The Indonesian government released Regulation 78/2019 or GR 78 on November 13, 2019, abolishing Regulation 18/2015. This regulation is regarding Income Tax Incentives Granting for Investments in Certain Business Sectors and Industries in Indonesia, which has become effective on December 13, 2019.
The purpose of the enactment of GR78 is to simplify the procedure of income tax incentives application with the use of the Online Single Submission system (OSS). The Indonesian Capital Investment Coordinating Board (BKPM) is the authority managing the OSS system.
In GR 78, certain income tax incentives are available for business expansions and new investments, and a list of eligible business sectors is stated, increasing from the previous 145 to the current 183.
Newly added industries are textiles, food, coal refinery, coal-based products, new and renewable energy power plants, basic metal, drug and traditional medicine, pharmaceutical, livestock, forestry, and agriculture.
The mentioned business sectors must meet certain requirements to be qualified for the tax incentives. The requirements stated in GR 78 are as follows:
- The business has many staff
- The business is established for export or has a high value of an investment
- The business has a high local subject and content
Types of Tax Incentives and Their Effective Period in Indonesia
There are several types of tax incentives with different utilization periods under GR 78. Here’s a list of the tax incentives:
- Tax incentives over fixed assets: available from the starting date of the company’s commercial production
- Accelerated amortization over intangible assets or accelerated depreciation over tangible fixed assets: available upon its approval
- Income tax over the foreign taxpayers’ dividends: available upon its approval
- Compensation for losses (more than 5 years but less than 10 years) and certainly applicable compensations: available upon its approval
Requirements for Tax Incentives over Fixed Assets
According to GR 78, to be eligible for tax incentives over fixed assets, applicants must fulfill the following requirements based on the type of fixed asset, i.e. land assets or non-land assets:
- A business has just obtained the land as new. It doesn’t include newly-obtained land assets used as an investment with the purpose of relocation from another country
- The land is only used for core business activities
- The land assets must be stated in the investment license through the OSS or from the BKPM
- A business obtains the non-land asset after the issuance of a business license via the OSS
- A business obtains the non-land asset after the issuance of one of the following licenses: an investment license, a principal license, an investment registration, or any business license amended by the OSS
Application for Tax Incentives in Indonesia
As a taxpayer, you are required to apply the tax incentives through the OSS system before the commercial production starts.
In addition, you must realize one of the following conditions along with your application:
- If you are a new taxpayer, you need to apply for and obtain a business identification number
- Apply for tax incentives no later than 1 year of the business license issuance by the OSS (either for expansion or investment)
How Cekindo can Assist
Cekindo is one of the registered and authorized tax agents in Indonesia.
With various tax incentives and exemptions, many international companies have established new entities or branches in Indonesia to take advantage of these benefits.
However, taxes in Indonesia are complex matters and change regularly.
As a result, appointing a tax representative or a tax expert is recommended for companies, especially foreign entities, who are not familiar with the local tax scene.
Cekindo provides tax advisory services, tax, and accounting audits, tax filing and reporting, and other tax compliance assistance.
Over the years, we have gained immense popularity and respect from industries and organizations with our dedicated services.
We can also assist you in applying for relevant business licenses and certificates.
For more information on Cekindo’s services and assistance, please contact our consultants through the form below.