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New BKPM Regulation On Tax Holiday For Pioneering Industry

In 2020, Indonesia has fallen into a recession after its economy shrank for the second consecutive quarter in the July to September period due to the COVID 19 pandemic situation, which is inarguably Indonesia’s greatest economic challenge since 1997-1998 Asian Economic Crisis. However, the Indonesian Government is optimistic that they can pursue an economic growth rate of 4.5 to 5.5% in 2021.

In order to achieve said economic growth target, the government plans to attract more foreign investments that provide strategic value to the national economy by giving tax holidays to pioneering industries, which are industries that have broad linkages, provide added value and high externalities, introduce new technologies, and have strategic value for the national economy. Such policy on tax holidays for pioneering industries is regulated under Minister of Finance Regulation No. 130 of 2020 on Corporate Income Tax Reduction Facility Granting (“PMK No. 130/2020”). However, the Ministry of Finance fully delegated the tax holiday granting authority to the Indonesian Investment Coordinating Board (BKPM). Further, BKPM promulgated BKPM Regulation No. 7 of 2020 on Details of Business Fields and Types of Pioneering Industry Production and Procedures for the Granting of Corporate Income-Tax Deduction Facilities (“Reg No. 7/2020”).

PMK No. 130/2020 determines the eligibility of corporate taxpayer for obtaining this facility, namely:

  1. The corporate taxpayer shall constitute a pioneer industry as follows:
    1. Upstream base metal industry (steel or non-steel) without or with its integrated derivatives;
    2. Oil and gas refining industry without or with its integrated derivatives;
    3. Basic organic chemical industry based on petroleum, natural gas and/or coal without or with its integrated derivatives;
    4. Basic organic chemical industry based on agricultural, plantation or forestry products without or with its integrated derivatives;
    5. Inorganic chemical industry without or with its integrated derivatives;
    6. Main pharmaceutical raw material industry without or with its integrated derivatives;
    7. Manufacturing industry of irradiation, electro-medical or electro-therapy equipment;
    8. Manufacturing industry of major components of electronic or telematics equipment such as semiconductor wafer, back light for LCD, electrical driver, or display;
    9. Manufacturing industry of machinery and its main components;
    10. Manufacturing industry of robotic component that supports which supports manufacturing industry machines manufacture;
    11. Manufacturing industry of the power plant engines main components;
    12. Manufacturing industry of motor vehicles and its main components;
    13. Manufacturing industry of shipbuilding main components;
    14. Manufacturing industry of train main components;
    15. Manufacturing industry of aircraft main components and supporting activities for the aerospace industry;
    16. Agricultural, plantation, or forestry product-based processing industries that produce pulp without or with their derivatives;
    17. Economic infrastructure; and
    18. Digital economy which includes data processing, hosting and related activities.
  2. The corporate taxpayer shall hold the status of an Indonesian legal entity (perseroan terbatas).
  3. The corporate taxpayer has a new investment plan that has never been invoked with a decision on granting or rejecting a tax holiday by the Minister of Finance.
  4. The corporate taxpayer shall have a new investment plan in a minimum amount of IDR 100,000,000,000.00 (one hundred billion rupiah).
  5. The corporate taxpayer shall satisfy the debt to equity ratio requirements.
  6. The corporate taxpayer has committment to realize the investment plan at the latest one year after the the tax holiday is granted.

The rate of tax holidays varied from 50% to 100% for a maximum of 20 (twenty) years and then 25% to 50% corporate income tax reduction for the subsequent two years, depending on the investment value.

It should be noted that the submission of applications for such tax holiday should be filed online by taxpayers through the Online Single Submission (OSS) system. If the OSS system is unavailable, then assessments of criteria fulfilment and applications for corporate income-tax deduction facilities shall be completed offline to BKPM using the application form set out under Appendix II of Reg No. 7/2020.

For More Information:
Teguh Maramis (Partner)
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Dr. Julius I.D. Singara (Partner)
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Gilang M. Santosa (Associate)
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