Takeovers, Mergers and Acquisitions
Assets may be transferred at book value as part of a merger or in the context of certain other reorganizations, subject to prior approval from the DGT. In addition, there may be partial relief from the five percent transfer of title tax on land and buildings and full relief from the five percent income tax on the transfer of land and buildings.
The following rules apply:
- An application must be filed with the DGT
- The application must state the reason for the transaction and the applicant must fulfill a business purpose test
- Losses are not transferable. Further, if any of the companies involved has losses, the surviving entity must be profitable or the one with the lowest losses
- Tax liabilities of the companies involved must be settled. Any overpaid tax in a company’s account can be credited to the transferee after DGT audit
- Depreciation of assets must be based on the remaining useful life of the assets
- The transferee must record the book value immediately prior to the transfer
The transfer of assets during a merger is not subject to VAT provided the entities involved are registered for VAT.
Tax holidays may be available for significant investments in the following “pioneer” industries:
- Basic metals industry;
- Petroleum refining industry and/or organic basic chemicals derived from petroleum and natural gas;
- Industrial machinery;
- Renewable resources industry; and/or
- Telecommunication equipment
The facility is only available to companies established after August 2010. To qualify, applicants must invest a minimum of IDR 1 trillion (approximately USD109 million) and provide a statement of agreement to deposit ten percent of this amount in a bank in Indonesia before submitting the application. Successful applicants will be entitled to an exemption from corporate income tax for an initial five to ten years and a reduction of 50 percent to the corporate tax liability for the following two years after expiry.
The regulation introducing these facilities provides for possible expansion to scope and period in the future.
Direct Tax Incentives for New Enterprises
New enterprises organized under the Capital Investment Law may apply for an exemption from the income tax payable on the importation of capital goods and raw materials. New enterprises should secure an exemption certificate from the DGT where the new enterprise is registered. The exemption is granted for capital goods indicated in the Master list and must be applied for each year.
Investment in certain business and or certain regions
Income tax facilities are available for investment in 25 selected sectors (52 sub-sectors) and/or 15 selected locations (77 sub-locations), effective December 22, 2011. Please also note the following section detailing tax facilities in the economic development zones (“KAPET”).
The tax facilities for the selected sectors/regions comprise of four incentives:
- Additional tax deduction of five percent of the realized capital investment (depreciable and non-depreciable assets) each year up to six years (revoked if assets are transferred during facility period)
- Option to use accelerated tax depreciation at double normal rates
- The period for tax loss carry forward may be extended to 10 years (instead of five years)
- Withholding tax on dividends to non-resident shareholders is reduced to 10 percent (or a lower DTA rate).
The selected business sectors are economic sectors that have high priority on a national scale, particularly in respect of boosting exports. The selected regions are remote regions, which are economically potentially worthy of development but whose economic infrastructure is generally inadequate and where access by public transport is difficult, including maritime waters with a depth of over 50 (fifty) meters where the seabed has mineral reserves, including natural gas.
The 25 selected sectors (applicable to the whole of Indonesia) and the 17 selected sectors (applicable only to selected Indonesian Territories/selected locations) are as follows:
Most of the selected locations are outside the island of Java, principally in the Eastern Provinces of Indonesia.
Investment in the Economic Development Zones (KAPET)
This facility was introduced to encourage economic development in undeveloped regions for projects that require a large investment of funds to exploit potential resources. It is expected that these areas will become regional centers of economic growth.
Approved investment in a KAPET may be granted the direct tax concessions referred to above (additional tax deduction, accelerated depreciation, extended tax loss carry forward and reduction of withholding tax on dividends) plus the following additional incentives:
- Suspension of import duty on importation of capital goods, equipment and raw materials for a bonded zone located in a KAPET
- Reduction of import duty to five percent on the importation of machinery for a non-bonded zone company located in a KAPET
No collection of VAT and STLG and income tax Article 22 on:
– Imported goods and equipment for production activities
– Transfer of goods from one KAPET to another company located in KAPET
– Transfer of goods within KAPET or from one KAPET to another company located in KAPET to be processed further
- Deduction for the following expenses (under the general tax law these are nondeductible expenses):
– Benefits in kind provided to employees
– Expenses related to local social community development.
Currently there are more than 20 KAPETs, which have been introduced in various undeveloped areas but only half of them have commenced operations.
Despite the tax facilities offered by KAPET, there are some limitations as follows:
- Lack of infrastructure, it is difficult for companies to operate in these areas due to poor infrastructure
- Limited skilled labor supply from local communities
- Logistics may be difficult due to the remote locations.
KAPET areas include:
- Papua Province: Biak
- Kalimantan: Sanggau, Kakab, Batulicin, Sasamba ●Maluku: Seram
- Nusa Tenggara: Mbay, Bima
- Sulawesi: Pare-pare, Manado Bitung, Batui and Bukari
- Aceh: Sabang.
Free Trade Zones (FTZ) and Free Port Areas (FEA)
FTZ and FEA are treated as if they are outside of the Indonesian customs territory. There are no import duties and other taxes on the importation of goods. Goods delivered to locations within the Indonesian customs territory are treated as imports and subject to normal customs and other impositions.
The regulations provide specific area coordinates and boundaries, including maps of the area coverage of the above Free Trade Zones and Free Port Areas.
Business activities conducted in the Free Trade Zones and Free Port Areas include trading, maritime, industry, transportation, banking, tourism and other activities. The other activities are subject to further stipulation by separate Government Regulations. The regulations stipulate that the economic development of the Free Trade Zones and Free Port Areas will be conducted in accordance with the regional master plan. These Government Regulations do not revoke any agreements, arrangements or cooperation, as well as any licenses or facilities granted prior to the stipulation of the 2007 Government Regulations. These will still apply until expiration.
Goods, materials and construction equipment imported by a main contractor in connection with an approved government project funded by foreign loans or grants are entitled to the following relief:
- Exemption from import duty
- No collection of VAT and STLG
- Income tax is borne by the government for primary contractors, consultants and suppliers working on such projects.
Indirect Tax Incentives
There are various VAT and customs concessions for export manufacturers as noted in the VAT section. A summary of the concessions for the land and building tax and transfer of title on land and building tax are included in section 9 “Indirect and Other Taxes”.
Subsidies or Grants
There are no government schemes for subsidies or grants of relevance to foreign-owned businesses.
Financial Assistance and Guarantees
There are no government schemes for financial assistance and guarantees of relevance to foreign-owned businesses.
The duty and tax facilities available for the importation of goods are summarized in section 9 “Indirect and Other Taxes”.