Regulations for Free Trade Zone (PPFTZ 01, 02, & 03)

Foreign investors are tremendously interested in a free trade zone (FTZ). An FTZ is a designated area within a country where goods can be imported, processed, and exported without the interference of customs duties and taxes.  

Although it benefits investors or business actors, FTZs mission is to drive economic growth by attracting foreign investment, generating employment, and boosting trade.

A thorough understanding of the regulations governing Free Trade Zones (FTZ) operations is crucial to ensure their smooth functioning.

Whether you are a business owner or an individual looking to invest in an FTZ in Indonesia, this article will provide valuable insights and information to help you make informed decisions before establishing and expanding companies in Indonesia.

What is a Free Trade Zone? 

A Free Trade Zone is a fruitful policy that exempts customs regulations, such as taxes and levies, for certain facilities specifically applicable only to a particular region. 

A variety of rules control trade in this area. Investors may use this method to launch enterprises in the area.

There were specific Indonesian regions previously known as Free Trade Zone. However, as of 29 February 2016, the Indonesian Government has opted to change the area to Special Economic Zones through Presidential Decree No. 8 of the Year 2016. 

However, the essence of the policy remains the same, as the region still relishes specific tax facilities and incentives offered to increase investment. 

The Special Economic Zones in Indonesia include: Kendal, Morotai, Bitung, mandalika, Palu, Sorong and others as such. Others are currently in the preparatory stage. 

What are the Free Trade Zones in Indonesia? 

A Free Trade Zone is a fruitful policy that exempts customs regulations, such as taxes and levies, for certain facilities applicable only to a particular region. Therefore, a variety of rules control trade in this area. Investors may use this method to launch enterprises in the area.

Specific Indonesian regions were previously known as Free Trade Zones. However, as of 29 February 2016, the Indonesian Government has opted to change the area to special economic zones through Presidential Decree No. 8 of 2016. 

The policy’s essence remains the same, as the region still relishes specific tax facilities and incentives offered to increase investment. Based on the recent update, four areas have been identified as Free Trade Zones: Batam, Karimun, Sabang, and Bintan.

What Would be An Example of A Free Trade Zone?

Batam is one example of a free trade zone in Indonesia (FTZ). Implementing the (FTZ) in Batam will influence existing investors positively. 

Investing in the Batam FTZ scheme offers several advantages, such as exemptions from export and import duties, VAT, and Sales Tax on Luxury Goods (PPnBM). Additionally, the government offers various incentives to businesses and investors operating in the Batam FTZ.

FTZs versus FTAs

In the complex landscape of free trade, it’s essential to differentiate between free-trade agreements (FTAs) and free-trade zones (FTZs).

An FTA is an international agreement between two or more economies to reduce or eliminate trade and investment barriers. This often results in advantages for exporters and importers regarding duties and tariffs.

On the other hand, an FTZ is a designated area where goods can be imported, stored, manufactured, and re-exported under specific customs regulations. These zones typically provide beneficial tariffs and more lenient financing, labor, and tax regulations. They are also referred to as “special economic zones.”

These expansive areas generally include facilities for manufacturing, warehousing, storage, and distribution, all of which aim to enhance trade. 

They benefit from favorable tax and customs regulations, making them attractive for foreign direct investment. Additionally, FTZs aim to stimulate domestic economic growth and promote technological and skill development.

Procedure for Importing and Exporting Goods to and from the Free Trade Zone Area

Only business owners with business licenses from the Zone Management Agency can enter and release products into and out of free trade zones. The special business licenses complement the submissions of customs notifications and accompanying documentation electronically. 

The submission must go through the customs electronic data exchange system (PDE) linked to the NLE and Indonesian National Single Window (INSW) systems. A few documents must be noted and utilized while submitting documents in the Free Trade Zone. 

The parts below detail three types of Free Trade Zone Customs Notification Document or PemberitahuanPabean Free Trade Zone (PPFTZ).

Understanding The PPFTZ 01, 02, & 03

These essential customs notification documents are regulated in greater detail under Ministry of Finance Regulation No. 48, 2012, as last amended by Ministry of Finance Regulation No. 42, 2020.

1. Regulations for PPFTZ 01

This document is a customs notification for the entry and release of goods to and from the Free Trade Zone from and outside the customs area and the release of goods from the Free Trade Zone to other places within the customs area.

2. Regulations for PPFTZ 02‹

The second document is a customs notification for the entry and release of goods to and from Free Trade Zones, bonded stockpiling areas, other Free Trade Areas, and special economic zones.

3. Regulations for PPFTZ 03

The last document to be noted is one for the entry of goods into Free Trade Zones from other places in customs areas. 

It is important to remember that only entrepreneurs who have obtained a business license from the Regional Entrepreneurs Agency (Badan Pengawas Kawasan) are authorized to import and export goods from free zones.

The Regional Entrepreneurs Body is a central government institution or agency established by the Zone Council (Dewan Kawasan) to manage and develop the Free Trade Zone and Free Port Special Economic Zone.

PPFTZ Document Management Requirements

There are several general requirements for customs notification to be filed using A4-sized paper. 

Four copies of the customs notification, each for the Customs Office (Kantor Pabean), Directorate General of Taxation (Direktorat Jenderal Pajak), Central Bureau of Statistics (Badan Pusat Statistik), and Bank Indonesia, must be prepared. 

The notifications should be filled in the Indonesian language, Latin letters, and Arabic numbers. The use of the English language is only allowed for certain exceptions: 

• Mentioning the name of a place or address;
• Mentioning the name of a person or legal entity;
• Mentioning description of goods that do not have equivalent words in Indonesian for it;
• Mentioning descriptions of goods with equivalent words in Indonesian for it, but it is necessary to note the technical terms in English due to international understanding of the term.

Aside from that, these notifications should also be accompanied by attachment sheets, which shall include the following: 

• Additional customs notification in case there are more than one tariff heading and/or more than one description of goods; 
• The container follow-up sheet contains data regarding the container and if the number of containers notified is more than 1;
• Additional sheet for supplementary documents. 

With the constant change in regulations and requirements, business entities may need help to keep up. 

Doing Business in a Free Trade Zone with InCorp

InCorp Indonesia offers a one-stop solution for product registration. We ensure that your products comply with Indonesian regulations and standards so that you can easily benefit from the special economic zones within Indonesia.