Indonesia: Indonesia updates Tax Facilities for Investment

May 26, 2016


Freddy Karyadi		Luna Puspita

To encourage economic growth equitable and accelerate development in certain regions, and foreign and domestic capital investments in specified business fields, certain income tax facilities are given to taxpayers who make new investments or expand their existing business in specified business fields and/or certain regions.

As of May 7 2016, the revision of Tax Facilities for Investment was issued. The revision amends the list of specified business fields and certain regions which are eligible for the tax facilities. As a result, the amendment is expected to create job opportunities for two million people per year.

The lists are:

Specified business fields as shown in Table 1;
Specified business fields in certain regions as shown in Table 2.

Table 1
Crop agriculture, livestock, hunting and related activities	Forestry and logging
Coal and lignite mining	Natural oil and natural gas and geothermal mining
Food	Textile
Made-up clothing	Leather goods and footwear
Coal products and natural oil refinery	Chemicals product
Pharmaceuticals, chemical medicines and traditional medicines	Rubber and plastic products
Base metal industry	Metal goods, Non-machinery and equipment products
Computer, electronic and optical products	Electrical equipment
Machinery and others products	Motor vehicles, trailers and semi-trailers
Other transportations	Reparation and installation of machinery and equipment services
Electricity, gas, steam/hot water and cold air procurement	Water procurement
Land transport and pipeline transport	Warehousing and freight forwarding
Computer programming, consultancy and other related activities	Real estate

Table 2
Crop agriculture, livestock, hunting and related activities	Ore mining	Paper products	Base metal industry
Forestry and logging	Food	Chemicals products	Furniture
Fishery	Textile	Rubber and plastic products	Reparation and installation of machinery and equipment services
Coal and lignite mining	Leather goods and footwear	Non-metal mined products	Waste management

Table 3
Category: Fixed Tangible Asset	Useful Life Into	Depreciation Rates
Category: Fixed Tangible Asset	Useful Life Into	Straight Line	Declining Balance
I. Non-buildings
Category I	2 years	50%	100% (charged directly to income)
Category II	4 years	25%	50%
Category III	8 years	12.50%	25%
Category IV	10 years	10%	20%
II. Buildings
Permanent	10 years	10%	-
Non-permanent	5 years	20%	-

Table 4
Category: Fixed Intangible Asset	Useful Life Into	Amortisation Rate
Category: Fixed Intangible Asset	Useful Life Into	Straight Line	Declining Balance
Category I	2 years	50%	100% (charged directly to income)
Category II	4 years	25%	50%
Category III	8 years	13%	25%
Category IV	10 years	10.00%	20%

The income tax facilities shall be given to the taxpayer having high investment value or for export, significant labour absorption or high local contents. The income tax facilities given shall include:

a reduction of net income by 30% of the total investment, deducted for six years, by 5% each year;
Accelerated depreciation for tangible assets: see Table 3;
Accelerated amortisation for intangible assets: see Table 4;
Imposition of 10% income tax on dividends paid to non-resident taxpayers other than permanent establishments in Indonesia, or otherwise a lower rate subject to the prevailing agreement for the avoidance of double taxation;
Extended loss carry forward of more than five years but less than 10 years:

With an additional period of one year if: (i) newly investing in the fields of business conducted in industrial estates and bonded zones; (ii) investing/expending at least Rp10 billion ($73,400) in economic and/or social infrastructure in business locations; (iii) using at least 70% of raw materials and/or components of the domestic products since the fourth year;
With an additional period of one year or two years if: (i) One year: employing at least 500 Indonesian workers for five consecutive years; or (ii) Two years: employing at least 1,000 Indonesian workers for five consecutive years;
With an additional period of two years if: (i) within five years, expending at least 5% of the investment in domestic R&D costs for product development or production efficiency; (ii) investment for extension of the existing specified business fields and/or dedicated regions partly originates in earnings after tax of a fiscal year before the issuance of the principal licence for extension of investment; and/or (iii) exporting at least 30% of the total sales value, for investment in specified business fields outside a bonded zone.

Freddy Karyadi (fkaryadi@abnrlaw.com) and Luna Puspita (lpuspita@abnrlaw.com), Jakarta

Ali Budiardjo, Nugroho, Reksodiputro, Counsellors at Law

Tel: +62 21 250 5125

Website: www.abnrlaw.com