Indonesia’s New SEZ Tax Incentives Explained

On November 5^th, Indonesia unveiled its sixth economic stimulus package since September, the most recent incentive aimed at revitalizing its under-performing economy. The new stimulus package aims to attract foreign direct investment to the special economic zones (SEZs) around the country. Special economic zones are defined as areas where natural resources, mined in or around the zone, are processed; which have special economic incentives and have been set up by the Indonesian government to develop specific industries.

Under the new economic stimulus package investors can qualify for generous income tax discounts of ranging from 20 to 100 percent for up to 25 years. In order to qualify for a 15 year tax holiday investors would need to make an investment of IDR 500 billion (US $37 million), while an investment of at least IDR 1 billion (US $74 million) would be needed to qualify for a 25 year tax holiday.

 RELATED: Pre-Investment Services from Dezan Shira & Associates

Additional investment incentives include:

• Foreign investors are allowed to own property in the SEZs
• Investors are able to import raw materials need for production without VAT
• Goods manufactured in SEZs sold domestically are exempted from VAT, however, manufactured goods would still be subject to customs and excise fees
• Investments on tourism, entertainment, and restaurant industries can qualify for 50 to 100 percent discount on entertainment tax

RELATED: Indonesia’s Growing Special Economic Zones – Opportunities and Challenges

The eight SEZs open to investors qualifying for these incentives include:

• Tanjung Lesung (Banten)
• Sei Mangkei (North Sumatra)
• Palu (Central Sulawesi)
• Bitung (North Sulawesi)
• Mandalika (West Nusa Tenggara)
• Morotai (North Moluccas)
• Tanjung Api-Api (South Sumatra)
• Maloy Batuta (East Kalimantan)

Each of these special economic zones focuses on particular industry such as extraction of mineral resources, fisheries and tourism. Currently Sei Mangkei, focusing on palm oil and rubber processing, and Maloy Batuta, focused on palm oil and logistics, have already started operations.

Further Support from Dezan Shira & Associates

Indonesia, being the largest economy in Southeast Asia, offers investors many opportunities in this new challenging economic environment, something the new stimulus package aims to highlight. However, given that each one of the Indonesian SEZs is focused on a different industry and the need to deal with different local authorities, navigating the complex legal and bureaucratic system can prove challenging to even the most seasoned investor. With decades of experience operating throughout the region, the specialists at Dezan Shira & Associates are well placed to help businesses overcome this challenge, and make Indonesia a part of their “Asian Success Story.” For more information, please get in touch further at asean@dezshira.com.

The 2015 Asia Tax Comparator
In this issue, we compare and contrast the most relevant tax laws applicable for businesses with a presence in Asia. We analyze the different tax rates of 13 jurisdictions in the region, including India, China, Hong Kong, and the 10 member states of ASEAN. We also take a look at some of the most important compliance issues that businesses should be aware of, and conclude by discussing some of the most important tax and finance concerns companies will face when entering Asia.

Tax, Accounting, and Audit in Vietnam 2014-2015
The first edition of Tax, Accounting, and Audit in Vietnam, published in 2014, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in Vietnam, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in Vietnam in order to effectively manage and strategically plan their Vietnam operations.

An Introduction to Tax Treaties Throughout Asia
In this issue of Asia Briefing Magazine, we take a look at the various types of trade and tax treaties that exist between Asian nations. These include bilateral investment treaties, double tax treaties and free trade agreements – all of which directly affect businesses operating in Asia.

• Previous Article ASEAN Regulatory Brief: Cambodian Company Registration, New Philippine Levies, and Indonesian Tax Holidays
• Next Article The Guide to Corporate Establishment in Indonesia