Tax facilities for businesses that engage in business activities within the IKN
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Tax facilities for businesses that engage in business activities within the IKN

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Danang Syailendra and Hartiadi Santoso of GNV Consulting Services outline the many tax benefits businesses may encounter when operating in the IKN.

To help business actors to accelerate development in Nusantara Capital City (IKN), the Indonesian Government issued Government Regulation Number 12 of 2023 (PP-12), concerning granting of business licensing, ease of doing business, and investment facilities to business actors in the IKN.

PP-12 provides investment facilities in the form of fiscal and non-fiscal incentives, as follows:

Income tax

Corporate income tax (CIT) rate reduction facility

Indonesian corporate taxpayers that invest at least Rp10 billion in the IKN or in a partner region shall be granted a 100% or 50% CIT rate reduction. A ‘partner region’ is defined as certain areas on the island of Kalimantan that are established for the development of an economic superhub for the IKN, in collaboration with the IKN Authority, and determined through a decision of the head of the authority.

An overview of the facilities is as follows:

Location

Field of investment

Investment period

Reduction period

Reduction rate

 

 

 

 

IKN

Infrastructure and public services

2023 up to 2030

30 Years

100%

2031 up to 2035

25 Years

100%

2036 up to 2045

20 Years

100%

Economic awakening

2023 up to 2030

20 Years

100%

2031 up to 2035

15 Years

100%

2036 up to 2045

10 Years

100%

Other business fields

2023 up to 2030

10 Years

100%

2031 up to 2045

10 Years

50%

 

Partner region

Infrastructure and public services

2023 up to 2030

25 Years

100%

2031 up to 2035

20 Years

100%

2036 up to 2045

15 Years

100%


To obtain approval for the rate reduction, taxpayers must apply via the online single submission system prior to starting commercial operations. The CIT rate reduction facility can be utilised as of the tax year when the commercial operations start.

Income tax facility for financial sector activities

Indonesian domestic corporate taxpayers, and permanent establishments conducting business activities in the financial sector in the IKN shall be granted a 100% or 85% CIT rate reduction. The facility depends on the investment field and the period of the investment. The reduction periods are 25 and 20 years for the investment periods of 2023 up to 2035 and 2036 up to 2045.

The 100% deduction applies for investments in banking, insurance and sharia financial services which are used to finance construction, development and economic activities in the IKN and/or partner regions.

The 85% deduction applies for investment fields as follows:

  • Capital markets, derivative finance and carbon exchanges;

  • Pension funds;

  • Financing;

  • Venture capital;

  • Technological innovation in the financial sector;

  • Guarantees;

  • International commodity trading;

  • Bullion;

  • Trust fund managers;

  • Management of financial instruments (special purpose vehicles);

  • Financial conglomeration holding companies;

  • Financial market infrastructure;

  • Money markets, foreign exchange markets, and their derivative transactions;

  • Operating payment system services; and/or

  • Other financial services.

In addition, PP-12 exempts withholding tax and/or income tax for income from investments in the IKN that is received by foreign taxpayers for 10 years as of the first placement of funds.

CIT rate reduction facility for offices

Business actors who are foreign tax subjects that establish or relocate their head offices or regional office to the IKN shall be granted a CIT rate deduction facility, with the following provisions:

  • Having at least two related affiliation units and/or business entities outside Indonesia;

  • Having economic substance in Nusantara Capital City; and

  • Establishing a legal entity in the form of a limited liability company in Indonesia.

The CIT reduction is 100% for the first 10 years and 50% for the following 10 years. This facility shall be granted until 2045.

Deduction of gross income for the organisation of work practices

Indonesian corporate taxpayers that organise human resources in education, or employment training activities in the IKN such as work experience, shall be granted a gross income deduction facility. The facility shall be granted at a maximum of 250% of the total costs incurred for the work experience, apprenticeship or learning activities.

Deduction of gross income for research and development (R&D)

Indonesian corporate taxpayers that have established domiciles or places of business activities and carry out specific R&D in the IKN shall be granted a gross income deduction facility at a maximum amount of 350% of the total R&D costs.

The specific R&D activities shall be carried out in the IKN to produce inventions, develop innovations, master new technologies, or transfer technology for industrial development to increase national industrial competitiveness.

Deduction of gross income from donations

Indonesian taxpayers that provide donations or costs for constructing public facilities in the IKN shall be granted a gross income deduction facility with a maximum amount of 200% of the total costs incurred.

Contributions and costs shall be deducted from gross income provided that:

  • The taxpayer reported fiscal net income in the corporate tax return in the year preceding the donation;

  • The grant of donations or costs does not result in a loss in the tax year when they are granted;

  • They are supported by valid evidence; and

  • The taxpayer obtains technical approval and specifications from the IKN, if the donations are granted in the form of goods or costs for constructing public facilities, social facilities, or other non-profit facilities.

This facility is available up until 2035.

Facility of Article 21 final income tax borne by the government

Certain employees are entitled to enjoy the facility of Article 21 final income tax borne by the government. These are employees who:

  • Receive income from certain employers;

  • Reside in the IKN; and

  • Are registered with the tax office in the IKN.

The employers shall meet the following conditions:

  • Residing, or having business activities in the IKN;

  • Registered with the tax office in the IKN;

  • Have received validation from the Director General of Taxes (DGT); and

  • Have submitted a report on utilising the facility to the DGT.

This facility is available up until 2035.

Zero-rated final tax for micro, small and medium enterprises (MSMEs)

Qualified MSMEs that invest less than Rp10 billion in the IKN may be subject to 0% income tax for a certain period. The 0% rate shall be imposed on income from annual revenue up to Rp50 billion generated from the IKN.

This facility is granted upon approval up until 2035.

Income tax reduction on transfer of land or building rights

Taxpayers that transfer the rights to land or buildings in the IKN shall be granted an income tax deduction facility amounting to 100% of the income tax payable.

This facility shall be granted only to a buyer in the first acquisition of rights to land or buildings in the IKN.

This facility is available up until 2035.

VAT or luxury goods sales tax facilities

Facilities in IKN

Non-collected VAT shall be granted for the:

  • Delivery of certain strategic taxable goods or taxable services for the development of houses, apartments, offices, shops, warehouses, infrastructure and provision of motorised vehicles licensed in the IKN, which use domestically produced battery electric vehicle technology; and

  • Import of certain strategic taxable goods.

Exemption from sales tax on luxury goods shall be granted for the delivery of luxury residential groups to individuals, entities, or ministries and agencies carrying out business activities, serving, or domiciled in the IKN.

Facilities in partner regions

Non-collected VAT shall be granted for the delivery of certain strategic taxable services, such as construction services for the development of partner regions, to taxpayers that obtain the CIT rate reduction for the following sectors:

  • Power generation, including new and renewable energy;

  • Construction and operation of toll roads, seaports and airports; and

  • Construction and supply of clean water.

Customs facilities

  • Facility of exemption from import duty and import taxes (PDRI) for the import of goods by the central or regional governments that is intended for the public interest in IKN and partner regions;

  • Facility of exemption from import duty and PDRI for the import of capital goods for the construction and development of industries in the IKN and partner regions; and

  • Facility of exemption from import duty on the import of goods and materials for the construction and development of industries in the IKN or partner regions.

Exemption from import duty can be granted to capital goods as well as goods originating from free ports, free-trade zones, special economic zones, or bonded warehouses.

This facility is available up until 2045.

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