Jakarta. The government has officially extended the tax holiday facility until December 31, 2025, in a bid to attract more foreign investment into Indonesia.

Investment Minister and Head of the Investment Coordinating Board, Rosan Roeslani, revealed that the tax holiday is crucial in supporting a significant flow of foreign investment into Indonesia.

"Tax holidays play a very important role and account for a large proportion of the investments that come in, more than 25 percent. Additionally, the introduction of a Global Minimum Tax (GMT) with a 15 percent rate in many countries is also a consideration for this extension," said Rosan in a statement recently.

A tax holiday is a form of fiscal incentive provided by the Indonesian Government to investors interested in investing in sectors that are considered strategic and have a significant impact on the national economy. The tax holiday is provided as an effort to attract investment in specific industries or regions.

Types of Tax Holidays

1. Pioneer Industries

According to Finance Minister Regulation (PMK) No. 130/2020, there are two levels of corporate income tax reductions in the tax holiday scheme in Indonesia: 100 percent and 50 percent. A 100 percent corporate income tax reduction is granted to taxpayers with new capital investment plans worth at least Rp 500 billion.

A 50 percent corporate income tax reduction is given to taxpayers with new capital investment plans between Rp 100 billion and Rp 500 billion. The duration of the tax holiday varies from 5 to 20 years, depending on the size of the investment and the type of pioneer industry.

Specifically, the duration of the 100 percent tax holiday is as follows:

• 20 years for taxpayers with new investment plans worth at least Rp 30 trillion or those engaged in the pharmaceutical raw materials industry.
• 15 years for taxpayers with new investment plans between Rp 20 trillion and Rp 30 trillion or those engaged in the chemical industry.
• 10 years for taxpayers with new investment plans between Rp 10 trillion and Rp 20 trillion or those engaged in the basic metal industry.
• 5 years for taxpayers with new investment plans between Rp 500 billion and Rp 10 trillion or those engaged in the raw materials industries for agriculture, maritime, livestock, forestry, plantation, or fisheries.

Meanwhile, the duration of the 50 percent tax holiday is as follows:

• 15 years for taxpayers with new investment plans between Rp 100 billion and Rp 500 billion engaged in the pharmaceutical raw materials or chemical industries.
• 10 years for taxpayers with new investment plans between Rp 100 billion and Rp 500 billion engaged in the basic metal industry.
• 5 years for taxpayers with new investment plans between Rp 100 billion and Rp 500 billion engaged in raw materials industries for agriculture, maritime, livestock, forestry, plantation, or fisheries.

Additionally, there are several other types of pioneer industries that can receive tax holidays with different levels and durations of corporate income tax (CIT) reductions. These pioneer industries include:

1. Creative Digital Economy Industry with a 100 percent CIT reduction for 10 years for investments of at least Rp 100 billion.
2. Waste Processing Industry with a 50 percent CIT reduction for 5 years for investments of at least Rp 1 trillion.
3. Electric Vehicle Manufacturing Industry with a 50 percent CIT reduction for 5 years for investments of at least Rp500 billion.
4. Electric Vehicle Component Manufacturing Industry with a 50 percent CIT reduction for 5 years for investments of at least Rp 100 billion.
5. Solar Cell Manufacturing Industry with a 50 percent CIT reduction for 5 years for investments of at least Rp 500 billion.
6. Electric Battery Manufacturing Industry with a 50 percent CIT reduction for 5 years for investments of at least Rp 500 billion.

2. Tax Holiday in Special Economic Zones (SEZs)

Tax holidays are also granted to investors who invest in Special Economic Zones (SEZs). The types of tax holidays in SEZs are regulated under Government Regulation No. 40 of 2021 on the Administration of Special Economic Zones and Minister of Finance Regulation (PMK) No. 237 of 2020 on Taxation, Customs, and Excise Treatment in Special Economic Zones, last amended by PMK No. 33 of 2021.

According to PMK 33/2021, there are two levels of corporate income tax reductions in the SEZ tax holiday scheme: 100 percent and 50 percent. A 100 percent CIT reduction is granted to investors with new investment plans of at least Rp 100 billion.
A 50 percent CIT reduction is granted to investors with new investment plans between Rp 20 billion and Rp 100 billion. The duration of the tax holiday in SEZs varies from 5 to 20 years depending on the size of the investment and the type of main activity.

3. Tax Holiday in the National Capital of Nusantara

In addition to other regions in Indonesia, tax holidays will also be granted to investors who invest in the capital city of Nusantara, currently being built in East Kalimantan. Nusantara is a national strategic project expected to become a new center for government, business, and innovation in Indonesia.

According to Government Regulation No. 12 of 2023 on the Granting of Business Licenses, Ease of Doing Business, and Investment Facilities for Business Actors in the National Capital of Nusantara, the tax holiday scheme in Nusantara has a longer duration compared to other regions in Indonesia.

The maximum period for a tax holiday is 30 years for investments in infrastructure and public services with a minimum investment of Rp 10 billion.

Infrastructure and public services include power plants, toll roads, seaports, airports, clean water, healthcare facilities, educational units, telecommunications and informatics infrastructure, urban parks, housing, residential areas, office buildings, wastewater systems, underground utility networks, industrial zones, and research and innovation parks, as outlined in Articles 28(2) and 29 of Government Regulation No. 12/2023.

In addition to infrastructure and public services, tax holidays will also be granted to investors building economic facilities such as shopping malls and tourism facilities. Investors will receive a tax holiday for 20 years for investments of at least Rp 10 billion.

Economic facilities include shopping centers (malls), tourist facilities and star-rated hotels, meeting, incentive, convention, and exhibition (MICE) facilities, and electric vehicle charging stations (battery charging), as stated in Articles 28(2) and 30 of Government Regulation No. 12/2023.

Moreover, there are other sectors that can receive a tax holiday with varying durations, such as urban agriculture and/or fisheries cultivation, value-added industry and/or industrial engineering, hardware and/or software industries, trading services, construction services, real estate intermediary services, and tourism and creative economy services. The specific duration for tax holidays in these sectors will be determined by the Finance Minister through a Ministerial Regulation.

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