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New Tax Holiday Provision for New Investments
The Minister of Finance recently issued a regulation providing tax holiday and corporate income tax reduction for major direct investors making new capital investments in pioneering industries. Taxand Indonesia discusses this in more detail; including a look at the benefits and potential limitations of the new regulations.
The Tax Holiday or Corporate Income Tax Reduction Facility which came into effect on 25 August 2011, are as follows
- Exemption from corporate income tax for between 5 to 10 years after start of operation
- A 50% corporate tax reduction for as long as two years after the end of the tax holiday facility
- Based on the national competitiveness of the industry and the strategic value of a certain business activity, the expiry of the tax facilities could be extended
- The tax facilities will apply after the company has realised its entire investment and has begun its commercial productions.
The details of the facility
- It should be granted to new legal entities that have been established within 12 months prior to the release of the Minister of Finance regulation or after the date of issuance.
- The corporations must operate in one of the following industries; basic metal industry, oil refinery and basic organic chemical produced from oil and natural gas, machinery industry, renewable energy resources industry, telecommunications equipment industry
- A minimum of one trillion rupiah capital investment should be made, which has already been approved by the authorised institutions (National Capital Investment Coordination Board or the Ministry of Industries)
- A deposit in a bank in Indonesia of at least 10% of the total investment plan should be made, which cannot be withdrawn before the capital investment is realised
- A report should be submitted on a regular basis to the Directorate General of Taxes and the Verification Committee concerning the usage of the fund deposit in the bank and the audited capital investment realisation for those corporations that have already received the tax holiday facilities under the Ministry of Finance decree.
We expect this new tax holiday provision will meet investors' needs and ultimately attract foreign and domestic investors to the selected sectors.
- The tax holiday period is quite long and can be extended
- A 50% income tax reduction facility for two more years can be availed of by the investors after the end of the tax holiday
- A low tax rate on dividends
- A tax sparring facility in the home country's tax law would be an advantage
- The investment opportunity is limited on predetermined industries
- The tax holiday is not available to corporations that have already been granted the Tax Allowance Facility
- The Tax Allowance Facility is not available for corporations that have been granted tax facilities based on this Minister of Finance regulation
Your Taxand Take contact for further queries is:
T. +62 21 8399 9919