Fiscal Incentives for Oil and Gas Contractors in Indonesia

Regarding Indonesia’s fiscal policy, the Indonesian government has issued the Regulation of Minister No. 122/PMK.03/2019 on Facilities of Value-added Tax or Value-added Tax and Luxury-goods Sales Tax, Land-and-Building Tax, and Tax Treatment upon Imposition of Sharing Facilities Operational Cost and Indirect Cost Budgeting Expense of the Headquarters.

This Indonesia fiscal policy has changed the tax circumstances for oil and gas contractors as it provides fiscal tax incentives of the mentioned tax for oil and gas operators, removing the significant barriers to investments in oil and gas production in the exploration stage and thus boosting the industry in the country.

The finance minister signed this regulation on August 27, 2019, and it came into effect on September 27, 2019. This article outlines the relevant scopes and their details under Regulation 122/2019.

Scope of Regulation 122/2019

The key points regarding the fiscal incentives for oil and gas contractors in Regulation 122/2019 are:

• Tax facilities scope
• Eligible KKKS (Kontraktor Kontrak Kerja Sama) scope
• Cost-sharing and indirect-cost tax treatments
• Securing tax facilities

Tax Facilities Scope

Value-added tax PPN, luxury-goods sales tax PPnBM, and land-and-building tax PBB are taxes applicable for tax facilities.

• PPN and PPnBM will not be collected for activities conducted during the exploration and exploitation phases. These activities include certain taxable goods or services acquisition and utilization of certain outside-custom goods or services within custom areas
• Full PBB deduction as shown in the payable tax return

Eligible KKKS Scope

Eligible KKKS to invoke the mentioned tax facilities include the following:

• KKKS with their Oil and Gas Corporation Contracts signed by Regulation 79/2010 before the effect of Law 22/2001; or after the enactment of Oil and Gas Law but before the enforcement of Regulation 79/2010
• KKKS with their Oil and Gas Corporation Contracts signed after the effect of Regulation 79/2010 and in full compliance with the regulation. The said KKKS must also be eligible for operational cost reimbursements.

Cost-sharing and Indirect-cost Tax Treatments

KKKS’ expenses from cost-sharing operations in the upstream oil and gas sector when utilizing the state-owned goods are exempted from the income tax withholding. In addition, PPN does not apply for taxable services transfer when the KKKS meets the following criteria:

• Purchase and use state-owned goods for operations stated in the contract
• The SKK Migas approve the use of state-owned goods in shared facilities
• The use of shared facilities is not designed to generate profits

Apart from that, indirect-cost expenses are exempted from withholding income tax as well as PPN when the KKKS fulfills specific requirements:

• The incurred costs are to support business operations and activities in the Indonesian territory
• The KKKS must submit their headquarters’ audited financial statements
• The expense amount should not exceed the set limit

Securing Tax Facilities

The following procedure is set out to secure the tax facilities for oil and gas contractors in Indonesia:

1. Apply and require documents to the tax office. The documents include an exploration statement letter from MEMR and copies of production-sharing contracts.
2. The head of the relevant tax office issues SKFP (Surat Keterangan Fasilitas Perpajakan) for exploration or exploitation stages within seven days of the application’s receipt.
3. The exploration SKFP has the same validity as the period of the production-sharing contracts, and the exploitation SKFP is valid from the approval date of the first field or further field development.

How InCorp Indonesia Can Help

Whether you are just starting out or already well-established, you want to make the most out of your business by increasing profits and taking advantage of tax incentives and benefits available. However, navigating Indonesia’s business markets and fiscal policy can be challenging, especially when you are in an unfamiliar environment.

That is why the team of experts at InCorp offers business consulting and outsourcing services to guide your entrepreneurial venture throughout Indonesia at every stage of the country’s development.

We have the right tools and tailored solutions to help you confidently run your business in Indonesia. Please send us your inquiries now by filling in the form below, and we look forward to assisting you soon.