Regulatory Update: Updated Income Tax Allowances in Indonesia Extend Incentives to New Business Lines
By Winnindo Business Consult
Editor: Mourme Taruna Halim and Samuel Glickstein
In April of 2015, the Indonesian government released a revised regulation on income tax allowances titled Government Regulation (PP) No. 18 / 2015 on Income Tax Allowance for Investment in Certain Business Fields and/or Regions. The regulation updates and revises the previously applied Regulation No. 52 / 2011 on income tax allowances and has been in effect since May of 2015.
Eligibility for incentives
Broadly speaking, the measures introduced set out to increase investment by providing a tax allowance for corporate taxpayers. To qualify, investors must have been shown to establish new investments or expand their businesses in Indonesia. Allowances under the regulation will now extend to the following sectors:
- Food and beverages
- Petrochemicals (such as crude palm oil and crude palm oil kernel processing)
- Coal mining and natural oil processing
- General Mining Operations
- Renewal energy power plants
- Pharmaceutical (modern and traditional) industry
- Marine and fishing industry
Regulation No.18/2015 also includes certain maritime sectors , such as the shipyard and seaport industry, which consists of shipping manufacturing, shipping equipment, shipping supplies and spare parts, and cargo loading and handling services.
For those working within all sectors mentioned above, tax allowance will be available in the form of:
- A taxable income deduction for six years from the commencement of operations within the country.
- Accelerated depreciation and amortization
- Eligibility for a preferential tax rate of ten percent for dividends paid to foreign taxpayers, or a lower rate if there is a tax treaty between Indonesia and the taxpayer’s country
- Permission for fiscal losses of up to five years to be deducted over a maximum of ten years
Implications for investment
Issuance of updated tax allowances comes as part of Indonesia’s ongoing commitment to fostering a business friendly environment for foreign investors. Updates show a particular faith that industries targeted will be an important component of accelerating investment, increasing economic growth, and ultimately helping to achieve the government’s long term objective of equitable development.
New market entrants within these industries should make sure to understand allowances offered and to identify those benefits that stand to bolster their operations. For more information on foreign investment and its relation to individual income tax deductions, Please contact our Indonesian tax specialists at firstname.lastname@example.org
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