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10.6. Incentives

Companies that have not been granted Income Tax Incentives (see below) may qualify for a tax holiday. The incentives under the tax holiday are granted only to “Pioneer” Industries, such as:

  • Basic metal producers;
  • Petroleum refining and/or organic basic chemicals derived from petroleum and natural gas;
  • Industrial machinery;
  • Renewable resources; and
  • Telecommunication equipment industry.

To apply for a tax holiday facility, a company must meet a minimum capital investment of IDR 1 trillion (approximately USD 120 million).  

The tax holiday consists of an exemption from corporate income tax for a period of 5 to 10 years from commencement of production.

The incentive is limited to selected industries, or industries located in designated  areas (normally remote areas). The aim of this incentive is basically to boost the development of the eastern Indonesian areas.

The incentives are:

  • Reduction of net income by 30% of the amount of capital investment
  • Accelerated depreciation and amortization
  • Tax losses carry forward is extended for up to 10 (ten) years; and
  • Withholding tax on dividend is capped at a maximum of 10% or the applicable treaty rate.

Article 26(4) of Income Tax Law determines that a 20% branch profit tax is imposed to the profit after corporate income tax of a foreign company having a branch in Indonesia. However, the 20% branch profit tax may not be payable if the income is reinvested in Indonesia.