Indonesia: Tax holidays for corporate taxpayers and tax facilities for venture capital companies
On May 30 2018, the Indonesia Investment Coordinating Board (BKPM) issued Regulation 5 of 2018 concerning the description of lines of business and types of production in pioneer industries that may be eligible for corporate taxpayer tax holidays, and the relevant procedures for the granting of those tax holidays (BKPM Regulation 5). This regulation serves to further implement the Minister of Finance (MoF) Regulation 35/PMK.010/2018, also concerning the granting of tax holidays for corporate taxpayers (MoF Regulation 35).
In general, lines of business in Indonesia are categorised within certain classifications under the Indonesian business field standard classification reference (locally known as Klasifikasi Baku Lapangan Usaha Indonesia or KBLI). The latter is similar to the internationally renowned international standard industrial classification of all economic activities (ISIC). An attachment to BKPM Regulation 5 specifies the lines of business that are included in 17 pioneer industries that are eligible to receive a tax holiday, as stipulated under MoF Regulation 35. The list encompasses 153 different KBLIs, including KBLI 35101 (power projects), which falls within the 'economic infrastructure' category. It is hoped the specific list of KBLIs will eliminate misinterpretation and that it will provide more clarity on the scope of certain pioneer industries.
BKPM Regulation 5 provides corporate taxpayers with the opportunity to request advance confirmation that they have satisfied the pioneer industry requirements, by submitting further information via a completed form and an investment plan. These should contain details on business activity, the type of production involved, an elaboration to demonstrate the taxpayer's satisfaction of requirements, and the planned fixed capital investment value. The confirmation letter must be submitted to BKPM simultaneously with the tax holiday application. In successful applications, BKPM will issue recommendations to the MoF for further consideration on the granting of the tax holiday.
On a separate topic, on May 11 2018, the MoF issued Regulation 48/PMK.010/2018 concerning taxation on capital participation by venture capital companies in micro, small, and medium-scale enterprises (MoF Regulation 48). By definition, micro, small, and medium-scale enterprises are businesses with a maximum annual net sales threshold of IDR 50 billion ($3.5 million). A venture capital company that holds a business licence from the Indonesian financial services authority is generally allowed to participate in these enterprises, provided that: (i) the enterprises are privately owned (in other words, they have not traded their shares on a stock exchange); or, (ii) the period of participation does not exceed 10 years.
MoF Regulation 48 stipulates that the income received by a venture capital company from its participation in micro, small, and medium-scale enterprises (dividends) is not regarded as an income tax object. However, if these enterprises become public companies or the 10-year period lapses, the dividends received by the venture capital company will be subject to income tax. Accordingly, the venture capital company must maintain separate book records for its taxable and non-taxable income.