This chapter details the fiscal incentives provided by the Indonesian government to stimulate investment, specifically focusing on Corporate Income Tax (CIT) reductions, allowances, and the specialized tax regime within Special Economic Zones (SEZs). These incentives are primarily governed by the Omnibus Law on Job Creation (Law No. 11 of 2020, as enacted by Law No. 6 of 2023) and its implementing regulations.

Corporate Income Tax Reduction (Tax Holiday)

The Tax Holiday facility provides a significant reduction in the CIT payable by corporate taxpayers engaged in “Pioneer Industries.” Under Ministry of Finance Regulation (PMK) No. 130/PMK.010/2020, as amended by PMK No. 69 of 2024, eligible taxpayers may receive a reduction of 50% or 100% of their CIT liability.

Eligibility and Thresholds

To qualify, a taxpayer must be an Indonesian legal entity making a new capital investment in a pioneer industry that has not yet received any other tax facility. A “Pioneer Industry” is defined as an industry with broad linkages, high added value, externalities, new technology introduction, and strategic value for the national economy. The 18 designated pioneer industries include:

  1. Basic metals (iron, steel, non-iron);
  2. Oil and gas refining (with or without integrated derivatives);
  3. Petrochemicals based on petroleum, natural gas, or coal;
  4. Organic basic chemicals from agricultural, plantation, or forestry products;
  5. Inorganic basic chemicals;
  6. Main pharmaceutical raw materials;
  7. Irradiation, electromedical, or electrotherapy equipment;
  8. Electronic or telematic equipment components;
  9. Machinery and main machinery components;
  10. Robotic components;
  11. Power generating machinery components;
  12. Motor vehicles and main components;
  13. Ship components;
  14. Train components;
  15. Aircraft components and aerospace support;
  16. Agricultural, plantation, or forestry-based pulp;
  17. Economic infrastructure; and
  18. Digital economy (hosting, data processing).

Duration and Rates

The duration of the 100% CIT reduction depends on the value of the new investment:

  • IDR 500 billion to < IDR 1 trillion: 5 tax years.
  • IDR 1 trillion to < IDR 5 trillion: 7 tax years.
  • IDR 5 trillion to < IDR 15 trillion: 10 tax years.
  • IDR 15 trillion to < IDR 30 trillion: 15 tax years.
  • IDR 30 trillion or more: 20 tax years.

A 50% CIT reduction is available for investments between IDR 100 billion and IDR 500 billion for a period of 5 tax years. Following the expiration of the primary holiday period, all beneficiaries receive an additional transition period of 2 years with a 50% (for the 100% tier) or 25% (for the 50% tier) CIT reduction.

Quantitative Criteria for Non-Listed Industries

Taxpayers in sectors not explicitly listed may still apply if they achieve a minimum score of 80 points based on quantitative criteria evaluated by the Ministry of Investment (BKPM). These criteria, weighted by percentage, include:

  • Filling the industrial tree (10%);
  • Using domestic raw materials (12%);
  • Domestic utilization of products (10%);
  • Number of similar companies in the area (12%);
  • Workforce absorption (10%);
  • Investment location (7%);
  • Eco-friendly technology (10%);
  • New technology in production (10%);
  • National Strategic Project (PSN) support (5%);
  • Production base (10%);
  • Independent infrastructure development (4%).

Global Minimum Tax (GMT) and Pillar Two

PMK No. 69 of 2024 introduced Article 15A to align the Tax Holiday with the OECD’s Global Minimum Tax (Pillar Two). It stipulates:

Wajib Pajak yang telah mendapatkan keputusan pemanfaatan fasilitas … dan termasuk dalam lingkup Wajib Pajak tertentu yang diatur dalam ketentuan peraturan perundang-undangan mengenai pengenaan pajak minimum global terhadap grup perusahaan multinasional di Indonesia, Wajib Pajak dimaksud dikenai pajak tambahan minimum domestik sesuai dengan ketentuan peraturan perundang-undangan di bidang perpajakan. (Taxpayers who have obtained a decision on the utilization of the facility … and are included in the scope of certain Taxpayers regulated under statutory laws and regulations concerning the imposition of the global minimum tax on multinational enterprise groups in Indonesia, the Taxpayers concerned are subject to additional domestic minimum tax pursuant to statutory provisions in the field of taxation.)

This provision ensures that if a multinational group’s effective tax rate falls below 15% due to the Tax Holiday, Indonesia may impose a domestic top-up tax to prevent the tax revenue from being collected by the investor’s home jurisdiction.

Corporate Income Tax Allowance

The Tax Allowance facility, regulated by Government Regulation (PP) No. 78 of 2019 and PMK No. 11/PMK.010/2020, is available for investments in specific business fields or regions. Unlike the Tax Holiday, which is a reduction of the tax due, the Tax Allowance is a series of concessions on the taxable income base.

Facilities Provided

  1. Investment Allowance: A reduction in net income of 30% of the total investment in tangible fixed assets (including land), spread over 6 years at 5% per year.
  2. Accelerated Depreciation and Amortization: Useful lives of assets are halved for tax purposes.
  3. Dividend Withholding Tax: A reduced rate of 10% (or lower per tax treaty) on dividends paid to non-residents.
  4. Loss Carry-Forward: An extension of the standard 5-year loss carry-forward period to up to 10 years, depending on specific achievements (e.g., investing in SEZs, high local content, or large workforce).

Special Economic Zones (SEZ / KEK)

Special Economic Zones (Kawasan Ekonomi Khusus or KEK) offer the most comprehensive suite of tax and customs incentives in Indonesia. The primary legal framework is PP No. 40 of 2021 and PMK No. 33/PMK.010/2021.

Income Tax Facilities in SEZs

Business Entities (Badan Usaha) managing the zone and Business Actors (Pelaku Usaha) operating within it are eligible for CIT reductions:

  • Main Activities: A 100% CIT reduction for 10 to 20 years for new investments of at least IDR 100 billion.
  • Other Activities: For investments not meeting the “Main Activity” criteria or threshold, the standard Tax Allowance (as per PP 78/2019) applies.

Additionally, Article 80 of PP No. 40 of 2021 provides a specific exemption:

Atas penghasilan yang diterima atau diperoleh Badan Usaha dan Pelaku Usaha dari: a. pengalihan tanah dan/atau bangunan; dan b. persewaan tanah dan/atau bangunan, di Kawasan Ekonomi Khusus tidak dipungut Pajak Penghasilan. (Income received or obtained by Business Entities and Business Actors from: a. transfer of land and/or buildings; and b. lease of land and/or buildings, in a Special Economic Zone is not collected/subject to Income Tax.)

VAT and Luxury Goods Sales Tax (PPN and PPnBM)

VAT and PPnBM are “not collected” (tidak dipungut) on the following transactions involving SEZ entities:

  • Import of certain tangible taxable goods into the SEZ.
  • Delivery of tangible taxable goods from other parts of the Indonesian Customs Area (Tempat Lain Dalam Daerah Pabean or TLDDP), Free Trade Zones, or Bonded Storage to SEZ entities.
  • Delivery of taxable services or intangible taxable goods between SEZ entities.

Customs and Excise

  • Import Duty: Exemption or suspension of import duties on capital goods for construction and raw materials for production.
  • Excise: Exemption from excise on raw materials or auxiliary materials used in the production of non-excisable final goods.

Super Tax Deductions for Human Capital and R&D

To encourage investment in innovation and workforce development, Indonesia provides “Super Tax Deductions” that allow for a gross income reduction exceeding 100% of the actual expenditure.

Vocational Training

Under PMK No. 128/PMK.010/2019, taxpayers conducting internships, apprenticeships, or teaching activities to develop specific competencies can claim a gross income deduction of up to 200% of the costs incurred. This consists of the 100% actual cost plus an additional 100% deduction.

Research and Development (R&D)

Under PMK No. 153/PMK.010/2020, a gross income deduction of up to 300% is available for R&D activities conducted in Indonesia. The deduction structure is:

  • 100% for actual R&D costs;
  • Up to 200% additional deduction based on milestones:
    • 50% if the R&D results in a domestic patent/PVP right;
    • 25% if registered abroad;
    • 100% if the R&D reaches the commercialization stage;
    • 25% if commercialized through cooperation with Indonesian government R&D institutes or universities.

Procedural Framework

All applications for tax incentives must be submitted through the Online Single Submission (OSS) system managed by BKPM. The system is now integrated with the Directorate General of Taxes’ Coretax system to automate the issuance of Tax Clearance Certificates (Surat Keterangan Fiskal or SKF) and monitoring of investment realization.

Sources

Grounding Sources