We discuss Indonesia’s corporate establishment requirements and tax benefits for investors in Nusantara, the new capital city.
Indonesia’s government issued Government Regulation 12 of 2023 (GR 12/2023) on March 6, 2023, on the issuance of business licenses for investors looking to establish a presence in Nusantara, the country’s upcoming new capital city. The government hopes that GR 12/2023 can accelerate the development of the new capital city.
What is Nusantara?
Nusantara is estimated to cost US$35 billion to construct and the central government is expected to begin operations in the new city in 2024.
Public funds would only be used for 20 percent of the project with the remainder from foreign investors. The government is expecting the presidential palace to be finished in time for the country’s Independence Day anniversary on August 17, 2024.
How to obtain a business license in Nusantara
GR 12/2023 does not apply restrictions on limiting foreign capital ownership in certain business fields. However, the regulation does impose the type of sectors that can operate in Nusantara, as well as a requirement for foreign businesses to partner with micro, small, medium or cooperative businesses to obtain a business license.
The sectors that are open for operation in Nusantara are the following:
- Maritime affairs and fisheries;
- Agriculture;
- Environment and forestry;
- Energy and mineral resources;
- Nuclear;
- Industries;
- Trading;
- Public works and public housing;
- Transportation;
- Health, medicine, and food;
- Education and culture;
- Tourism;
- Religion;
- Postal, telecommunications, broadcasting, and electronic systems and transactions;
- Defense and security;
- Employment;
- Finance; and
- Other sectors that are a priority are determined by the Head of the Authority.
The other requirements to obtain a business license include:
- The suitability of space for business activities is authorized and organized by the Nusantara Capital City Authority. Therefore, businesses must showcase that their business plans can accommodate the spatial layout plan that is available in Nusantara.
- Environmental approvals refer to an analysis of the environmental impact of the business activity on the new capital. If the business activities present a significant negative impact on the environment (in accordance with the provisions of laws and regulations on the environmental sector), the business must submit a detailed environmental management plan and a detailed environmental monitoring plan.
- Building approvals and certificates of ‘proper functions’ are given by the Nusantara Capital City Authority to businesses that have obtained spatial compatibility approval as well as environmental approval. Businesses can carry out construction in parallel while waiting for these approvals and the construction must be in accordance with the drawings submitted to the Nusantara Capital City Authority. Further, there is currently no fee for applying for building approvals.
After obtaining the documents mentioned above, businesses can apply for Nusantara business permits through the Online Single Submission (OSS) system. The Nusantara Capital Authority will then verify all the applications and mandatory documents as the basis for issuing business licenses.
Employing foreign workers in Nusantara
Businesses operating in the new capital city will be allowed to employ foreign workers for a period of 10 years; this can also be extended. The foreign worker can also secure residency permits for 10 years, which is also extendable depending on their employment contract.
The employer is also exempted from paying the Foreign Worker Compensation Fund, which is the amount of US$100 paid every month to the Ministry of Manpower.
The residency permits of foreign workers who hold management positions in companies operating in the new capital will remain valid as long as they retain that said position.
If the period for the residence permit expires, it can be extended according to the terms of the work agreement between the business and the foreign worker.
Other incentives
In addition to making it easier for businesses to hire foreign workers, Indonesia has issued other incentives to attract investors to Nusantara.
The government has offered up to 100 percent corporate income tax exemption for between 10 to 30 years for domestic taxpayers that invest at least IDR 10 billion (US$650,745). The duration of the incentive is dependent on the type of sector the business has invested. For instance, investing in public services will receive the longest tax holiday up until 2035. Banks and insurers that invest before 2035 can enjoy up to 25 years of income tax exemption whereas those that invest before 2045 can receive up to 20 years of income tax exemption.
Furthermore, the government is also offering 95-year land use permits for investors, which can be extended for another 95 years and thus totaling 190 years for land use.
