When investing in Indonesia, understanding the available fiscal incentives is crucial for maximizing returns. Two major tax facilities stand out—tax holiday and tax allowance. While both are aimed at stimulating investments, they offer different benefits, eligibility requirements, and legal frameworks. This guide compares both schemes to help investors make informed decisions.
Also read: Tax Incentives in Indonesia: Key Benefits and Opportunities
What Is a Tax Holiday in Indonesia?
A tax holiday provides a complete or partial exemption from corporate income tax for a period ranging from 5 to 20 years, based on investment value. The incentive is specifically tailored for investors bringing significant capital into pioneer sectors such as mining, advanced machinery, or telecom infrastructure.
Key Features of Tax Holiday
- 100% corporate tax exemption for 5–20 years (based on capital invested)
- Post-exemption period: 50% tax reduction for 2 more years
- Minimum investment: Typically IDR 1 trillion (about USD 65 million)
- Eligible industries: Pioneer sectors designated by the Indonesian government
- Legal basis: Law No. 25/2007 and Minister of Finance Regulation No. 130/2020
Also read: Step-by-Step: How to Qualify for Tax Holiday in Indonesia
Pros
- Substantial fiscal relief
- Extended benefit periods
- Strong signaling of government support for strategic industries
Cons
- High entry threshold
- Limited to specific sectors
- Rigorous eligibility and compliance requirements
Read the full guide here: Tax Holiday in Indonesia: A Comprehensive Guide for Foreign Investors
What Is a Tax Allowance in Indonesia?
Unlike tax holidays, a tax allowance focuses on reducing taxable income through investment-related deductions and loss compensation over time. It provides a more moderate incentive, but is available to a wider variety of sectors and investment sizes.
Key Features of Tax Allowance
- Tax deduction of up to 30% of the invested amount
- Loss carryforward of up to 10 years
- No strict minimum investment
- Broad eligibility: Covers labor-intensive, export-oriented, and efficient industries
- Legal basis: Government Regulation No. 9/2016
Also read: How Foreign Investors Can Apply for Tax Allowance Incentives in Indonesia
Pros
- Accessible to medium-sized investors
- Broader sector coverage
- Long-term tax planning flexibility
Cons
- Less aggressive tax savings compared to tax holiday
- Benefit depends on profitability and compliance
Read the full guide: Tax Allowance in Indonesia: A Key Investment Incentive
Side-by-Side Comparison: Tax Holiday vs Tax Allowance
| Criteria | Tax Holiday | Tax Allowance |
|---|---|---|
| Tax Benefit | 100% exemption for 5–20 years + 2-year 50% cut | Up to 30% tax deduction + 10-year loss offset |
| Minimum Investment | IDR 1 trillion (approx.) | More flexible thresholds |
| Eligible Sectors | Pioneer industries (e.g., mining, telecom) | Broader sector coverage |
| Governing Regulation | PMK 130/2020, Law No. 25/2007 | Gov. Reg. No. 9/2016 |
| Investor Type | Large-scale, strategic capital projects | Medium to large businesses |
Which Incentive Should You Choose?
Choosing between a tax holiday and a tax allowance depends on the size of your investment, the industry you’re entering, and your long-term tax strategy.
- If you’re planning a high-capital, strategic project, a tax holiday could offer significant savings.
- If your business is mid-sized, labor-intensive, or export-oriented, the tax allowance may be a more attainable and practical incentive.
Both incentives show Indonesia’s dedication to fostering a pro-business environment while strategically guiding investments toward national development goals.
Also read: Indonesia Investment Incentives: Government Support for Foreign Businesses
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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FAQs
What is the minimum investment required for a tax holiday in Indonesia?
Typically, a minimum of IDR 1 trillion (~USD 65 million) is required for full tax holiday eligibility.
Can a company apply for both tax holiday and tax allowance?
No, these incentives are mutually exclusive and tailored for different investment profiles.
Are tech startups eligible for tax incentives?
Tech startups may qualify for a tax allowance if they meet workforce and efficiency criteria, but typically do not meet the threshold for tax holidays.
Is the tax holiday automatically granted after applying?
No, approval is subject to a strict evaluation process by the Ministry of Finance and BKPM.
How long does the tax allowance benefit last?
Taxpayers can deduct up to 30% of the investment value and carry forward losses for up to 10 years.
