Tax Concessions

information on the prominent tax facilities in Indonesia. The implementation of the tax facilities may apply differently under various conditions. The detailed requirements and application procedures are available in the respective regulations.

Income tax concessions

Tax Holiday
The MoF may provide an avenue for CIT reduction of 50% or 100% of the CIT due for 5–20 years from the start of commercial production depending on the investment value. After the period for which the CIT reduction is granted, the taxpayer will be provided with CIT reduction of 25% or 50% of CIT payable for the following two fiscal years depending on the investment value.

This facility is provided to firms in pioneer industries which have a wide range of connections, provide additional value and high externalities, introduce new technologies, and have strategic value for the national economy. Currently this facility is available for the business sectors with specific Indonesian Standard Classification of Business Field (Klasifikasi Baku Lapangan Usaha/ KBLI) as listed in the regulation. Business sectors outside this list may apply through a separate channel to the MoF.

Generally, an application must be submitted via the Online Single Submission (OSS) system, which will verify the eligibility of the application and pass it on to the MoF. Under the latest regulation, proposals can be submitted to the MoF until 26 November 2023.

Tax Allowance
The MoF may provide the following tax concessions to PT companies following their investment in certain designated business areas or in certain designated regions:

• A reduction in net income of up to 30% of the amount invested, prorated at 5% for six years of the commercial production, provided that the assets invested are not transferred out within six years;

• Accelerated depreciation and/or amortisation deductions;

• Extension of tax losses carry-forward for up to ten years;

• A reduction of the withholding tax rate on dividends paid to non-residents to 10% (or lower if treaty relief is available).

The applicant must meet the following high level criteria to be eligible for the above tax facilities:

•high investment value or for export purposes;

•high absorption of manpower; or

•high local content.

Recommendation from the BKPM Chairman must firstly be obtained, together with the application of the investment approval, before MoF approval for the tax facilities can be sought.

Reinvestment of branch profits
PEs that reinvest their after-tax profits in Indonesia within the same year or no later than the following year are exempt from branch profit tax on these profits. The reinvestment should be one of the following forms:

• As a founder or a participant founder in a newly established Indonesian company through capital participation.

• As a shareholder of an established Indonesian company through capital participation.

• Acquisition of a fixed asset used by the PE to conduct its business or activities in Indonesia.

• Investment in the form of an intangible asset used by the PE to conduct its business or activities in Indonesia.

Shares in a newly established company shall not be transferred until, at a minimum, two years from the date that the company commences commercial production. With regard to the investment in an established Indonesian company, acquisition of a fixed asset, or investment of an intangible asset, the investment shall not be transferred until, at a minimum, three years after the investment.

Tax cut for public companies
A 5% corporate tax cut can be granted to public companies which satisfy the following conditions:

• At least 40% of their paid-in shares are listed for trading in the Indonesian Stock Exchange (IDX);

• The public should consist of at least 300 individuals, each holding less than 5% of the paid-in shares;

These two conditions must be maintained for at least 183 days in a tax year. If in a particular year either or both of the conditions are not met, the facility is not applicable for that year.

Tax-neutral mergers
Generally, transfers of assets in business mergers, consolidations, acquisition, or business splits must be at market value. Gains resulting from this kind of restructuring are assessable, while losses are generally claimable as a deduction from income.

However, a tax-neutral merger, consolidation, or acquisition under which assets are transferred at book value, can
be conducted but is subject to the approval of the DGT. To obtain this approval, the merger, consolidation, or acquisition plan in question must pass a business-purpose test. Tax-driven arrangements are prohibited and therefore tax losses from the combining companies may not be passed to the surviving company.

Subject to a similar, specific DGT approval, the same concession is also available for business splits. Registration for an Initial Public Offering (IPO) may be required for these types of transactions.

Tax facility for venture capital company investment in small and medium enterprises.
The dividends received by a Venture Capital Company (VCC) from capital participation in a micro, small, or medium sized enterprises of which the shares are not traded at a stock exchange in Indonesia, with certain requirements, are non-taxable.

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