulation also requires regional administrations to issue a bylaw that at the very least elaborates on criteria of investment, types of businesses, types of facilities, the procedure for obtaining incentives and the period of validity for such incentives.

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Available tax incentives in SEZs

To avail tax facilities, the investing company must be registered by the relevant government authority  to be a ‘business entity’ that develops or manages a SEZ; have a new investment with new investment plan; and must be involved in chain of ‘main’ activities – as determined by the National Council for Special Economic Zones, in the SEZs. Some of the available tax facilities include the following.

A. Tax Holiday for Primary Industry

Corporate income tax reduction –

• Of up to 100 percent for 10 to 25 years for investment more than Rp. 1 trillion (US$68.32 million)
• Of up to 100 percent for 5 to 15 years for investment between Rp 500 billion (US$34.16 million)and Rp 1 trillion(US$68.32 million)
• At a rate decided by the Ministry of Finance (MoF) for 5 to 15 years for investment below Rp 500 billion (US$34.16 million)

B. Tax allowance for other industries

• A reduction in net taxable income of up to 30 percent of the amount invested in the form of fixed assets, pro-rated at five percent for six years of commercial production;
• Accelerated depreciation and/or amortization;
• Extension of tax loss carry forward from five years to up to 10 years; and
• A reduction in withholding tax on dividends paid to non-residents to 10 percent, or applicable treaty rate.

C. Value added tax (VAT) and sales tax exemption on luxury goods – 1) imported; 2) delivered among companies in SEZ, and 3) those delivered among companies in other SEZs.

D. Customs exemption is available on

• All goods entering the SEZs; and
• Goods exiting from the SEZs to foreign countries, except leather, woods, cocoa beans, crude palm oil and its derivatives, and minerals.

Goods exiting from the SEZs to the domestic market, however, are subject to customs duty, except those that fulfill the minimum local content requirement of 40 percent.

E. Import duties and excise

• Deferred import duties for imported goods; and
• Exempted excise for imported goods.

Import duty on goods delivered to domestic market is subject to free trade agreement (FTA) tariff rates.

Non-tax incentives

Besides tax incentives, Indonesia’s special economic zones (SEZs) offer easy licensing and labor-related incentives to investors that include low wages that keep production costs low, immigration facilities, and labor market flexibility.

Immigration facilities include visa on arrival for 30 days, extendable five times; option to transfer visit visa into temporary stay permit; an option to transfer temporary stay permit into permanent stay permit for individuals working in SEZs and their families.

Furthermore, foreign investors investing in the SEZs are allowed to have the building right on land (Hak Guna Bangunan), which is extendable up to 80 years; own property in the SEZs; and those who own property have the option to apply for the permanent stay permit in Indonesia.