Gov’t Issues New Regulation on Tax Facility

By Office of Assistant to Deputy Cabinet Secretary for State Documents & Translation
Date 2 Desember 2019
Category: News
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President Joko “Jokowi” Widodo on 12 November 2019 signed Government Regulation (PP) Number 78 of 2019 on Income Tax Facilities for Investment in Specific Business Fields and/or in Specific Regions.

The Regulation aims to encourage and enhance direct investment activities, both in terms of economic growth, development of business sector, legal certainty to improve the business climate that is more conducive to direct investment activities in specific business fields and/or in specific regions, as well as the distribution and acceleration of development for specific business fields and/or in specific regions.

The Regulation stipulates that the tax facilities may be granted to domestic corporate taxpayers who make investments in main business activities, both new investment and expansion of existing businesses, in:

  1. Specific Business Fields as listed in Appendix I which are an inseparable part of the Government Regulation; and/or
  2. Specific Business Fields and Specific Regions as listed in Appendix II, which are an inseparable part of the Government Regulation.

The Regulation also states that the tax facilities recipients should fulfill certain criteria and requirements.

“The aforementioned criteria include: a. high investment value or export goods; b. large employment opportunities; or c. high local content,” article 2 paragraph (3) of the Regulation reads.

The Income Tax Facilities, according to the Regulation, are in the form of:

  1. Reduction of net income by 30% (thirty percent) of the total investment value in the form of tangible fixed assets including land which are used for Main Business Activities. The reduction is for 6 (six) years, with 5% (five percent) reduction per year;
  2. Accelerated depreciation of tangible fixed assets and accelerated amortization of intangible assets obtained in the context of Investment, with the useful life and depreciation rates and amortization rates determined as follows:
  3. For accelerated depreciation of tangible fixed assets:
  4. a) For building that is not included in Group I, the useful life is 2 (two) years, with 50% (fifty percent) depreciation rates based on the straight line basis or 100% (one hundred percent) depreciation rates based on the declined balance method which are charged at once;
  5. b) For building that is not included in Group II, the useful life is 4 (four) years, with 25% (twenty-five percent) depreciation rates based on the straight line basis or 50% (fifty percent) depreciation rates based on the declined balance method;
  6. c) For building that is not included in Group III, the useful life is 8 (eight) years, with 12.5% ​​(twelve point five percent) depreciation rates based on the straight line basis or 25% (twenty-five percent) depreciation rates based on the declined balance method;
  7. d) For building that is not included in Group IV, the useful life is 10 (ten) years, with 10% (ten percent) depreciation rates based on the straight line basis or 20% (twenty percent) depreciation rates based on the declined balance method;
  8. e) For Permanent buildings, the useful life is 10 (ten) years, with 10% (ten percent) depreciation rates based on the straight line basis;
  9. f) For Non-permanent building, the useful life is 5 (five) years, with 20% (twenty percent) depreciation rates based on the straight line basis.
  10. For accelerated amortization of intangible assets:
  11. a) For Group I, the useful life is 2 (two) years, with 50% (fifty percent) amortization rates based on the straight line basis or 100% (one hundred percent) amortization rates based on the declined balance method;
  12. b) For Group II, the useful life is 4 (four) years, with 25% (twenty five percent) amortization rates based on the straight line basis or 50% (fifty percent) amortization rates based on the declined balance method which are charged at once;
  13. c) For Group III, the useful life is 8 (eight) years, with 12.5% ​​(twelve point five percent) amortization rates based on the straight line basis or 25% (twenty-five percent) amortization rates based on the declined balance method;
  14. d) For Group IV, the useful life is 10 (ten) years, with 10% (ten percent) amortization rates based on the straight line basis or 20% (twenty percent) amortization rates based on the declined balance method.

The Regulation also stipulates that 10% Income Tax reduction may be granted on dividends paid to foreign taxpayers (other than permanent business in Indonesia). The lower rates may apply in accordance with the existing agreement on double taxation avoidance.

The Income Tax Facility may also be granted to Tax Compensation for losses of more than 5 (five) years but not more than 10 (ten) years, with the following conditions:

  1. Additional 1 (one) year for Investment as referred to in Article 2 paragraph (1) made by the Taxpayer;
  2. Additional 1 (one) year if the Investment as referred to in Article 2 paragraph (1) is carried out in industrial zones and/or special zones;
  3. Additional 1 (one) year if the Investment as referred to in Article 2 paragraph (1) is carried out in the new and renewable energy sector;
  4. Additional 1 (one) year for incurring costs for economic and/or social infrastructure at the business location no less than Rp10,000,000,000.00 (ten billion rupiah);
  5. Additional 1 (one) year for using raw materials and/or components of domestic production at least 70% (seventy percent) no later than the second tax year;
  6. Additional 1 (one) year or 2 (two) years: a) an additional 1 (one) year for adding at least 300 (three hundred) Indonesian workers and maintaining that number for 4 (four) consecutive years; or b) an additional 2 (two) years if adding at least 600 (six hundred) Indonesian workers and maintaining that number for 4 (four) consecutive years;
  7. Additional 2 (two) years for providing fund of research and development in the country in the context of product development or production efficiency no less than 5% (five percent) of the total investment in a period of 5 (five) years; and/or
  8. Additional 2 (two) years for exporting at least 30% (thirty percent) of the total value of sales in a tax year, for investment in the business sector carried out outside the special zone.

“Additional compensation for the loss is given for the loss in the first tax year, the second tax year, and/or the third tax year from the time the commercial production starts,” article 3 paragraph (2) of the Regulation reads.

The Income Tax Facility, according to the Regulation, may apply:

  1. After commercial production, with a reduction in net income by 30% (thirty percent) of the total investment value; 2. After approval of the Income Tax facility for: 1) The accelerated depreciation of tangible fixed assets and accelerated amortization of intangible assets; 2) 10% Income Tax reduction may be granted on dividends paid to foreign taxpayers (other than permanent business in Indonesia). The lower rates may apply in accordance with the existing agreement on double taxation avoidance; 3) additional loss compensation as referred to in paragraph (1) letter d number 1 and number 2;
  2. After the decision to increase the period of the loss compensation facility, for the additional loss compensation as referred to in paragraph (1) letter 3 number 4, number 5, number 6, number 7, and number 8.

“The Government Regulation shall apply after 30 (thirty) days from the date of its promulgation,” article 13 of the Government Regulation reads. The Regulation was promulgated by Minister of Law and Human Rights Yasonna H. Laoly on 13 November, 2019. (Pusdatin/ES)

Translated by: Ridwan Ibadurrohman
Edited by: Yuyu Mulyani

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