How To Get Indonesia Tax Incentives via OSS

How To Get Indonesia Tax Incentives via OSS

  • InCorp Editorial Team
  • 8 November 2024
  • 6 reading time

The Indonesian government has been taking several bold initiatives, including tax incentives in Indonesia in recent years, to increase the ease of doing business there. These recent developments include clarity in business guidelines, process transparency, and improved system infrastructure.

To reduce red tape even further, the Indonesian government has modified Online Single Submission (OSS) to align with the newly established Risk-based business license system, which will be effective from July 2021.

Apart from securing business licenses online, OSS also serves as a platform for companies to apply for Indonesia tax incentives. This article will discuss what kind of incentives are available to investors and how to use them through the OSS.

What are Tax Incentives?

Tax incentives in Indonesia are structured to attract foreign and domestic investment by reducing tax burdens in key industries and regions, particularly to boost economic development and employment.

These incentives are available for various business activities, including large-scale investments, special economic zones (SEZs), pioneer industries, and infrastructure projects.

Regulation of Tax Incentives in Indonesia

Indonesia’s tax incentives are regulated to support investment in key sectors and regions. They include Corporate Income Tax (CIT) reductions, VAT exemptions, and import duty relief.

Corporate Income Tax (CIT) Exemption

  • Under Minister of Finance Regulation No. 150/PMK.010/2018, eligible industries like oil and gas, automotive, and pharmaceuticals receive full or partial CIT exemptions for 5-20 years.
  • Government Regulation No. 78 of 2019 grants SEZ-based businesses up to 100% CIT reductions for up to 25 years.

Tax Allowance and Investment Allowance

  • Law No. 25 of 2007 and Ministry of Finance Regulation No. 96/PMK.010/2020 allows tax deductions for priority sectors (e.g., textiles, iron and steel) and high-employment businesses.

VAT and Import Duty

  • Ministry of Finance Regulation No. 173/PMK.010/2021 offers VAT exemptions for export-oriented manufacturing and Regulation No. 176/PMK.04/2021 provides import duty exemptions for infrastructure and green energy sectors.

New Capital, Nusantara Incentives

  • Presidential Regulation No. 10 of 2021 supports investments in the new capital with CIT exemptions of up to 25 years for industries like green energy.

OSS System

  • Established by Government Regulation No. 24 of 2018, the Online Single Submission (OSS) system streamlines tax incentive applications and compliance processes.
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Financial Incentives for Businesses in Indonesia

Indonesia offers several tax incentives through the Online Single Submission (OSS) system to encourage foreign and domestic investment.

These incentives are designed to improve the ease of doing business and support growth in key industries. Below is a breakdown of the key financial advantages available to investors in Indonesia:

Tax Holiday

  • Full Tax Exemption: Large investments in strategic industries can receive up to 100% Corporate Income Tax (CIT) exemption for 5 to 20 years. Afterward, a 50% tax reduction applies for an additional two years.
  • Partial Tax Exemption: For investments between IDR 100 billion and 500 billion, a 50% tax holiday is granted for 5 years, followed by a 25% reduction for the next two years.
  • Eligible Sectors: Key sectors benefiting from this incentive include oil and gas, aerospace, pharmaceuticals, robotics, agriculture, and digital economy sectors, such as hosting and data processing. Oil and gas refinery projects qualify for full tax holidays due to their critical role in national energy development.

Tax Allowance

  • Fiscal Depreciation: Accelerated depreciation and amortization deductions can reduce taxable income by up to 30% of the investment in tangible fixed assets.
  • Dividend Withholding Tax: Non-resident dividends benefit from a reduced withholding tax of 10% or a lower rate, depending on applicable tax treaties.
  • Eligible Sectors: Tax allowance incentives are available to several priority industries, including textiles and garments, pharmaceuticals, geothermal (exploration and drilling), cooking palm oil, iron and steel, automotive, cosmetics, and coal gasification. These sectors play vital roles in Indonesia’s industrial and economic development, making them eligible for fiscal support.

Investment Allowance

  • Income Reduction: Domestic taxpayers and businesses that employ a significant number of workers may qualify for a 60% reduction in taxable income on the invested amount, spread over six years at 10% per year.
  • Eligible Sector: The textile and garment industry is a key beneficiary of investment allowance incentives, supporting Indonesia’s efforts to strengthen its manufacturing capabilities and boost employment.

Tax Incentives in Special Economic Zones (SEZ)

  • Tax Holiday: Companies in primary SEZ industries may receive up to 100% CIT reduction for investments exceeding US$68.32 million. This reduction is valid for 10 to 25 years, depending on the investment size and industry focus.
  • Tax Allowance: Other SEZ industries can benefit from a 30% income reduction, accelerated depreciation, and an extended tax loss carryforward period of up to 10 years.

Incentives for Indonesia’s New Capital City, Nusantara

  • Indonesia’s new capital city initiative includes incentives for primary industries and infrastructure, with up to 100% CIT exemptions for 10 to 25 years based on the industry and scale of investment.
  • Additional incentives are available for businesses contributing to the area’s essential services, renewable energy, and financial services.

Additional Incentives

  • Customs Incentives: Exemptions or reductions in import duties for machinery, equipment, and raw materials used in certain eligible industries.
  • Value-Added Tax (VAT) Incentives: VAT exemptions for certain activities, especially export-oriented and manufacturing businesses.
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How To Get Indonesia Tax Incentives via OSS

The OSS system will generally inform business owners if their investment qualifies for one of Indonesia’s tax incentives listed above. After you receive this notification, you still have to apply by submitting your papers.

The following papers must be submitted to qualify for Indonesia tax holiday incentive:

  • Digital copy of the details of fixed assets in the investment value plan
  • Digital copies or electronic documents of the shareholders’ fiscal statement
  • Digital copy of the study on the fulfillment of the Pioneer Industry criteria
  • Digital copy of self-assessment on Pioneer Industry’s quantitative criteria
  • Application for tax holiday can be submitted to the MoF until 8 October 2024.

The applicant must provide the following papers for a tax and investment allowance:

  • Digital copy of the details of fixed assets in the investment value plan
  • Digital copies or electronic documents of the shareholders’ fiscal statement
  • Digital copies of fixed assets’ realization documents
  • Digital copies of documents related to sales transactions of finished products

For Indonesia tax incentives in SEZ, the applicant must provide the following documents:

  • Digital copy of the details of fixed assets in the investment value plan
  • Digital copies or electronic documents of the shareholders’ or business owner’s fiscal statement
  • Digital copy of a stipulated document for a Business Entity to build and/or manage a business in SEZ

Note that:

  • All Indonesia tax incentive applications must be submitted before the start of the business.
  • MoF will evaluate these documents, and the outcome will be communicated via OSS.

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Frequent Asked Questions

There are three things business owners need to consider before setting up a business in Indonesia: the type of business entity, capital requirements, and regulations.

Indonesian regulations separate local companies from foreign companies. Generally, foreign-owned companies (PT PMA) have more limitations than their local counterparts (Local PT). However, to pursue more foreign direct investment in the country, the government has taken several bold initiatives to increase the ease of doing business and provide numerous attractive incentives for foreign investors.

There are two main types, namely, primary business licenses and non-primary business licenses. The primary ones commonly apply to various industries, such as general and industrial business licenses. Additional non-primary ones are included, depending on the operations of your business. Examples of non-primary business licenses are operational and commercial licenses.

Yes, you must apply for it to be able to issue work permits for your foreign employees. This permanent business license is also a prerequisite for the applications for other business licenses and import licenses.