Indonesia has published Regulation No. 35/PMK.010/2018 from the Ministry of Finance, which provides for a new tax holiday incentive scheme for investments in eligible pioneer industries.
The regulation provides that a tax holiday (exemption) will be available for new investments in qualifying pioneer industries for a set number of years depending on the investment amount as follows:
After the tax holiday period ends, the taxpayer is provided a 50% tax reduction for two years, regardless of the investment amount.
In addition to being a new investment in a qualifying pioneer industry, the taxpayer must be an Indonesia legal entity with a minimum capital investment of IDR 500 billion with a debt-to-equity ratio that does not exceed the 4:1 ratio provided in Indonesia's thin-capitalization rules. Further, the taxpayer cannot enjoy any other tax incentive.
Industries that qualify as pioneer industries for the purpose of the new tax holiday incentive include:
In order to enjoy the tax holiday, taxpayers must submit an application requesting the incentive to the Investment Coordinating Board prior to the commencement of commercial production of the new investment, either:
If the conditions for the tax holiday are met, the Board will forward the application to the Minister of Finance for final approval. Once the application is sent, a final decision must be given within five business days, even if the Minister of Finance is not available, in which case the decision is made by Director General of Taxes.
Where the incentive is granted, the tax holiday period begins from the year commercial production begins, which includes when the taxpayer first sells the products resulting from the main business activity or uses the products for further processing. Before the tax holiday can begin, however, an audit by the tax authority must be conducted to determine that the project has reached the commercial production stage, the capital investment commitments have been met, and the actual activity matches the proposed plan. Failure to meet the conditions may result in the incentive being revoked.
The regulation is effective from 4 April 2018.
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