If you’re a foreign investor or business owner seeking to expand or start a business in Indonesia, understanding the available tax incentives in Indonesia is crucial. These incentives are designed to encourage investment, promote economic growth, and make the business environment more attractive for both local and foreign enterprises.
Here, we break down the main tax incentives, focusing on income tax benefits, foreign tax credits, tax holidays, and more.
Income Tax Incentives: A Gateway to Cost Savings
Indonesia offers a variety of income tax incentives that can significantly reduce the tax burden for companies, especially those investing in key industries or special regions. These incentives vary depending on factors like the amount of investment, business activities, and location.
Tax Holiday
One of the most attractive incentives is the tax holiday, which offers a complete exemption from Corporate Income Tax (CIT) for 5 to 20 years, depending on the scale of the investment.
The holiday applies to capital investments starting from IDR 500 billion, promoting sectors with high value-added benefits, including technology and innovation.
After the tax holiday period, a reduced CIT rate of 50% is offered for an additional two years.
Also read: Tax Holiday in Indonesia: A Comprehensive Guide for Foreign Investors
Tax Allowances
For companies investing in certain industries or regions, Indonesia provides tax allowances that can reduce taxable income.
These allowances can cover up to 30% of the amount invested in tangible fixed assets.
This incentive also includes accelerated depreciation, and reduced withholding tax on dividends paid to non-residents.
Also read: Indonesia Investment Incentives: Government Support for Foreign Businesses
Special Economic Zones (SEZs)
Investors in Special Economic Zones (KEKs) benefit from reduced CIT rates and exemptions from import duties, VAT, and excise taxes. These zones are designed to boost economic activity and are available in selected regions with favorable business conditions.
Businesses within KEKs can also benefit from tax exemptions on certain goods and services, making it a powerful tool for manufacturers and exporters.
Foreign Tax Credit: Minimizing Double Taxation
A notable incentive for international businesses is the foreign tax credit (FTC). If you’ve already paid taxes in another country on income earned abroad, you can claim a credit for these taxes against your Indonesian tax liability. This helps prevent the risk of double taxation, making Indonesia a more favorable location for global businesses.
However, the credit amount depends on the tax treaty between Indonesia and the foreign country, ensuring you only pay the lower of the taxes due in both countries.
Tax Facilities for Bonded Zones and Free Trade Zones (FTZs)
If your business is involved in manufacturing or trading, Bonded Zones (Kawasan Berikat) and Free Trade Zones (FTZs) can offer significant tax relief. These zones provide exemptions from VAT, import duties, and excise taxes, which can be a huge cost-saving opportunity for companies engaged in import/export activities.
Additionally, these zones allow for the postponement of duties on raw materials used for production, benefiting businesses with substantial international trade operations.
Read more about FTZs in this article: Indonesia Free Trade Zone and Free Port (FTZFP): A Complete Guide
Tax Incentives for the Property Sector
In the property sector, Indonesia has also extended specific tax incentives to address challenges faced by developers, especially in the wake of the global economic slowdown. For example, the government has implemented VAT exemptions for property transactions, including residential homes and apartments.
Through the PPN Ditanggung Pemerintah (Government-Borne VAT), property buyers can benefit from significant reductions, though certain limits apply based on the property’s price.
Important Note: The VAT incentives for the property sector are valid until the end of 2024, with changes planned after June 2024.
Also read: Can Foreigners Buy Property in Indonesia? (2025 Update)
Bonded Stockpiling Areas: A Strategic Advantage
For businesses focused on manufacturing or logistics, Indonesia offers Bonded Stockpiling Areas where certain goods can be stored without incurring import duties or VAT.
These zones are ideal for businesses that require large quantities of raw materials for production, as they reduce the cost of inventory management and improve cash flow by delaying tax payments until goods are sold or processed.
Tax Incentives in the National Capital Region (IKN)
The new National Capital Region (IKN) offers additional tax facilities for businesses that relocate or establish headquarters within this region.
The government has introduced several incentives, including CIT reductions and exemptions for financial centers and specific industries that establish operations in IKN.
This move is part of a broader initiative to boost investment in Indonesia’s new capital and infrastructure.
How to Apply for Tax Incentives in Indonesia
To take advantage of these tax incentives, businesses typically need to apply through Indonesia’s Online Single Submission (OSS) system. This online platform simplifies the process by enabling businesses to apply for tax holidays, allowances, and other benefits directly.
For tax holidays and other benefits related to specific industries, applications must be submitted by December 2025, with approval granted by the Ministry of Finance (MoF) based on the project’s scope and its alignment with national economic priorities.
In Conclusion Indonesia’s tax incentives are designed to encourage both foreign and local investments across various sectors, including manufacturing, technology, property, and logistics. With opportunities like tax holidays, foreign tax credits, and tax exemptions in special economic zones, Indonesia remains an attractive destination for business expansion.
However, to fully benefit from these incentives, businesses must carefully plan their investment strategies and ensure compliance with local regulations.
For further assistance, InvestinAsia’s Indonesia tax consultant and compliance services can be your best choice.
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- Accounting and tax reporting services in Indonesia
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