Indonesia Extends Tax Holidays Until 2025 to Attract Foreign Investors
The Indonesian government recently announced a tax extension holiday to encourage foreign investment in Indonesia until 31 December 2025. Announced by the Investment Minister of Indonesia, the decision stood out as many governments worldwide are implementing the Global Minimum Tax (GMT) of 15 per cent.
In a recent meeting with the Coordinating Ministry for Economic Affairs in Jakarta, the Investment Minister of Indonesia stated that the tax holiday extension is essential since they make up more than 25 per cent of incoming investments. Indonesia carefully considered the GMT when it extended its tax holiday programme.
The GMT is a globally accepted minimum tax rate proposed by the Organisation for Economic Development (OECD, applicable to large businesses to pay on their earnings. 137 nations, including Indonesia, have accepted the GMT at the October 2021 summit in Rome, taking effect in 2024.
According to the Investment Minister of Indonesia, the home countries of foreign companies will apply the tax on them if Indonesia fails to apply GMT to foreign companies. Indonesia will refine its tax incentive policies, ensuring it stays competitive with foreign investors.
He also highlighted that the global minimum tax policy only applies to foreign corporations, while domestic firms can still apply for the tax holiday extension until the end of 2025. This programme will boost domestic and foreign investment across various economic sectors.
Two Tiers of Reduction
In Indonesia, there are two tiers of corporate income tax reductions within the tax holiday programme, as stated in the Finance Minister Regulation (PMK) No. 130/2020. One of the tiers offers a 100 per cent, and the other provides a 50 per cent tax reduction. Corporate taxpayers with a planned new investment worth Rp 500 billion are eligible for a total reduction. In comparison, those with investment plans ranging from Rp 100 billion to Rp 500 billion are eligible for a 50% discount. The tax vacation lasts between 5 and 20 years, depending on the investment amount and sector type.
The manufacturing of pharmaceutical raw materials, waste processing, the creative digital economy, electric car manufacturing, solar cell and battery manufacturing, and more are among the industries that qualify for the tax break.
The government will extend the tax break to investors who invest in Special Economic Zones (KEK) and the new capital city project, Nusantara (IKN), currently under construction in East Kalimantan. IKN, as a national strategic project, aims to serve as a hub for government, business, and innovation in Indonesia. The tax vacation plan in IKN offers a longer duration than other regions in Indonesia, granting a maximum tax holiday of 30 years for infrastructure and public service investments of at least Rp 10 billion.
