In May 2024, the Indonesian Government issued Government Regulation No. 20 of 2024 on Industrial Zoning (“GR 20/2024”). The purpose of GR 20/2024 is to enhance the contribution of the industrial processing sector outside Java and to establish new industrial centers.
GR 20/2024 retains most of the core provisions originally set forth in Government Regulation No. 142 of 2015 on Industrial Estates. One of the provisions maintained by the Indonesian Government is the granting of fiscal incentives for Industrial Companies within Industrial Estates, as regulated in Article 66 of GR 20/2024.
To implement these fiscal incentives, the Indonesian Government has issued several regulatory frameworks, including:
- The Government of the Republic of Indonesia Regulation No. 49 Of 2022 on Exempted Value-Added Tax and Value-Added Tax or Non-Collection of Value-Added Tax and Luxury Goods Sales Tax on Imports and/or Delivery of Certain Taxable Goods and/or Delivery of Certain Taxable Services and/or Utilization of Certain Taxable Services From Outside of the Customs Area (“GR 49 2022”);
- The Minister of Finance of the Republic of Indonesia Regulation No. 176/PMK.011/2009 of 2009 on Import Duty Exemptions on the Import of Machineries and Goods and Materials for Industrial Construction or Development for Investment Purposes as lastly amended by the Minister of Finance of the Republic of Indonesia Regulation No. 188/PMK.010/2015 of 2015 (“MFR 188 2015”);
- The Minister of Finance of the Republic of Indonesia Regulation No. 105/PMK.010/2016 of 2016 on the Grating of Tax and Customs Facilities to Industrial Company in Industrial Estate and Industrial Estate Company (“MFR 105/2016”); and
- The Minister of Finance of the Republic of Indonesia Regulation No. 11/PMK.010/2020 of 2020 on the Implementation of Government Regulation No. 78 of 2019 on Tax Facilities for Income Investment in Certain Business Fields and/or in Certain Regions (“MFR 11/2020”).
Under the aforementioned regulation, the Indonesian Government has provided exemptions from Value-Added Tax (“VAT”), income tax, and customs duties for Industrial Companies operating within Industrial Estates. These exemptions include:
According to Article 6 of GR 49/2022, taxable goods, including machinery and factory equipment that form a single unit (whether installed or detached), are exempt from VAT when imported or delivered. This provision allows industrial companies to import raw materials to produce finished goods without the imposition of VAT.
MFR 105/2016 classifies Industrial Development Areas (Wilayah Pembangunan Industri “WPI”) into the following categories:
a. Advanced WPI, covering the area of Java;
b. Developing WPI, covering the areas of southern Sulawesi, eastern Kalimantan, northern Sumatra (excluding Batam, Bintan, and Karimun), and southern Sumatra;
c. Potential WPI I, covering the areas of northern Sulawesi, western Kalimantan, as well as Bali and Nusa Tenggara; and
d. Potential WPI II, covering the regions of Papua and West Papua.
The following fiscal facilities are provided according to the WPI classification as outlined in GR 49/2022, MFR 188/2015, MFR 105/2016, and MFR 11/2020:
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Type
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Income Tax
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Customs
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Advanced WPI
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- For companies making new investments or expanding existing businesses.
- The Industrial Companies in question could obtain a reduction of net income of 30% (thirty percent) in the form of tangible fixed assets, including land used for primary business activities, which shall be imposed for 6 (six) years, respectively, in the amount of 5% (five percent) per year.
- Accelerated depreciation on tangible assets and accelerated amortization on intangible assets acquired in the context of new capital investment and/or business expansion, with the useful life and depreciation rate and amortization rate determined by Article 4 paragraph (3) of MFR 11/2020.
- The imposition of Income tax on dividends paid to foreign taxpayers other than permanent establishments in Indonesia is at 10% (ten percent), or a lower tariff in accordance with the applicable double tax avoidance agreement.
- Compensation for losses for 5 (five) years but no more than 10 (ten) years with terms and conditions as set out in Article 3 paragraph (1) letter d of MFR 11/2020.
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- For the imports of machinery, goods, and materials by Industrial Companies engaging in business activities in the fields of goods-producing industries.
- The exemption of customs in connection with industrial construction and development shall be granted for an importation period of 2 (two) years from the enforcement of the
decision on import duty exemption.
- For Industrial Companies that have completed industrial development, except for service-producing industries, as long as it adds the capacity of at least 30% (thirty percent) of the installed capacity, may be granted an import duty exemption on goods and materials for additional production needs for a maximum of 2 (two) years, for an importation period of 2 (two) years from the enforcement of the decision on import duty exemption.
- For Industrial Companies that carry out construction or development, except for service-producing industries, by using domestically manufactured production pieces of machinery at least 30% (thirty percent) of the total value of machinery, for the import of goods and materials may be granted an import duty for production needs/additional production needs for 4 (four) years in accordance with the installed capacity, with an importation period of 4 (four) years from the enforcement of the decision on import duty exemption
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Developing WPI
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- For companies making new investments or expanding existing businesses.
- The Industrial Companies in question could obtain a reduction of net income of 30% (thirty percent) in the form of tangible fixed assets, including land used for primary business activities, charged for 6 (six) years each at 5% (five percent) per year calculated from the commencement of commercial production.
- Accelerated depreciation on tangible assets and accelerated amortization on intangible assets acquired in the context of new capital investment and/or business expansion, with the useful life and depreciation rate and amortization rate determined by Article 4 paragraph (3) letter b of MFR 105/206.
- The imposition of income tax on dividends paid to foreign taxpayers other than permanent establishments in Indonesia is at 10% (ten percent), or a lower tariff in accordance with the applicable double taxation avoidance agreement.
- Compensation for losses for 8 (eight) years.
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- Industrial Companies that carry out construction.
- Import duty exemption on the import of machine for an import period of 2 (two) years from the
enforcement of the import duty exemption decision and it could extended in accordance with the construction period.
- Industrial Company in an Industrial Estate and Industrial Estate Company that has
completed the development and is ready for production, could be granted import duty exemption on the import of goods and materials for production purposes for a maximum of 3 (three) years, in accordance with the installed capacity with an import period of 3 (three) years from the enforcement of the import duty exemption decision.
- Industrial Companies that carry out development.
- Import duty exemption on the import of machine for an import period of 2 (two) years from the
enforcement of the import duty exemption decision and it could extended in accordance with the construction period.
- Industrial companies in an Industrial Estate and Industrial Estate Company that has completed Development as long as they increase capacity by at least 30% (thirty percent) of the installed capacity, could be granted import duty exemption on goods and materials for the purpose of additional production for a 3 (three) years period at most, for an import period of 3 (three) years from the enforcement of the import duty exemption decision.
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Potential WPI I
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- For companies making new investments or expanding existing businesses.
- The Industrial Companies in question could obtain a reduction of net income of 30% (thirty percent) in the form of tangible fixed assets, including land used for primary business activities, charged for 6 (six) years each at 5% (five percent) per year calculated from the commencement of commercial production.
- Accelerated depreciation on tangible assets and accelerated amortization on intangible assets acquired in the context of new capital investment and/or business expansion, with the useful life and depreciation rate and amortization rate determined by Article 5 paragraph (3) letter b of MFR 105/206.
- The imposition of income tax on dividends paid to foreign taxpayers other than permanent establishments in Indonesia is at 10% (ten percent), or a lower tariff in accordance with the applicable double taxation avoidance agreement.
- Compensation for losses for 10 (ten) years.
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- Industrial Companies that carry out construction.
- Import duty exemption on the import of machine for an import period of 2 (two) years from the
enforcement of the import duty exemption decision and it could extended in accordance with the construction period.
- Industrial Company in an Industrial Estate and Industrial Estate Company that has completed the development and is ready for production, could be granted import duty exemption on the import of goods and materials for production purposes for a maximum of 4 (four) years, in accordance with the installed capacity with an import period of 4 (four) years starting from the enforcement of the import duty exemption decision.
- Industrial companies that carry out development.
- Import duty exemption on the import of machine for an import period of 2 (two) years from the
enforcement of the import duty exemption decision and it could extended in accordance with the construction period.
- Industrial companies in an industrial estate and industrial estate companies that have completed development as long as they increase capacity by at least 30% (thirty percent) of the installed capacity, could be granted import duty exemption on goods and materials for the purpose of additional production of a maximum of 4 (four) years, for an import period of 4 (four) years from the enforcement of the import duty exemption decision.
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Potential WPI II
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- For companies that make new investments and have not yet started commercial production at the time of submitting an application to obtain fiscal incentive facilities.
- Corporate income tax reduction of a maximum of 100% (one hundred percent) and a minimum of 10% (ten percent) of the amount of corporate income tax owed.
- The corporate income tax deduction in question could be granted for a maximum
period of 15 (fifteen) Tax Years and a minimum of 5 (five) Tax Years, starting from the Tax Year when the commercial production begins.
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- Industrial Companies that carry out construction.
- Import duty exemption on the import of machine for an import period of 2 (two) years from the
enforcement of the import duty exemption decision and it could extended in accordance with the construction period.
- Industrial Company in an Industrial Estate and Industrial Estate Company that has completed the Development and is ready for production, could be granted import duty exemption on the import of goods and materials for production purposes for a maximum of 5 (five) years, in accordance with the installed capacity with an import period of 5 (five) years starting from the enforcement of the import duty exemption decision.
- Industrial companies that carry out development.
- Import duty exemption on the import of machine for an import period of 2 (two) years from the
enforcement of the import duty exemption decision and it could extended in accordance with the construction period.
- Industrial companies in an Industrial Estate and Industrial Estate Companies that have completed Development as long as they increase capacity by at least 30% (thirty percent) of the installed capacity, could be granted import duty exemption on goods and materials for the purpose of additional production a maximum of 5 (five) years, for an import period of 5 (five) years from the enforcement of the import duty exemption decision.
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