The President of the Republic of Indonesia recently issued a regulation on tax deduction, aimed at boosting investment in the industrial sector, as well as the participation of businesses, in improving Indonesia’s human resources. Under Government Regulation No. 45 of 2019 (which amends Government Regulation No. 94 of 2010), industry players will receive benefits in the form of tax allowances.
Tax allowances of up to 300%
The specific business sectors which will benefit from this "super" tax deductible, are:
- Labor intensive businesses
- The vocational education industry
- Research and development
Companies that use labor intensively, either new companies or those looking to expand their existing business, can enjoy deductions from their taxable income in the amount of 60% of their total costs for tangible fixed assets. Further benefits are offered to those companies who invest in vocational education, who can enjoy up to 200% tax relief for their relevant operational costs, and those companies who invest in R&D (research and development), who can enjoy up to 300% tax relief on their relevant operational costs.
In order to obtain the tax allowances, businesses must be registered as tax deduction recipients. The applicants must submit all related documents to the Online Single Submission System, which will then forward the relevant documents to the Investment Coordinating Board (BKPM) and/or the Ministry of Finance (MoF).
Under the current regulation, the BKPM and/or MoF then make an eligibility assessment, which may include a site visit. As a new implementing regulation is currently being prepared by the MoF, the above requirements may change in the near future. We will keep you updated.