If you’re a foreign investor planning to expand into Indonesia, claiming a tax allowance can significantly reduce your tax burden—but only if you follow the correct process. This guide walks you through the exact steps to claim the fiscal incentive, tailored for priority sectors and capital-intensive industries. It includes legal requirements, application channels, and post-approval obligations to help you secure the benefits smoothly.
Also read: Tax Allowance in Indonesia: A Key Investment Incentive
Who Is Eligible for Tax Allowance?
Tax allowance benefits are available for companies operating in priority business sectors or regions designated by the Indonesian government. Eligibility generally applies to investments in sectors that:
- Are labor-intensive
- Use high technology
- Add significant economic value
- Are export-oriented
- Operate in underdeveloped areas
Key Steps to Claiming a Tax Allowance in Indonesia
Ensure Eligibility Based on Sector Priority
Tax allowance in Indonesia is granted primarily to investors operating in:
- High-priority sectors (per Presidential Regulation No. 10/2021)
- Labor-intensive or export-oriented industries
- Specific geographic areas (outside Java or in industrial zones)
The latest list of priority sectors is maintained by the Ministry of Investment/BKPM and updated regularly. Make sure your business activity aligns with the relevant KBLI code as defined in the Indonesian Standard Industrial Classification.
Prepare Required Investment Parameters
To qualify, your capital investment must meet thresholds defined by law, typically:
- Minimum investment value (e.g., IDR 10 billion or more)
- Job creation commitment
- Use of local content or raw materials
These criteria align with Presidential Regulation No. 78/2019 on fiscal facilities.
Apply Through the Online Single Submission (OSS) System
All applications for tax allowance are made through the OSS-RBA platform under the coordination of BKPM:
- Register your business in the OSS system
- Select “Fiscal Incentives” and choose “Tax Allowance”
- Upload supporting documents: feasibility study, financial projection, KBLI code, etc.
- Track the application in real time
Get Recommendation from Relevant Ministries
BKPM will coordinate with technical ministries (e.g., Ministry of Industry or Agriculture) to assess technical eligibility. These agencies review your business plan’s:
- Economic impact
- Sector alignment
- Investment scope
A favorable recommendation is critical to move forward.
Receive Approval via Decree of the Minister of Finance
Upon approval, you will receive a Minister of Finance Decree (SK Menkeu), which legally grants the tax allowance benefits. These may include:
- Reduction of net income up to 30% of investment over 6 years
- Accelerated depreciation and amortization
- Extended loss carry forward
- Reduced withholding tax on dividends
Fulfill Post-Approval Compliance
After receiving the facility:
- Submit annual progress reports to BKPM
- Maintain records of capital spending and employment
- Avoid transferring the facility without approval (risk of revocation)
Failure to comply may result in cancellation or claw-back of incentives.
Claim Benefits via Annual Tax Return (SPT)
Once the decree is issued, claim your tax allowance through your company’s annual corporate income tax return (SPT Badan). Ensure you:
- Retain the KMK for submission
- Follow up with local tax office (KPP) if issues arise
- Use fiscal consultant support, if needed, for compliance
Also read: Tax Incentives in Indonesia: Key Benefits and Opportunities
Important Considerations
- Deadlines: You must submit your application before starting commercial operations.
- Sector revisions: Sector eligibility may change annually—check updates regularly.
- Audit potential: Be prepared for post-incentive audits to validate investment realization.
Rely on Investinasia’s tax consultants to take care of your taxes
Understanding Indonesia’s tax obligations can be challenging due to its evolving laws and policies. Foreign businesses and individuals often benefit from working with local tax consultants who offer expertise on regulatory compliance, tax calculations, and legal obligations.
Partnering with a reputable consultant like InvestinAsia’s Indonesia tax consultant and compliance services can simplify your tax management and ensure full compliance with Indonesian tax laws.
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- Accounting and tax reporting services in Indonesia
- Indonesia Payroll Service
- Indonesia LKPM Reporting Service
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Frequently Asked Questions (FAQ)
How does the OSS platform facilitate the process of applying for a tax allowance?
The OSS (Online Single Submission) system is the official platform for submitting applications for tax incentives, including tax allowance, under Indonesia’s investment regulations.
What types of businesses are eligible for a tax allowance?
Businesses in priority sectors such as manufacturing, agriculture, or infrastructure, especially those that are labor-intensive or export-oriented.
What is the typical timeframe for receiving approval for a tax allowance?
Typically 3–6 months, depending on document completeness and the speed of inter-ministerial coordination.
What happens if I don’t meet post-approval requirements?
You risk losing the tax allowance facility and may be subject to retroactive tax obligations or penalties.
Can foreign investors apply directly?
Yes, foreign investors can apply directly via OSS or appoint a local consultant to handle regulatory compliance.
