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Indonesia: Indonesia updates Tax Facilities for Investment

Karyadi-Freddy
puspita.jpg

Freddy Karyadi

Luna Puspita

To encourage economic growth equitable and accelerate development in certain regions, and foreign and domestic capital investments in specified business fields, certain income tax facilities are given to taxpayers who make new investments or expand their existing business in specified business fields and/or certain regions.

As of May 7 2016, the revision of Tax Facilities for Investment was issued. The revision amends the list of specified business fields and certain regions which are eligible for the tax facilities. As a result, the amendment is expected to create job opportunities for two million people per year.

The lists are:

  • Specified business fields as shown in Table 1;

  • Specified business fields in certain regions as shown in Table 2.

Table 1

Crop agriculture, livestock, hunting and related activities

Forestry and logging

Coal and lignite mining

Natural oil and natural gas and geothermal mining

Food

Textile

Made-up clothing

Leather goods and footwear

Coal products and natural oil refinery

Chemicals product

Pharmaceuticals, chemical medicines and traditional medicines

Rubber and plastic products

Base metal industry

Metal goods, Non-machinery and equipment products

Computer, electronic and optical products

Electrical equipment

Machinery and others products

Motor vehicles, trailers and semi-trailers

Other transportations

Reparation and installation of machinery and equipment services

Electricity, gas, steam/hot water and cold air procurement

Water procurement

Land transport and pipeline transport

Warehousing and freight forwarding

Computer programming, consultancy and other related activities

Real estate


Table 2

Crop agriculture, livestock, hunting and related activities

Ore mining

Paper products

Base metal industry

Forestry and logging

Food

Chemicals products

Furniture

Fishery

Textile

Rubber and plastic products

Reparation and installation of machinery and equipment services

Coal and lignite mining

Leather goods and footwear

Non-metal mined products

Waste management


Table 3

Category: Fixed Tangible Asset

Useful Life Into

Depreciation Rates

Straight Line

Declining Balance

I. Non-buildings

Category I

2 years

50%

100% (charged directly to income)

Category II

4 years

25%

50%

Category III

8 years

12.50%

25%

Category IV

10 years

10%

20%

II. Buildings

Permanent

10 years

10%

-

Non-permanent

5 years

20%

-


Table 4

Category: Fixed Intangible Asset

Useful Life Into

Amortisation Rate

Straight Line

Declining Balance

Category I

2 years

50%

100% (charged directly to income)

Category II

4 years

25%

50%

Category III

8 years

13%

25%

Category IV

10 years

10.00%

20%


The income tax facilities shall be given to the taxpayer having high investment value or for export, significant labour absorption or high local contents. The income tax facilities given shall include:

  • a reduction of net income by 30% of the total investment, deducted for six years, by 5% each year;

  • Accelerated depreciation for tangible assets: see Table 3;

  • Accelerated amortisation for intangible assets: see Table 4;

  • Imposition of 10% income tax on dividends paid to non-resident taxpayers other than permanent establishments in Indonesia, or otherwise a lower rate subject to the prevailing agreement for the avoidance of double taxation;

  • Extended loss carry forward of more than five years but less than 10 years:

    1. With an additional period of one year if: (i) newly investing in the fields of business conducted in industrial estates and bonded zones; (ii) investing/expending at least Rp10 billion ($73,400) in economic and/or social infrastructure in business locations; (iii) using at least 70% of raw materials and/or components of the domestic products since the fourth year;

    2. With an additional period of one year or two years if: (i) One year: employing at least 500 Indonesian workers for five consecutive years; or (ii) Two years: employing at least 1,000 Indonesian workers for five consecutive years;

    3. With an additional period of two years if: (i) within five years, expending at least 5% of the investment in domestic R&D costs for product development or production efficiency; (ii) investment for extension of the existing specified business fields and/or dedicated regions partly originates in earnings after tax of a fiscal year before the issuance of the principal licence for extension of investment; and/or (iii) exporting at least 30% of the total sales value, for investment in specified business fields outside a bonded zone.

Freddy Karyadi (fkaryadi@abnrlaw.com) and Luna Puspita (lpuspita@abnrlaw.com), Jakarta

Ali Budiardjo, Nugroho, Reksodiputro, Counsellors at Law

Tel: +62 21 250 5125

Website: www.abnrlaw.com

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