In a bid to attract more investment to support the country’s economic growth, Indonesia recently issued a new regulation granting a 100 percent Corporate Income Tax (CIT) cut to new FDI-backed businesses.
The government has further announced that the tax holiday will now be offered to new investors in all business sectors in the country. Previously, it was available to investments in any of the 17 pioneer industries including transportation, telecommunications, robotic components, oil and gas refinery, train engines, medical devices, pharmaceutical raw materials, power plant machinery, and processing of metals and agricultural products among others. Pioneer industries are those that create added value, introduce advanced technology and have strategic value for the national economy. Originally, the provision was available to only eight such industries.
Tax holiday allowance
Under the latest regulation, the newly established companies with a minimum investment of Rp500 billion (US$36.4 million) can avail 100 percent CIT exemption for a period in proportion to the scale of their investment.
Investments starting from Rp500 billion (US$36.4 million) up to under Rp1 trillion (US$72.5 million) can enjoy exemption from CIT for the first five years, while those investing more than Rp30 trillion (US$2.2 billion) can enjoy a maximum CIT exemption for 20 years.
In addition, investors can enjoy a 50 percent tax cut in the transition period of two years, following the expiry of the initial the tax holiday.
Earlier, the rate of tax allowance varied from 10 percent to 100 percent for a maximum of 15 years, and only those companies with a minimum investment of Rp1 trillion (US$72.5 million) could avail such benefit.