Indonesia’s New SEZ Tax Incentives Explained

On November 5th, 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.

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

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.
 
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.

For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.