Indonesia Extends Tax Holiday to Attract Foreign Investment
The Indonesian government has taken a significant step to bolster its appeal to foreign investors by extending its tax holiday program until December 31, 2025. Investment Minister Rosan Roeslani announced this extension, citing the program’s vital role in attracting investment and the global implementation of a minimum tax rate.
Why the Extension?
Tax holidays are proving crucial to Indonesia’s investment landscape, accounting for over 25 percent of incoming investments. Rosan Roeslani explained that the extension is also a direct response to the Global Minimum Tax (GMT) being adopted by numerous countries worldwide, including Indonesia.
“Tax holidays play a crucial role, accounting for over 25 percent of incoming investments. Additionally, the Global Minimum Tax (GMT) at a rate of 15 percent being applied in many countries is also a consideration for this extension,” Rosan said following a meeting with the Coordinating Ministry for Economic Affairs in Jakarta on Sunday.
Understanding the Global Minimum Tax
The GMT, an internationally agreed-upon minimum tax rate of 15 percent for large corporations’ profits, was approved at the October 2021 summit in Rome. The OECD proposal has garnered support from 137 countries, with an effective date set for 2024.
Rosan emphasized the need for Indonesia to adapt its tax incentives “to remain competitive in the eyes of foreign investors” as, if not implemented, foreign companies’ home countries would still tax them.
Domestic and Foreign Investors Benefit
Rosan clarified that the global minimum tax policy exclusively applies to foreign companies. Domestic businesses can continue to apply for the extended tax holiday until the end of 2025. The extended program aims to stimulate investment growth in various economic sectors, both domestic and foreign.
Tax Holiday Incentives and Eligibility
The Finance Minister Regulation (PMK) No. 130/2020 outlines two tiers of corporate income tax reductions under the Indonesian tax holiday scheme: 100 percent and 50 percent. Investments of at least Rp 500 billion qualify for a 100 percent reduction, while those between Rp 100 billion and Rp 500 billion receive a 50 percent reduction. The duration of the tax holiday varies from 5 to 20 years, depending on factors such as investment amount and industry sector.
A range of industries are eligible for the tax holiday, including:
- Pharmaceutical raw materials
- Creative digital economy
- Waste processing
- Electric vehicle manufacturing
- Solar cell production
- Battery manufacturing
Furthermore, the tax holiday extends to investors participating in Special Economic Zones (KEK) and the Nusantara (IKN) new capital city project in East Kalimantan. IKN, a national strategic project, is designed to be a hub for government, business, and innovation. The tax holiday in IKN offers an extended timeframe of up to 30 years for infrastructure and public service investments exceeding Rp 10 billion.
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